How Much Money Does Government Waste? Let’s Discuss

🚀 What’s happening: According to a recent study, the U.S. government lost $247 billion in 2022 just from improper payment errors alone.

What are improper payment errors you ask? Those big sounding code words are actually meant to hide simple (and ridiculous!) mistakes like mailing checks to dead people, paying people who no longer qualify for government programs, or adding an extra zero or two by mistake to outgoing payments. Yikes.

However, unlike families who have to work to balance a budget each month, the government gets away with this waste for one reason: the U.S. dollar.

Let’s explain.

The government has a spending problem (to state the obvious). The $247 billion of waste talked abut above is just the tip of the iceberg. That number doesn’t even include things like the six figure salaries officials pay to their 15 staff members or funding projects that wind up going nowhere (find out more here about how they use our tax dollars each year).

But year after year none of this waste seems to matter much. Why is that?

The U.S. dollar fuels world growth. Arguably the most important thing to happen to the U.S. coming out of WWII (apart from actually winning the war) was the establishment of the U.S. dollar as the world’s reserve currency. What this means in practical terms is that countries all around the world use our currency every day even if the transaction does not involve the U.S.

For example, when France buys oil, they likely are using U.S. dollars to do it. Or a country in southeast Asia wants to import materials to build a factory, at least parts of that transaction is likely being done in U.S. dollars too (you get the point).

The result is that countries all over the world need to have U.S. dollars handy at any moment in order to grow their own economies.

But how do they keep a reserve or U.S. dollars handy for when they need them?

Enter U.S. Treasury Bonds. Buying U.S. Treasury Bonds (simpler term: these are IOUs) issued by the U.S. government provides a perfect solution to this problem. By holding these investments, countries all around the globe have a something readily available to covert to U.S. dollars (the U.S. has the largest bond market in the world with government bond trading making up the majority of it).

Treasury bonds also entitle them to periodic interest payments that is paid in, you guessed it, U.S. dollars.

But nothing is free forever. The result of the above leads us to where we are today. The U.S. government can continue to waste money and (for now) just issue more debt in the form of Treasury Bonds to make up the difference.

The one wrinkle that is starting to hurt a bit thought is high interest rates. As interest rates have risen, this too affects U.S. Treasury Bonds which when issued now have to come with higher and higher interest rates themselves.

The result then for the U.S. government right now is that these interest payments each year are becoming higher and higher (this is what the chart below illustrates- for anyone who hates charts the main takeaway is just that the line is rapidly rising).

Where this all ends up is hard to say but there will come a point where it may actually be a problem.

👪 Closer to home: We don’t want to sound too negative here and truthfully we are optimistic that our country can figure this out despite all the negativity you hear in the traditional media on this subject.

Also, we don’t think the U.S. dollar is even close to losing its status as the world’s reserve currency (we explain why here) so for the time being, the above should be less of a worry.

But, this doesn’t mean that the government can just go on doing this forever and there may come a day where these debt levels do become a problem (or we get a true alternative to the U.S. dollar as the world’s reserve currency).

Here are a few ideas on how to bring this discussion closer to home:

• Get a lay of the land. We all know there are opportunities to find waste in our own money habits (us included!). We would suggest it all starts with finally sitting down and making a budget (we have a free template here). You can do this exercise solo or with your kids as a way to bring them into the family money discussion (or have them do it for themselves if they are old enough). If you need some encouragement just shoot us a note and we will be glad to help or tell you how awesome you are!

• Check your brokerage account for waste. One area that most people tend to have an opportunity to save some money is through their brokerage account. Most don’t realize it, but here are 5 common mistakes people make that wind up costing them lots of money over time.

• Your money, your choice. The one thing our government does tend to do well is spend money on things they want to spend money on. You can take a page out of this playbook in your own life by realizing that the way you spend money each day is powerful: it’s your vote in shaping the life you truly want to live. Better yet, you also can teach your kids about this powerful concept with our free guide here.