The Stark Reality of our Debt

Our Federal public debt now stands at $17,955,861,759,790.12, which is larger than our annual GDP (here too). Congress has been borrowing Federal employee pension funds to avoid default, creating an unfunded liability of $761.5+ billion dollars. There is no reason to believe this figure will not exceed $1T in the next few years. In addition, most states have unfunded pension debts that combined, exceed $5.1 trillion dollars. Boomers are retiring at a rate of 10,000/day and yet, the vast majority have not saved enough to fund their retirement. The average 55 year old has about $40,000 in their retirement accounts, but they will need over $1M to sustain them for the balance of their life. Boomers have money, but they are spending it on education, adult children and mortgage debt. And this doesn’t account for the increased interest that we will pay on our debt once interest rates start to rise – as they surely will. To quote:

That rising interest rates are practically inevitable means the price of servicing the federal debt is about to jump. A study last fall by the bipartisan Committee for a Responsible Federal Budget noted that total interest payments on the federal debt in 2013 were approximately $255 billion. To put that in perspective, the sequester that was the focus of such debate in 2013 and ultimately led to a government shutdown only cost $85.3 billion in its first year.

But that figure is somewhat misleading. The $255 billion is about the same amount the government paid to service its debt in 2006, when the debt outstanding was equal to only 40% of today’s total.

The difference? Low interest rates. Right now, the Treasury pays 0.01 percent on three-month T-bills and 2.98 percent on ten-year notes. The historical average for those two securities are 3.3 percent and 5.2 percent.

According to the CFRB, if interest rates rise as most estimates expect (3-month Treasuries to approximately 4 percent by 2018 and 10-year Treasuries to approximately 5.2 percent) interest payments on the Federal debt will soar to $505 billion in 2018

Combine our raw debt with the unfunded pension liabilities at the state and federal levels, the lack of savings by boomers which will surely tax our safety nets in the years to come and a rising interest rate that will result in interest payments that exceed the Department of Defense budget, and you’ll begin to see why:

  1. Small business owners will need to work well into their 70’s – in fact, most reading this post will not ever be able to fully retire
  2. Starting a new career in your 50’s is not such a bad idea
  3. Living at 70% or less than your earnings is a lifestyle choice that you and I should make
  4. The church will have increasing opportunities for ministry and service to the poor and needy

One piece of advice for Christian business owners: trust God and set aside monies each month both for the future and for giving away. God’s purposes for business do not change just because we’re in an increasingly tight economic environment. He still expects us to create profit for His kingdom and give away excess profits for the good of our church and community. Don’t use the economy as a reason to shrink from your stewardship responsibilities before the Lord.

Bill English