The Truth About Sequester, Budget Deficit and National Debt

sequesterThe Sequester was put in place late in 2011 (known Budget Control Act of 2011)  as a negotiating ploy signed by Congress and President to reduce Government spending increases by $85 billion annually or a meager 2.4% of our national Government’s $3.6 trillion annual spending.  It is a very small amount and does not affect current spending, but will simply reduce the growth of future spending.  There are no actual cuts, but rather cuts in the growth in spending.  For example, if a program is supposed to grow in spending from $200 billion to $300 billion and the growth is reduced to $280 billion, they are calling that a “$20 billion cut in spending” when it is still growing by $80 billion!  When you hear politicians whining about cuts, remember they are really referring to a reduction in the growth of spending.

Over the next decade the Government is scheduled to spend over $44 trillion, if the Sequester occurs and cuts (2.4% reduction in spending growth) are made, the spending is still projected to be over $43 trillion for the next decade.

Q.  IS THIS REALLY SOMETHING TO PANIC ABOUT?

A.  Of course not, instead, celebrate that there is some reduction in government spending.  This is not a crisis!

This year the federal government may take in $2.6 trillion in tax revenue and spend $3.6 trillion. The $1 trillion gap in known as a Budget Deficit. They borrow the difference by issuing Treasury Bonds (people loan the Gov’t money in exchange for interest). For the past four years our nation has borrowed over $1 trillion per year!  In fact, our government now owes over $16.5 trillion dollars (think of this as credit card debt).

Here is a link that shows our government debt growing in real time: U.S. Debt Clock this is fascinating – make sure to look at this.

Relating it to Your Family:

Let’s look at numbers you can relate to.  Imagine if you had annual take-home pay of $78,000, but spent $108,000.  In order to do this you put $30,000 on your credit card.  Now keep doing this every year until your credit card balance was $495,000. !!!!  That is the equivalent of what our Government has done by owing $16.5 trillion when they take in $2.6 trillion annually.  There is no budget in place to change this annual deficit situation.  The House has passed several bills over the past few years in attempt to balance the annual budget, but they have all stalled in the Senate.

If someone were attempting to do this, they couldn’t because the credit card companies would cut you off.  Unfortunately, no one has cut off our Government yet as it continues to borrow and whines about being asked to reduce spending growth by 2.4%.

In summary, the Sequester is nonsense and very few people will notice a change if it occurs.  The really big political battle will occur next month when our Government runs out of money again and Congress will be asked to let them borrow more money (add to the credit card).

This will be an interesting War of Words as one side will argue that many people will lose out if the Government doesn’t keep borrowing and the other side will argue that the continued budget deficits and national debt are a cancer for our national balance sheet and our country’s future.

“Economic irresponsibility has been a decades-long problem in the country.

OB-WL198_noonan_D_20130221174029“We have the media playing along with all of this. The ruling class– both parties play along with all of this. It’s insulting. I don’t know how else to describe it. I’m in my 25th year. … Nothing ever changes. We just keep spending more money. We create more dependency. We get more and more irresponsible, one crisis to the next — all of them manufactured, except for the real crisis which nobody ever addresses, which is we can’t afford any of this.”  Well said by Rush Limbaugh       Read more:  For the First Time, I’m Ashamed of Our Country.

It will be interesting to watch.

The Sequester: Absolutely everything you could possibly need to know, in one FAQ

What Kind of Cuts Grow the Economy?

The Non-Existent Spending Cuts Wrought By The ‘Devastating’ Sequester

About Brad Rosley

Brad Rosley, CFP®, is the founder and President of FFG which opened in Glen Ellyn, Illinois in 1996. He has been a Certified Financial Planner since 1990 and helping individuals with their financial decisions for over 25 years. Ask Brad your financial and investment questions!

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