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The national debt is over $33.7 trillion. The US government paid approximately $659 billion on net interest payments last fiscal year. The problem has only become worse and the US is now spending more than $1 trillion annualized on net interest payments for the national debt.
Sounds like madness, right?
The global situation is not much better. There is an article in the Wall Street Journal this morning titled “The $2 Trillion Interest Bill That’s Hitting Governments,” which reveals the shocking statistic that governments around the world are going to spend $2 trillion annually on net interest payments in 2023.
There are estimates that the interest payment bill could blow past $3 trillion by 2027, which would accelerate a number of issues in the US economy and abroad.
According to the Wall Street Journal, here is how we could fix the problem:
“The surge in interest costs leaves governments with difficult choices. As debt servicing takes up more revenue, politicians face unpopular decisions to raise taxes, cut spending or keep running deficits that will add to interest costs. That comes as they face higher military spending amid escalating geopolitical uncertainty, as well as the costs of responding to extreme and costly weather events and caring for rapidly aging populations.”
The challenge with raising taxes, cutting spending, or running deeper deficits is that no one can agree on the correct path forward. You will be hard pressed to find someone who wants to pay more taxes to a government that has proven to be inept at managing their budget. Every time someone suggests cutting spending, especially around the necessary bloat of entitlements, there is an uproar across society. And running a deeper deficit is subject to the constant critique of the population who blames politicians for their errors.
As an example, 2024 Presidential Candidate Nikki Haley was on CNBC this morning talking about the “hard truth” of cutting entitlements. Forget about politics for a second — it could have been any Presidential candidate saying this. It has become obvious that we will have to make drastic changes to the system if we want to avoid bankruptcy, not only for these individual entitlement programs but also the larger economy as well.
Here is the thing though — we never hear a plan to conduct zero-based budgeting for government spending. If the US government was a corporation, which it is not, and it had run into significant financial trouble, there would be an internal push to start the budget over from $0 and add back anything that was absolutely necessary.
This zero-based budget allows for a complete reduction in bloat, bureaucracy, and waste. It preserves the essential spending components of the budget, but only after the new leadership team agrees that the spending item is actually defendable as “essential.”
If we were to pursue zero-based budgeting for the government, my guess is that we could reduce hundreds of billions, if not more than $1.5 trillion, in wasteful spending. Why is that an important number? That is approximately the annual deficit level, so this zero-based budget would allow us to balance the budget for the first time since 2001.
It is hard to fathom an economic surplus in the United States at the moment. It is possible though. We just need leadership that would be willing to make the hard decisions. I have no clue which Presidential candidate could actually follow through with this difficult work, but it is more necessary now than ever.
Cutting expenses is not good enough. Raising taxes won’t get it done either. We must have a zero-based budget process. Start over again. Get rid of the waste. Protect the essential expenses. Treat the US financial situation the same way that a corporate leadership team would—their jobs would depend on their success, so our politicians’ jobs should depend on success as well.
A world where the US is paying $1+ trillion in net interest payments is not a sustainable world. Add in the complexity of global governments paying $2-3 trillion annually and you have a debt environment that is begging for problems.
I’ve always liked Warren Buffett’s plan to control the national debt. He once said “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”
Drastic times call for drastic measures. Making politicians ineligible for re-election is one strategy. A zero-based budget is another. Whatever the solution, we need it now.
Hope you all have a great day. I’ll talk to you each tomorrow.
Bailey Pumfleet is the co-founder & co-CEO of Cal.com.
Cal.com is taking open source calendar management to a whole different level. In this conversation, we talk about how to manage your calendar, how to become more efficient, and what Bailey is doing with Cal.com.
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