With all the occupy Wall Street news and movement going on right now, I think we need to reflect on what the average household debt has looked like over the years. While we are in a culture of finding others to blame, it is important to realize we also have ourselves to blame. Since the 2000 house hold debt as a percent of disposable income has held at a very high level. Below is a great graph to understand this issue.

The U.S. has had the idea of a debt ceiling for a long time. Through the 40’s, 50’s, 60’s, 70’s and 80’s the debt ceiling was raised but only by small amounts. Why in the late 80’s and through today has the debt limit been raised so fast? Yes, we have had wars to fund and recession we have tried to spend our way out of, but that does not tell the story of the past 30 years. Surely, we have not needed 20-30 years of record spending. Has the government promised us more then they can deliver in order to get elected?

We all like our promises. We like politicians who make promises to us and we elect them, even when those promises just cost the country more and more.

For years some politicians and others have warned us about our entitlement spending. Do they really know what they are talking about? Are entitlements really a root cause of our spending issues?  To the right is a chart of our government expenditures since 1950. The chart shows what, I am sure you have seen a lot of over the past few weeks. While this shows we have a problem it does not help us understand how to solve the issue. Let’s take this this chart down one more level, and look at government expenditures by major category.  In this chart you can see that entitlement spending in social security and Medicare having been spiking. Nearly headed straight up. Defense spending also has a very steep trend.

I am sure you have heard both Democrats and Republicans blame either entitlements or defense spending for our current issues. While it is a hard message to hear, we obviously cannot continue this spending trend. If we continue to elect only people who say what we want to hear how can we expect this to change. Politicians tell us they will pay for this or buy us that because it helps them get elected. Have we become like spoiled children clinging to which ever parent will buy us the most?

We have to demand more from our leaders? We have to demand more from ourselves. We must be willing to make hard choices and those hard choices cannot be to have the rich pay more taxes. As you can see from those charts, increased revenue cannot keep up with these trend lines without sucking it all dry.

The following video from Bankrupting America does a great job and explaining all of this. May we all, democrat, republican, independent demand more.

There is a lot of talk about the debt ceiling going on right now. Here is some information to help you understand the history of this topic.

Has the debt ceiling been raised before? Yes, lots of times. Every president except Harry S. Truman has raised the debt ceiling.

Here is the breakdown :

￭ Dwight D. Eisenhower (R): 4
￭ John F. Kennedy (D): 5
￭ Lyndon B. Johnson (D): 7
￭ Richard M. Nixon (R): 7
￭ Gerald R. Ford (R): 6
￭ Jimmy Carter (D): 6
￭ Ronald Reagan (R): 17
￭ George H. W. Bush (R): 5
￭ Bill Clinton (D): 4
￭ George W. Bush (R): 7

Is this always a battle? Yes. No party likes to cast a vote to raise the debt ceiling and the vote is always along party lines

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Keep in mind. This debate while focused on the debt ceiling is not really about the debt ceiling. It is about our credit rating and our deficit spending. Read this article for some help in understand and visualizing our deficit spending issues. The American dollar is one of the most reliable currencies in the world. U.S. treasury bonds are the most secure in the world. Our deficit spending is making other countries and rating agencies question the future of those bonds.

Will we default if we don’t raise the debt ceiling? No.

The President likes to throw around the word default a lot right now. The United States will not default! We have plenty of money coming in every month to pay our debts (over twice as much as we need). If we don’t pay, it is because the President decides not to pay, not because we don’t have the money. The real concern is that our credit rating is lowered. Our credit rating will be lowered because we cannot show an ability to get our debt under control. The following chart shows why credit rating agencies think we are out of control in our debt spending. It is hard to look at that chart and not agree. The rate at which we borrow and spend money is out of control right now.

The current talk on capital hill can be very hard to understand and all the double talk doesn’t make it any easier. EconTalk recently did a great podcast on this process and the situation we are facing. It does a great job at simplifying what is going on and helps us understand the situation we face. It is important to keep in mind that the President and congress as well as the financial world has seen this issue coming, yet the President and congress have not acted to resolve the issue before we were put up against the wall like this.

The talk in Washington makes it hard for citizens to understand what the government is trying to do and who is playing games. Without a better understanding can we know how to deal with our government over their lack of action? It is very important to understand the debt ceiling is a big part of this conversation, but losing our triple A credit rating (which means our treasure bonds are the most secure bonds in the world) is because our nations debt is raising so quickly and out of control. We have to get our debt under control to keep our rating. At this stage in the game, raising the debt ceiling is required so we can still barrow money while we get our debt under control.

In the podcast they do throw some numbers around that take a few minutes to get your head around. Each year the President is required to submit a budget proposal, which he did. That budget is 46 trillion dollars over 10 years, or roughly 4.6 trillion each year. Currently the government runs on about 3.5 trillion a year. The President’s budget would raise government  yearly spending about 1.1 trilling. In order to help deal with the concern over government spending the President revised his budget to, in his words, reduce government spending by 2 trillion over 10 years. That means a 200 billion reduction in his budget each year. This means yearly government spending would be 4.4 trillion. That is a reduction in government spending based on his proposal. Based on current government spending (3.5 trillion a year) it is still a 900 billion dollar spending increase (it is about a 4% cut in spending from his first proposal). 

That is where the President stands. Now as part of the budgeting process the House and Senate are suppose to pass budget proposals as well. The revised budget both the House and Senate can agree to is voted on and becomes the budget. The house created a budget proposal many call the “Ryan Plan.” What I found interesting was the fact the Senate has yet to create a proposal. This is where the frustration of the Republicans is coming from, since the Republican dominated House has created a plan, yet the Democratic dominated Senate has not. In the last few days a flurry of plans have started to show up but why did the Senate not act months ago the same time the House did? 

Keith Hennessey from Stanford University goes on in the podcast to explain why some people in congress call things a tax hike and some call it a cut. It is all about budget baseline comparison and rather you are comparing against what the tax law is or what the tax policy is. Are you comparing against the current law that they will expire in 2013 or the current policy of extension of those tax rates?

Russ and Keith in their podcast do a great job in explaining the government budget process. I recommend you listen to it. The political posturing makes it almost impossible to understand who is trying to do what. While many like to use the threat of default on our credit to invoke fear and anger towards people, it is clear we will not default on our credit obligations. This does not mean the situation is not serious. These continued threats and uncertainty is holding our economic recovery back. Lets be honest with ourselves and agree the trend in the above graph cannot keep going. Republicans can blame Obama and Democrats can blame Bush. Both presidents have contributed to this trend that is only getting worse. The government has to come up with a plan on how to stop spending money.

A recent study done by the American Revolution Center found that 83% of American’s could not score higher then 44% on a test about the American revolution. That is a failing grade for the majority of all Americans! This should not be an area we are willing to accept a bell curve grade on. Is this a test you could pass? Is this a test people even care if they pass anymore?

“In general, the Survey questions varied in difficulty, but most were designed to assess basic knowledge of the American Revolution and its enduring legacy. At the end of the survey, several contemporary questions were asked in an attempt to understand the magnitude of difference between knowledge of popular culture and knowledge of our nation’s founding history and principles.”

One of the most interesting points called out by this study is that 90% of American’s believe it is important for us to know the history and founding principle of the American revolution, yet almost all of us cannot pass a test on what those principles and history are.

“Sixty percent of Americans could correctly identify the number of children in reality-TV show couple Jon and Kate Gosselin’s household (eight), but more than one-third did not know the century in which the American Revolution took place.

Many more Americans knew that entertainer Michael Jackson sang “Beat It” and “Billie Jean” than knew that the Bill of Rights is part of the United States Constitution.”

Dr. Bruce Cole, President and CEO of American Revolution Center, writes a stirring message at the beginning of the paper I encourage you to read. How can we expect to control our government when we don’t understand our government? This was one of the cornerstones our government was created for. A government by the people for the people. 

“If a nation expects to be ignorant and free, it expects what never was and never will be.” - Thomas Jefferson

The study has a number of shocking revelations in it. It revels that not only do we not understand the revolution but half the people surveyed did not even know the chronological order in which it took place (many listed the Civil War, Emancipation Proclamation or War of 1812  as happening before the revolution).

“More than 50 percent of Americans wrongly attributed the quote “From each according to his ability, to each according to his needs” to either George Washington, Thomas Paine, or President Barack Obama, when it is in fact a quote from Karl Marx, author of The Communist Manifesto.”

How can we seriously expect Americans to elect good leaders in their country when they attribute a quote by one of the founders of communism to one of the American Presidents? This combined with the other finding that 11% of Americans would give themselves an A for their knowledge of the American Revolution and 3 out of 4 would give themselves a B or C, is a truly scary proposition for this country.

How can we as a nation expect to elect qualified and deserving people into office if we don’t really understand the founding principles of this nation? How can we elect a leader of a free nation when 50% of us think a founding principle of communism sounds like something an American president would say?

The PDF for this study includes a lot of very interesting statistics about different questions and how American’s value different rights. In reviewing all the results a few things stood out to me. When asked how important a given right is Democrats are almost always lower in saying that right is essential or important, except for when it comes to the right of privacy in which Democrats are a little higher. Yet, on the right not to have your property searched and seized Republicans are higher (I would really like to talk to these people who say “not that important”).

To the credits of Americans, when asked after the survey if they would like to learn more about the American Revolution  most said yes (maroon is yes and turquoise is no). It is interesting to see what groups had the lowest “yes” responses though.

It is very important that we understand the history of this nation and the principles upon which it was founded. May this be a wake up call to all of us. May we understand these principles and may we demand more clarity out of our government to make sure our elected officials are working to support these principles.