This past week I taught a seminar on effective budget making. It broke down the basics on proper ratios of spending, saving, giving and debt repayment. As I presented, I jokingly said if I could gain access to Congress, I would love to enlighten Washington on these basic principles. As of now, I have yet to receive an invite from the capital.

As many of you probably know, Washington is currently in a stalemate regarding the approval of yet another increase to the nation’s debt ceiling. The newly elected Republican House has vowed to not pass any increases in our debit limit without cuts in government spending. At the same time, President Biden has warned he will only sign a debt ceiling bill that is clear of any other non-related legislation. And just like that, we find ourselves in yet another high stakes game of chicken.

The fact that the markets have shown little to no concern about this, is tell-tale sign that Wall Street believes in the end Washington will approve the debt limit increase and things will stay status que. Unfortunately for our nation, I would have to agree that will likely be the end result.

I say unfortunately because the reality of the nation’s debt crisis is pretty dire now, and I fear is going to get much worse in the coming years. Since the start of the pandemic, we have experienced first-hand what large scale printing of unbacked cash can do to inflation. Imagine what will happen when we have to print exponentially more cash just to keep Social Security and Medicare solvent.

As a financial advisor, one of the first things we do for a new client is offer to sit down and develop a financial plan for them. This allows us to not only get a good understanding of their financial situation, but also their values and priorities when it comes to how they use their money. If we find in this process that their financial picture is bleak, we take action immediately to identify the things that are reducing their likelihood of reaching their goals, and recommend changes to alter the trajectory of those projections.

In the case of the federal government, according to the Congressional Budget Office, the federal government spent over 7.2 trillion dollars in 2021. That’s more than double the 3.5 trillion total they brought in through taxes. While slightly better in 2022, when our outlays were only 30% more than total revenue, these numbers should still be a cause for great concern moving forward.

Much like we would for any client whose expenses are perpetually exceeding their revenue, the first step is to identify where the money is actually going. We place particular interest in the areas where the largest percentage is going. With nearly half of all federal spending allocated to Social Security benefits and healthcare, any adjustments to the nation’s budget must start there. Particularly because as the number of baby boomers who enroll in these programs continue to rise, so do the costs associated with them.

I do fully realize that many reading this are retired, or soon to be. Any discussions related to reductions to these benefits is likely to be quite offensive to hear. Especially, since you all paid into this system your entire lives and it’s not your fault the government spent that money decades ago rather than locking it away until the time when you needed it. Besides considering boomers benefitted from most of this excess spending isn’t only fair they should share in the pain of paying it back?

Part of a financial advisor’s fiduciary duty is to tell the client what they need to hear not what they want to hear. As such, these are the facts. According to the CBO 2023 Non-discretionary entitlement spending and interest payments will make up roughly 70% of all federal expenditures. Over the coming decade that percentage in expected to increase further. Without some form of reduction in benefits there simply is not enough money coming in to balance our budget, let alone pay back existing debt. Unless we acknowledge that simple fact, we cannot begin to solve this debt crises we find ourselves in.

Unfortunately, much like spouses who each want to point the finger at the other for the sad shape of their balance sheet, in Washington Republicans and Democrats will each point the finger at the other and say they are the one responsible when in truth they both are. This is why politicians are the least suitable people on the planet to be tasked with controlling the nation’s purse strings. Too often their focus is not the future economic success of the nation, because they are too busy focusing on the future success of their own reelection.

With a recent Economist/YouGov poll showing that 70% of Americans oppose reforms to Social Security or Medicare our political leaders are likely to simply fiddle as the Titanic continues to take on water instead of looking for ways to keep the ship afloat. This unfortunately does not bode well for the passengers on the ship like you or I.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)