17 Feb
2011
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Painful Choices, Part 2

Fox News has reported that the President’s deficit reduction calculations fail to include interest on the national debt. White House budget staff members, who have been testifying before Congress, are focusing on “principal balances”. Feisty Republicans and the Obama Administration are using “credit card” analogies to describe and defend their positions. Obama indicated that by focusing on the “principal balaces” in the budget, it will help determine what interest is owed. Apparently for him, it’s not practical to factor existing interest, because we have to get the principal under control first to be able to make any interest projections.

Well, folks, as a individual who works in banking and is intimately familiar with credit cards, the prior period’s interest is included in THIS period’s principal. Regardless of what political persuasion that someone has, House Republicans got the finance correct this time. Interest on the national debt is 14% of the budget, last time I checked. Last fiscal year’s interest is included in this fiscal year’s new principal.

House Republicans got the (simple) finance right not because they’re Republicans, but because the nation’s “credit card” balance compounds the interest from one fiscal year to the next. Most Americans know that interest accrues on previous interest, including NEW principal. This is an inconvenient truth Obama tries to ignore, as liberals continue to mortgage America’s future.

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