After all, "It's a lot of money and we [i.e., the government] have an enormous deficit."
Except I was astonished at how much money the entire country's mortgage interest deductions equal. Something like $103 billion or $105 billion. Total.
That's over 7.7% (close to one thirteenth) of the current deficit--deficit! we're not talking debt, here! deficit. The government needs to find thirteen changes of this magnitude to puts its house in order.
But think of the impact on the U.S. economy that this one tiny change would make.
If the U.S. economy is in the tank right now while the federal government is "stimulating" it to the tune of $105 billion per year in income tax deductions on mortgage interest alone, where do you think it will be if and when they eliminate the deductions?
- If you are purchasing your home, would you be able to afford your mortgage if the income tax deduction were eliminated?
- If you could make your payments, do you think the price of your home would remain stable? Would it go up (so you could borrow equity) or would it go down (so if you are still "right side up" on your mortgage debt, you might find yourself "upside down"--owing more than your house is worth)?
I bring this up not to make a political statement either in favor of or against the proposal. Rather, I bring it up to point out that federal deficit spending is not without cost, it is not without pain.
I think, for many, the federal government's spending and tax collection has no impact on the economy. So what if they raise the debt ceiling? So what if they aren't collecting enough taxes to cover their expenses?
Well, the so what's are getting ready to come home to roost.
At some point, the debt really does have to be repaid. Somehow. Those who loan the money want it back. The Chinese will say, "No, no. You've borrowed enough. We're not sure you can pay back what you owe us already, so we're not going to loan you more. We're not going to buy any more of your bonds. You'll have to find someone else to loan you more money."
"But, but, but!!! There is no one else to lend us money!"
"Okay. Then we'll buy our own bonds, by creating more dollars. We'll engage in quantitative easing."
When we put it into these kinds of terms; when we see how only one thirteenth of the federal deficit (not debt!) is equal to the entire home mortgage interest deduction; when we realize how devastating it would be to eliminate the interest deduction: it should be obvious that federal deficits do have an impact on the economy.
Of course, that should have been clear, anyway.
So here's the question.
We see the riots occurring in France and Britain, in Greece and elsewhere around the world as people say, "No, no, no! You can't take my benefits, my expected retirement at 62 [or whatever]. You owe it to me." Do you think we will escape similar social dislocations here in the United States?
If we are afraid of the impact of reining in the deficit now, when our national debt is still officially less than $14 trillion (let us not speak of the unfunded liabilities!): do we seriously think there will be fewer or less significant social dislocations later on if we continue to dig ourselves further into the hole?
A few additional items of interest.
- According to USDebtClock.org, which keeps running tabs on all kinds of numbers like these I have been talking about, total interest per year per citizen of the U.S.--on all debts, both governmental and personal--is $10,541. That hit me. That's saying our economy faces a headwind of $10,541 in interest every year per person: before we can move forward one inch; before we can pay for anything new; before we can repair what we already own
. . .we have to pay $10,541 per person in interest.
That's quite a headwind!
What could we do if we did not have that headwind working against us?
- The Dagong Global Credit Rating agency, what I understand is the official Chinese government credit rating agency, has downgraded U.S. debt. I.e., it has said it believes that purchasing U.S. bonds is more risky now than it was in the past. Moreover, it has also said the outlook for the future is "negative"--meaning that, unless something changes, the risks are only going to get worse
. . .which means, in turn, that we can expect further downgrades in the future.
And all of this means? Expect the U.S. government will have to pay higher interest rates on its debts. It will have to pay higher rates. It is the supplicant. It is the beggar. Beggars can't be choosers.
See World Currency Watch for more.