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Smashing the debt ceiling

Posted Thursday, May 19, 2011, at 1:03 PM

When an addict can no longer afford his drug, what does he do?

It is shamefully common that the addict steals from mom and dad.

This week, the United States Government has borrowed all of the money it is allowed to borrow. To continue to fund the spending not covered by tax receipts, the U.S. Treasury is taking money out of government employees' retirement funds.

The United States Government has run smack dab into the debt ceiling. What does that mean?

Every single day the Government receives money from various taxes and fees. Every single day, the Government spends every single penny of that money plus all of the money that it can borrow. The debt ceiling is when the Government's line of credit is maxed out.

In order for the U.S. to borrow money (issue debt), it must be authorized by Congress. Congress passes a law, for example, allowing the U.S. to borrow an additional trillion dollars (issue $1 trillion in bonds).

As of today, we have borrowed some $14 trillion. Each and every citizen are co-signers on those loans and are obligated to pay them back. The $14 trillion debt is an obligation of approximately $46,700 for every man, woman and child, legal and illegal, presently in our nation.

Fortunately, economics for a nation is basically the same as for an individual. Here is what it looks like when you reduce the nation's finances to an individual level (dividing everything by our population):

* $18,300 income (all tax revenue from all sources divided by population,

* $23,300 planned spending (all spending, on and off budget, for every authorization), and

* $46,700 accumulated debt (the national debt divided by population).

If this were your financial situation, should you borrow more money? How comfortable would your lenders be? Have you ever borrowed money to pay your debts? How well did that work out for you?

How about borrowing to pay debts while continuing to live more than 25 percent beyond your means. Isn't the correct answer to find a way to spend less than $18,000 and start paying down your debt?

But if we don't raise the debt ceiling, won't we default on our obligations?

No. That is just the addict trying to scare you into letting them have one more drink, or one more hit, while they try to find a way to get sober.

By not borrowing more money, we would suddenly be limited to spending only what we make. We would instantly have a balanced budget and all of the planned spending above our income would simply go unfunded. Does that mean not making the mortgage payment? (Default on our bond payments).

No. The income already coming in will pay the monthly debt obligations, but it means supper will be meatloaf instead of steak and no more dining out.

But if we don't raise the debt ceiling, won't that make our creditors around the world nervous and make interest rates go up?

No. Are your creditors more nervous when you borrow more to support an extravagant life style substantially above your income or when you scale back, live within your means, and start paying your debts? Clearly, people are more willing to lend when you have a proven track record of responsibility and have the income to pay back your loans. Borrowing more when you are deeply in debt only makes things worse.

But I heard trusted government officials say that not raising the debt ceiling would trigger a crisis.

A crisis for them, not us. It is just like the crisis of the addict going through the DT's who will say anything to get a fix. Politicians declare things a crisis to persuade us to let them do things that we ordinarily not let them do. They want us to allow them to spend more and thus buy the votes of people who benefit from government spending. Suddenly, the politicians would no longer be able to buy votes and would also suffer the wrath and anguish of the people addicted to receiving government money.

Default and real crisis will come only if we continue to borrow more money. Our national credit rating has just been flagged. China, one of our biggest lenders, is selling two-thirds of its U.S. bond holdings. Because the Federal Reserve is keeping interest rates artificially low, below the rate of inflation, most American citizens decline to invest in bonds.

Moreover, the U.S. is already defaulting on its debt and passing the cost on to you.

There are two ways to default. One is repudiation, also known as bankruptcy. The other is monetisation, also known as inflation. When the government causes inflation the value of what the government owes goes down because the value of the dollar goes down as we are forced to spend more on everything as prices go up. There is no way for the citizens to avoid paying these bills, no matter how rich or poor.

The bigger the mountain of debt, the longer the fall and the harder the crash. Even if a crash is inevitable, it is much better to stop climbing the mountain right now.

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Can't argue with this one. Not only stealing from mom and dad but from children as well. Obama said in speech yesterday that he is willing to forgive 2 billion in Egypt's debt. The Us has to change it's position of trying to "bribe" other countries into a relationship using money that we don't have ourselves and instead act like a true friend and respect differences of other countries. While we may not agree with them, we must start to acknowledge their right to be different...Very hard when human rights we treasure so much here are involved but in alignment with NATO and the UN must at least take group attitude and not act as a super power all the time as before we know it that dollar will collapse completely and we will just be like a super sized Greece, Ireland, Portugal, and now maybe Spain. It would seem that we would learn a lesson from these other country's mistakes...

Can't buy friendship or even true allegances and proof of that has surfaced recently in Pakistan. there are some gov officials in Pakistan who are in agreement with us but paying all that money hasn't done what the US wanted.

Time to pour more money into education and research here at home so again we can be competitive in innovative ideas and such. When Kennedy initiated the space race and poured money into NSF, out came scientists and engineers ready to invent and innovate. Now those are starting to retire and we are starting to hire from outside the US to take their place. We just don't have enough of them here who are qualified. Even Bill Gates's largest R and D center is now in China. Individuals and smart business men doing well here yet but our government's choices have not been so good...More maneuvering and less investing in our own student's education from K right on up through grad schools.

Don't get me wrong. Today it's important to be engaged with the rest of the world but our method is flawed. Prepare our own to beat the competition instead of regulating to keep others out of the running in equal race. Alqaeda will do us more harm economically at the end of the day with bad PR than with bombs. already we have spent so much on "homeland security" that in hindsight could have been used in true steps towards respect instead of buying friendship which many in Arab world see right through. even now we are hard line on some dictators and not so on other who sell us oil....

We keep ignoring massacres in Israel and ghetto like sectioning of the Palestinians just because we were part of Churchill's gift to Jews of a country that was then occupied by England and not his to give. to step in and be fair to both sides would be to admit that our part in it all was just to shove the Jews out of the way to some remote place so we didn't have to deal with them.

WE don't seem to learn from our mistakes of the past but the Arab world hasn't forgotten them and are tired of waiting for a fair solution. our acting fairly in Israel, Gaza and the Left Bank would do a whole lot more with regard to US relationship in Middle East than all the bribe money paid to other countries over there.

Am I anti semetic? Not by a long shot, but currently the Israeli government is making decisions that are no more "Jewish" or religious than some of what our "Christian" government does.

And still we keep spending money and at same time supporting the oppression of Palestinians while we claim to be friends of the Arab world. WE cannot be surprised when Pakistan is doing the same towards us.

Have a good day.

-- Posted by Jenny Moore on Fri, May 20, 2011, at 9:22 AM

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