Monday, March 31, 2008

is the deficit going up? is the national debt going up?

most americans would quickly answer "Of course it is". but hold on; not so fast. my on line dictionary says:

debt |det noun • the state of owing money

…something, typically money, that is owed or due : "I paid off my debts"

the us federal debt is reported as []:$ 9,383,418,000,000 as of last week. truly a "princely sum". and why is it so high? most would say it is obvious; it is because of past (and current) government deficit spending. so it seems clear to anyone that we are rapidly increasing our national debt because we are spending more than we are collecting in taxes and from other sources (fines, import duties, etc.).

at the same time, "official" inflation is hovering around 4.28% (that is as of a month ago, the more recent figure is 4.03%) [ ]

assuming inflation hovers at around that rate for the year, what effect will it have on us?

it will reduce the "street value" of all assets at about that rate, including the dividends we collect and that cash under your mattress.

but it will also reduce the "street value" of our debts, including our home mortgage and what we owe on our cars, etc. and that applies equally to our humongous national debt.

applying the inflation rate predicted for 2008 (4.28%) to the debt ($ 9.383 trillion) says its street value will be reduced by: $ 401 billion

the us federal deficit for 2007 is reported as: the us federal budget deficit will fall for the third year running, totaling $158 billion in fiscal-year 2007" [ ]

thus the deficit is projected to be well under half the reduction in the street value of the debt, resulting in a net reduction in the real debt value of :

$401 – $158 or about $240 billion in current dollars.

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