It seems like every state as well as the federal government has made it a pattern to run into budget problems, debt constraints, and spending increases. In 2013 the federal government was shut down for almost two weeks because a budget was never passed and the representatives and senators could not settle on a debt ceiling agreement.
Forbes recently wrote an article about another governmental accounting practices and the spending scandal that involved student loans. Under the current administration, student loans have become easier to obtain and many less than creditable individuals have found that taking out large amounts of debt to afford a college experience isn’t that big of stretch.
Obviously, there are great positive consequences for the country because of this action. Many young people are able to go to college who otherwise wouldn’t be able to without some type of government loan program. Unfortunately, this type of legislation also causes the overall debt and federal spending to increase.
The government accounting scandal involving student loans was used to understate how much student loan debt was actually outstanding and how much interest was actually being collected. The Congressional Budget Office officially disagrees with these findings, but the facts speak for themselves no matter what type of creative accounting is being used.
This type of behavior is crazy. We, as a country, have been spending more money every single year than the previous year for the last two decades. At some point this type of reckless spending needs to be curtailed. The country is in a downward debt spiral that can really only be fixed in two different ways.
The first way to fix the growing fiscal problem is to fix the country’s gross margin percentage calculation. Right now we are trying to justify future spending on the amount of GDP or gross domestic product that we, as a country, will be able to produce in future years. Said a different way, the federal government projects how much money the overall economy will make in future years in order to predict how much tax revenue will be able to collected for those years. As you can see, there are obvious problems with trying to delineate governmental spending and budgets based on the economy. Something unexpected and tragic like 9/11 can happen and create a decade long recession.
The second main way that we can fix the government’s financial problems is by controlling the contribution margin ratio formula. The government needs to understand that it cannot keep spending more than it brings in every year. Contributions from taxpayers can only provide for so much governmental expenditures before the system either needs to borrow more money or print more. Either way, the general country and culture will decline if interest rates remain lower than expected and spending rates remain higher than average.
As you can see, we are in a fiscally trying time right now with our federal accounting. That is why we encourage everyone to practice responsibility in his or her personal finances. You never know what is going to happen tomorrow.