Whom to Blame for the National Debt

Blame the president. Blame politicians. Blame lazy Greeks. Blame the ongoing bailouts of Citigroup (NYSE: C  ) and AIG (NYSE: AIG  ) . There's a lot of blame going around on who's guilty for the world's ugly fiscal situation.

Here's what the International Monetary Fund has to say about it. This chart shows exactly why the public debt-to-GDP ratio of the world's largest countries will increase by an estimated 39 percentage points over the next several years:

(Click here for a U.S.-specific chart).

If you have a burning desire to fix the short-term budget mess, the most meaningful solution is to dramatically raise taxes. Everything else is peanuts. After that, you can tell the chronically unemployed to go pound sand and, in America's case, revoke the $300 billion in stimulus tax cuts. These three would do the trick more than anything else. (Long-term, it's a different issue.)

Of course, few want to venture down those roads. Balancing short-term deficits is predominantly a factor of increasing revenue, which short of an explosion in real growth won't happen without massive tax increases. No politician with the need to be re-elected would ever dare try this, and few level-headed economists would ever suggest it, either. Hence the red ink.

What's your fix? Share it in the comments section below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (30) | Recommend This Article (27)

Comments from our Foolish Readers

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  • Report this Comment On June 25, 2010, at 4:27 PM, pwhitten wrote:

    Has the <b>Reduce unnecessary Spending Act of 2010</b> had any effect yet? Will it apply to any existing Federal programs?

    http://www.whitehouse.gov/blog/2010/05/24/reducing-unnecessa...

  • Report this Comment On June 25, 2010, at 4:28 PM, lunasea22 wrote:

    ooops. sort of forgot one very reasonable and entirely do-able solution: Inflate it away. Print money like there is no tomorrow and allow inflation to reach double digits. Sure it hurts fixed income folks, but so will taxation. Nothing quite like monetizing debt and it is politically sustainable. How could you overlook this possible solution? You can be sure Congress hasn't!

  • Report this Comment On June 25, 2010, at 5:00 PM, fennecfoxen wrote:

    The problem with the "inflate it all away" plan is that a lot of the liabilities in question are indexed for inflation.

  • Report this Comment On June 25, 2010, at 5:58 PM, lunasea22 wrote:

    fennecfoxen:

    Yup.. sure are and for those liabilities, the proportionate rise in inflation will exactly equal the rise in expense. for that part of the budget (such as debt service, which is integral in the title to this article) the number is relatively fixed. Sure we add to it with each successive year of deficit, but just for the sake of illustration, let's assume we want to "pay down" the CURRENT nat debt. doing so with dollars equal to perhaps 75% of those dollars represented by that debt is about a $3trillion dollar savings. If annual debt service is roughly $400bil today, in today's dollars, if we have 10% inflation for a couple of years we are now paying that $400bil with dollars that "cost" us $300bil.

    Trust me on this.. governments have been doing it for centuries and it works.. pretty hard on those portions of the society that can least afford. I wanted merely to observe that the writer of this story missed a pretty key part by omitting inflation as a solution to our debt problem. If you asked the Greeks what they would choose, I promise this would be preferred to what they are now facing- difference? they can't print money!

  • Report this Comment On June 25, 2010, at 8:12 PM, mtracy9 wrote:

    Reagan said that deficits do matter and criticized Carter for them. Of course, Ronnie would become infamous

    for tripling the National Debt. Cheney changed Republican orthodoxy by saying that deficits don't matter.

    Cheney/Bush then went on to double the National Debt. Now that we have a Democratic President, Republicans

    are returning to the old orthodoxy, saying that deficits do matter.

  • Report this Comment On June 25, 2010, at 8:14 PM, mtracy9 wrote:

    The United States was beginning to pay down its

    debt very nicely until Bush-boy came in with his tax

    cuts for the rich.

  • Report this Comment On June 25, 2010, at 8:32 PM, goldilocks52 wrote:

    I agree with mtracy9, Republicans only care about reducing debt when they aren't in the White House. When they are, they open the doors of the Treasury to all their wealthy friends. But money for unemployment benefits from those driven out of work by greedy companies? No way, say the Republicans, let those hobos go door to door bartering their labor for a chicken.

  • Report this Comment On June 25, 2010, at 9:48 PM, brizzlekizzle wrote:

    Well of course we have to reduce spending. First, we cant spend what we dont have yet. Second, we have to stop trying to....I give up, it will never happen. Buy real assets and protect your own wealth so your kids dont have to work in a factory if they want to work at all.

  • Report this Comment On June 25, 2010, at 10:15 PM, sevenofseven wrote:

    Yeah, a recession that began in 2000 (Clinton's last year) that got blamed on Bush, with a subsequent tech bubble burst, 9-11, two wars, and yes, alot of boneheaded policies and overspending as well.

    So, who are the democrats wealthy friends? Wall street? Democrats receive more campaign money from wall street than repubs. BP gave Obama $1M in campaign donations. Yeah, those republicans in bed with "greedy" corporations. The dems invented crony capitalism.

    Who do you people think create jobs? Who do you work for? Do you go around bashing your boss all the time? I bet you do.

    As for unemployment, how long is long enough to collect a free check? It's up to about 24 months now I believe.

    As for tax cuts for the rich, I got a tax cut when those went into effect, and I'll bet you did too. I'm not rich. When they expire next year, I'll pay more and you will too unless you're not working - and if you're on this site, I assume you're an investor. Yes, you will pay more taxes next year.

    You people are shallow.

  • Report this Comment On June 25, 2010, at 11:21 PM, DDHv wrote:

    On a family level, we are doing fine due to spending cuts. Investing in ways to cut food bills (backyard garden & canning), cut heating bills (several items. The cheapest is to have fans blowing summer air through the basement, provides cheap cooling & cuts fall heat bills), cut luxury spending (rather invest than get a fancy TV), etc.

    On taxation take a look at the Laffer curve sometime. There is a peak in government revenue: raising taxes once past that decreases total intake. On the other side, it would be nice to see SOME reduction in luxury spending by govt.

  • Report this Comment On June 25, 2010, at 11:43 PM, Zade wrote:

    Why don't we decide what the role of the Federal Government is and only let them collect enough taxes to cover it. If you think that education, agriculture, energy, infrastructure (at least the part that isn't interstate as opposed to intrastate) should be left to state and local governments, then that is where the tax money should go for those functions - i.e. let the state and local governments tax for those items and keep the money closer to home where the federal government can't get its mitts on it. Why should NC, SC, CA (as examples) send tax money to the federal government so they can use it to bribe Mary Landrieu of LA and Ben Nelson of Nebraska for their votes on healthcare. The 10th amendment of the US Constitution says that Federal Government is to be limited with most powers going to the states and local governments. As more money goes up the chain of command, there is much more chance of it getting wasted, misdirected or disappearing altogether. It should be kept closer to home. The Federal Government passed TARP bailouts without any restrictions (such as repayment of bonuses by executives at companies receiving the bailouts and from Congress and our President demanding they return lobbying money and campaign donations they received from these companies they FAILED to regulate and curb). Meanwhile the taxpayer is footing the bill while they keep that bonus money and campaign/lobbying money Now we are extorting 20 Billion from BP (I think they need to pay for the spill) but there are no restrictions on how it is to be used or where it is to go and if you are like me, I don't trust Congress or this administration (or the previous one for that matter) not to use it as their own personal slush fund. Why do I feel this way? Because of their past actions - both parties being to blame.

  • Report this Comment On June 26, 2010, at 12:05 AM, BMFPitt wrote:

    I blame voters. Period. Anyone who disagrees is simply trying to rationalize.

  • Report this Comment On June 26, 2010, at 12:15 AM, whereaminow wrote:

    Hi Morgan,

    Only 1 rec with 11 comments? Interesting, especially since this is a sound article. So here's rec #2 and comment 12.

    I was thinking of wading in the shallow end of the pool with this comment crowd. Have you noticed how much more informed the opinion is on the blogger comment side as opposed to the article comment side? I guess if anyone really had some teeth to their ideas they'd take their comments over there. Of course, this group would mostly get chewed up and spit out, as they would deserve. And with all the nonsensical rambling combined, they can't muster up a measly click to give you a rec? I bet they tip a quarter on a $25 steak too.

    Well, instead of addressing them all, I'll just direct my derision at Captain Psuedo Sciecnce lunasea22. Pray tell, good sir, how you came up with your amazing solution to inflate our way out of debts?

    Let's agree at point 1, that governments get into debt by spending too much money. Let's see if we can agree on point 2, that inflation is a tax, since it devalues the currency, reducing the purchasing power of workers and especially people on fixed incomes.

    That would mean your solution to government's spending too much of other people's money.... is to devise a scheme that enables them to spend more of other people's money. And you see no way that this will ever become a problem?

    Btw, Master of State Apologia, governments have not been doing "this" in "this way" for centuries. Purely fiat, unbacked money, has been the global standard only since 1971. So they've been doing it this way - the Keynesian way - for only 39 years. And already the house of cards is collapsing. Staggeringly quickly, if you really think about it. Just over one generation.

    Tie the dollar to something, I don't care what. Tie it to gold, to corn, to sugar, to carrots. Who cares? The important thing is the "tie." You are tying the hands of govenrment - you know, those guys that are always sticking their hands in your pockets. That's the point of a "standard", whether it's a gold standard or a peanut standard.

    Or do the best thing and remove legal tender laws completely.

    But enough with the psuedo scientific armchair Keynesianism. Give us a break... before we all go bankrupt.

    David in Qatar

  • Report this Comment On June 27, 2010, at 4:00 PM, mountain8 wrote:

    Note: all readers, please replace all references to "democrats" and "republicans" with "politicians".

  • Report this Comment On June 27, 2010, at 8:03 PM, pedorrero wrote:

    Being a pessimist, let us assume that the problem won't get solved. Even if spending were cut and taxes raised, those politicians would quickly be replaced and the spend-and-don't tax-enough crowd would quickly be back in power. You know it's true.

    So I ask a different, and harder to face question: what will replace this system when it inevitably collapses? When our money quickly (or gradually) became worthless? A more honest (smaller, gold backed money) government? Or something along the lines of dictatorship or soviet style government?

  • Report this Comment On June 28, 2010, at 10:14 AM, rtichy wrote:

    Of course we're going to pay more in taxes! You KNEW we were going to pay more in taxes in the future as soon as the tax cut package passed back at the start of Bush's presidency. You were happy to get it then and you expected to have to pay more in the future. (It was really just another way of leveraging the markets.) You (and everyone else including me) HOPED to be more successful than the average guy in the time between when the tax cuts started and when the piper came calling. Maybe you were, maybe you weren't. You don't have to tell; just quit complaining that taxes have to go up now, because we all knew the ride wouldn't last forever. Did anyone think government spending was going to go down over ten years?! If you did, I've got some BP stock I'd like to sell you and I'll throw in the Brooklyn Bridge, too!

  • Report this Comment On June 28, 2010, at 11:22 AM, ETMatyahoo wrote:

    Stimulus of currency into the economy was thought up almost 100 years ago.

    Look up the "Social Credit" alternative to pretend-gold based currency. R.A.Heinlein predicted this just as well as he did the TV remote from his perspective in the 1930's.

  • Report this Comment On June 28, 2010, at 11:35 AM, kilurtv wrote:

    STOP THE FREAKING WARS!!!!

  • Report this Comment On June 28, 2010, at 10:31 PM, ChrisBern wrote:

    mountain8, you are 100% correct. Look at the last 50 years of U.S. history, and try to explain what is a democrat and what is a republican based on their actions alone? I'll submit that it can't be done. They are all politicians, they all spend too much money, they all support the local pork that will keep the votes coming, and they all do whatever it will take to get re-elected by their constituency. All short-term focused with not enough long-term concern, and that's why we're staring down the barrel of a multiple-year Recession and a monumental debt legacy.

  • Report this Comment On June 29, 2010, at 2:58 PM, Summer115 wrote:

    Many families have found themselves in a mess, owing more than they can pay due to less income coming in or unexpected expenses.

    Many of us watched with horror as Bush spent money on wars while cutting taxes. We were horrified that he used our Social Security surplus to pay part of the bills.

    What is important now is what to do about it. People shouldn't have to take less Social Security benefits or work to an older age. It isn't their fault the country is in debt.

    Sometimes when you are about to go bankrupt you need to borrow enough to get you through the hard times until you can sell the house, pay off the car, what ever.

    That is what the government needs to do now. Not cut back on most things, but deficit spend until the problem is under control.

  • Report this Comment On July 01, 2010, at 3:58 PM, lquadland10 wrote:

    End the FED. Why pay Interest on a fiet currency that is made out of thin air. If congress issued the money there would be NO interest payments. We would like the rest have to live within a budget. The more debt the bigger the IMF gets. The smaller the debt the smaller the IMF and Fed gets. They need our debt to survive and grow.

  • Report this Comment On July 02, 2010, at 4:08 AM, Smtarr1 wrote:

    Zade, you started your comment with "Why don't we decide what the role of the Federal Government is and only let them collect enough taxes to cover it." You later mentioned the 10th Admendment. Can you enlighten us on the 14th Admendment?

  • Report this Comment On July 02, 2010, at 11:39 AM, cooncreekcrawler wrote:

    Some cowboy from Texas starts his own war in Iraq.

  • Report this Comment On July 02, 2010, at 12:23 PM, ellinroc wrote:

    As stated in the article the main way to reduce the short term deficit is to increase revenue. There are only 2 ways to do that -

    grow the economy or increase taxes (or a combination of both).

    Grow the economy: I contend that the economy is too big to grow through politics so we the best we can do is minimize restrictions (some restriction are needed to keep controls on corruption, harm to others, and fraud) and let the free market work. Taxes are not restrictions - so this does not mean lower taxes (supply siders). So basically we need to let the cycle come to us and help it come faster by removing roadblocks (excessive red tape).

    Increase taxes: That leaves us with our only significant political approach in the short term as raising taxes. Politically this is almost impossible, but I would go with a flat taxes approach with no exemptions, subsidies, etc. and ALL forms of income (including government payments, interest, dividends, capital gains, inheritance, etc.) would be taxed. This would not be regressive, but would actually increase the amount paid by upper income earners.

    Conclusion: Unless politians can find a way to get the courage to attack the problem, we need to wait it out. Plus I don't think we should really attack the cyclical problems, but maybe just accept them. And politically we should work on maintain appropriate controls.

  • Report this Comment On July 02, 2010, at 1:36 PM, sodapops wrote:

    There has never been any real research to back up the Laffer curve. It was foisted on the public by a couple of guys who both died in the asylum I believe and we have been living under policies based on it for 30 + years. No wonder the economy is in such bad shape.

  • Report this Comment On July 02, 2010, at 2:04 PM, grmichdad wrote:

    Both Democrats and Republicans have failed us, that's true. But please know your facts. If you disagree with the Bush tax cuts, that's fine. But don't blame the deficit on them. After an initial dip in revenues due to the early 2000s recession, tax revenues increased while Bush was in office. FY 2007 federal receipts were $2.4 trillion (inflation adjusted). This amounted to the highest revenues ever -- higher than at any point under Clinton. (Spending --- that's another story.) We can argue back and forth about the impact his tax cuts had, and whether they were good or bad policy. But don't claim revenues decreased during his presidency. Again, after the recession dip, they didn't. That may or may not line up with your ideology, but it's a fact. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

    And I'm not sure about the Laffer curve either. However, I am sure that "static" tax analysts who assume changes in taxes -- up or down -- have no impact on peoples' behavior should also be placed in an asylum. Don't assume increased taxes lead to increased revenue: if they harm the economy (or if the economy is harmed shortly thereafter, for unrelated reasons), the reverse could be true, and taxes may decrease. Conflating correlation with causation is a trap that I fall into all the time: please avoid it.

  • Report this Comment On July 02, 2010, at 4:02 PM, MacroE wrote:

    Hey... Doesn't anyone have a mirror? The people to blame for the mess we are in... are "us." maybe we don't read enough, learn well, manage our household budgets, or get to know how our government works; maybe we don't teach our kids the value of a $ anymore and try too hard to keep up with the Joneses on credit. Drive past the McMansions on your street that had little or no down-payments and "everyone is going to get rich in real estate!"

    "WE" got us into this mess, and all this finger-pointing isn't going to fix the problem. Everyone needs to get back to common sense thinking and living... This debacle may be good for us in the long run. Maybe some hard times would build a little character again. I have faith that they will.

  • Report this Comment On July 02, 2010, at 4:05 PM, gkd507 wrote:

    1- Build a smart grid (Electric) ,

    2 - Re-vitalize the steel industry from Iowa through PA,

    3 - Eliminate corn subsidies and shift the subsidies to local farmers.

    4 - tax fat, e.g., corn sugar and meat, tax cigarettes and alcohol, and life styles that currently render health care un-fundable..

    3 and 4 alone would eliminate annual deficits in 10 years. Until then,

    Quit funding petro dictators, mandate energy efficiency and conservation, cut defense, raise the eligibility age for social security,

    5 - Tort Reform

    6 - Streamline the permitting for small nuclear power plants,

    7 - Internalize all the costs for dirty carbon fuels (such as war in the middleeast every decade).

    Tax credit to residential wind turbines and/or photo voltaic panels and payment for feeding the grid.

  • Report this Comment On July 02, 2010, at 4:56 PM, MacroE wrote:

    Thanks, gkd507.....

    If our representatives can muster the political will to do what's best for our country, instead of their campaign contributors, those ideas would be a great start. But you'd have to add "Campaign Finance" to that list, so it doesn't cost $3.6MM to run a local campaign for a seat that only pays $60k/yr. Then we could change the golden rule back to "do unto others as you would have them do unto you..." Instead of "He who has the gold rules."

  • Report this Comment On July 04, 2010, at 4:05 PM, RetiredinFL08 wrote:

    Hey while we are wishing let's not forget the mother of all things to change the system forever -term limits! Can you imagine serving to really serve others, other than their re-election. It is a no brainer. Is it only politicians that believe that they are the only ones capable of doing the job, and therefore can justify being there for life, or is it the power and the perks? Real good greedy reasons for keeping things the way they are.

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