I've been watching with great dismay the kerfuffle between congress and the president over the debt ceiling. They are talking about reducing spending, which is a good thing as far as it goes, but the numbers they are fighting over are a joke. We are more than $100 Trillion in the hole thanks in large part to a nasty bit of accounting deception called baseline budgeting.
When you or I make out a household budget we start with our income, make assumptions about expenses and decide what we can afford. The federal government doesn't do it that way. They ignore income entirely. This year's budget is whatever they budgeted last year plus some percent increase. They then borrow whatever it takes to make up the difference between how much they spent and how much was collected in taxes.
Here's an example. If the federal government budgets a 5% increase for some agency and that subsequently gets reduced to a 3% increase, they brag about cutting spending by 2%. Cool, huh?
Now let's apply that logic to our own lives. Let's say that Krispy Kreme opens a donut shop next door to you and you expect to gain 15 pounds next year. It turns out that you only gain 10. Using federal government accounting procedures you could brag about losing 5 pounds.
Don't take my word for it. Check it out for yourself.
Despite all the crowing from all quarters, we are going to spend more this year than last. And the credit agencies are going to downgrade our bond rating. Remember those low mortgage rates? Say bye bye.
I'm telling you this so you can brace yourself. This is going to get very, very ugly and it probably isn't going to take as long as you think.
1 comments:
My husband is of the mind that they will come up with some kind of final compromise that will ultimately mean nothing. I suspect he is probably right.
Today my twelve year old told me that he's worried about our country. He's been following the budget talks more closely than I have.
Smart boy.
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