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Debt, Debt and more Debt
October 12th, 2007I read an article in a newspaper recently about the U.S. National debt. It had apparently just topped the 9 trillion dollar mark. That’s 9 followed by 12 zeros. The U.S. debt is growing by over a billion dollars a day. At the same time, each U.S. state is going further and further into debt. A great example is California which has more debt than Canada. In addition, most U.S. cities and towns are running at a deficit. So how is Arlington doing?
The Arlington town web site has most of the town’s budget information online. The town brings in around $105 million in revenue, most of which comes from property taxes and aid from the state. The revenue information on the web site is very detailed and easy to follow. However, trying to find debt information for Arlington is really difficult being buried in layers of terminology like short falls, overrides, exempt and non-exempt debt.
As best I can tell, Arlington’s current debt is costing us around 8 million dollars a year in interest payments. That’s around 8% of all the town’s yearly expenses flushed down the toilet. I find that number extremely annoying considering the penny pinching going on at our local schools. You can fix lots of things in Arlington with 8 million dollars a year.
It’s unclear to me whether Arlington is paying off its debt or whether it’s accumulating more. The budget people did a wonderful job making the debt numbers incomprehensible to the average Joe. After staring at the budget documents for several hours I came away with the feeling the debt is growing significantly. At the same time it looks like no one really wants to cut any services or increase taxes. Essentially we are like an ostrich sticking our heads in the sand hoping the lion won’t find us.
If we are spending more money than we have, we need to have less. Once we eliminate the debt, our kids will have more.
Steve Fullerton
October 14th, 2007 at 11:48 p
I hope you don’t mind, Steve, but I have passed along your comments to town Treasurer Steve Gilligan and asked him to comment.
Bob Sprague
October 27th, 2007 at 3:47 p
Thanks Bob. I would love to see a response from Steve Gilligan.
I did a little more digging.
It looks like Arlington currently has a total debt of around 60 million dollars and it’s growing at around 3 million dollars a year (on average). The cost of servicing the current debt is around 8 million dollars a year. 25% of the capital budget is funded by debt each year.
November 1st, 2007 at 1:04 p
Some more interesting facts:
Massachusetts has the worst debt per capita of all the U.S. states at $4047 per person. The state has around 26 billion dollars of outstanding debt, ranked 4′th (California, New York and New Jersey have more).
Take a look at this document for more information:
http://www.mass.gov/Eeoaf/docs/FY08_debt_affordability_analysis.pdf
Arlington gets around 17% of it’s yearly revenue from the state and it looks like the state has to run at a deficit to provide it.
One solution would be to raise the state income taxes from 5% to 7%. All of the new money should go directly to pay off state, city and town debt. We should probably make a law to limit debt to something like 20% of revenue so the cycle doesn’t repeat itself. That would mean Arlington would need to shed around 40 million dollars in debt to be legal.
After that, all we have to fix is social security, medicare and the 9 trillion dollar national debt. Piece of cake
November 9th, 2007 at 12:42 p
The news, lately, is full of talk about subprime mortgages and loans. Yes, this is just another way to spell debt.
Back around 2001 when the NASDAQ lost around 70% of its value, interest rates went way down and financial institutions decided it was OK to make high risk/high interest loans (subprime) to people who really couldn’t afford it. Afterall, the credit card companies have been doing this for years.
Guess what, interest rates went back up and house prices are going back down.
Suddenly millions of people can’t make their debt payments, their houses are worth less than their debt, and the subprime system collapses.
In hindsight, a monkey could have predicted this. The financial institutions must have known this was going to happen eventually.
I bet that many someones from financial companies that went bankrupt because of this subprime fiasco are now laughing, floating around in their multi-million dollar bonus boats.
November 9th, 2007 at 10:44 p
“I place economy among the first and most important virtues, and debt as the greatest of dangers to be feared.” - Thomas Jefferson”
November 9th, 2007 at 10:45 p
“No generation has a right to contract debts greater than can be paid off during the course of its own existence.”
- George Washington to James Madison 1789
November 9th, 2007 at 10:48 p
“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner
as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.” - Ludwig von Mises
November 9th, 2007 at 10:58 p
“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.” - John Maynard Keynes
November 9th, 2007 at 11:15 p
Michael Hodges attempted to compute the total U.S. debt including all national, state, town, personal, …, debt. You can imagine what a monumental task this must have been considering how long it took me to figure out the debt numbers for one town. Check out this web site:
http://mwhodges.home.att.net/nat-debt/debt-nat.htm
Here is a quote from that site:
“America has become more a debt ‘junkie’ - - than ever before with total debt of $48 Trillion - - and the highest debt ratio in history.
That’s $161,287 per man, woman and child - - or $645,148 per family of 4, $45,514 more debt per family than last year.
Last year total debt increased $3.9 Trillion, 5 times more than GDP. External debt owed foreign interests increased $1 Trillion; Household, business and financial sector debt soared 9%.
72% ($35 trillion) of total debt was created since 1990,
a period primarily driven by debt instead of by productive activity.
And, the above does not include un-funded pensions and medical promises.”
November 9th, 2007 at 11:19 p
Here is a quote from the following web site:
http://mwhodges.home.att.net/nat-debt/debt-nat.htm
“America has become more a debt ‘junkie’ - - than ever before with total debt of $48 Trillion - - and the highest debt ratio in history.
That’s $161,287 per man, woman and child - - or $645,148 per family of 4, $45,514 more debt per family than last year.
Last year total debt increased $3.9 Trillion, 5 times more than GDP. External debt owed foreign interests increased $1 Trillion; Household, business and financial sector debt soared 9%.
72% ($35 trillion) of total debt was created since 1990,
a period primarily driven by debt instead of by productive activity.
And, the above does not include un-funded pensions and medical promises.”
November 10th, 2007 at 3:48 p
The federal reserve states that 40% of American families spend more than they earn. This year we will be bombarded by over 5.3 billion junk mails offering us credit cards. Between 1990 and 2003 pretax profits for credit card companies grew 360%. Over 40% of credit card holders carry a balance and 1 in 6 pay the minimum monthly payment. The average credit card interest rate is 19%. In 2007 the typical american credit card balance was 5% of annual income.