Sunday, November 21, 2004

Debt and Deficits

Here's a fun thought. Our national debt has now topped 7.7 trillion dollars. This is money that we owe our banks, our financial institutions, some of our citizens (if you own savings bonds or treasury bills), etc. but a lot of it is owed to foreigners who see the U.S. as a safe investment haven.

So what, you say? Well, let me pose an issue for you to consider. I do this because, when I do training sessions, people regularly ask when we'll have federal budget surpluses again and things will be better for those nonprofits funded by government. My answer is: it doesn't matter.

Let's say (ha!) that the deficits (the annual national government folly of spending more than we take in) are instantly vaporized and we "break even" from now on. Or perhaps we even have some surpluses, as we did in the 90's for a few years. What about that?

Well, there is the deficit, and there is the debt. Deficits come and go, but you gotta pay back the debt. Much smarter people than I argue all the time that the debt is no big deal, and others just as smart argue that it is the antichrist....whatever.

My point for nonprofits is this: the national debt is so huge and the cost of maintaining it (just paying the interest) is so high that more help from the government for normal nonprofit issues is highly unlikely during the rest of our lifetime.

Here's the math: Debt $7.7 trillion. Average interest cost 4.1%. Multiply $7.7 trillion by .041, and then divide the result by 365, and again by 24. (Hint: this is easier to do if you lop off 6 zeros when you start and add them back at the end--otherwise your calculator can't handle it.)

What do you get. The stunning realization that the United States Government spends a bit over $36 million per HOUR on interest. Not on debt reduction, just on interest.

Compare that to your organization's annual budget. How many minutes of interest costs does it represent?

So those of you who, like me, were first working in the 1970's when government coffers were available to us, stop waiting for a return of the cavalry to save us. The horses have been sold, and the saddles have been hocked.

We have what we have, and we ain't gettin' no more.


anna said...

Excellent discussion on debt reduction. I bookmarked your blog. I have my own debt reduction blog if you want to take a look.

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