"The American government is at risk of defaulting on their debt. To remedy it, they want to go into even more debt. This cannot go on forever. It has to stop." Amber Pawlik

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Statement on America’s Debt Crisis

We are in the final hour of America’s “debt crisis” where the American government may default on loans on August 2, 2011.

To remedy this, many want to raise the debt limit so the government can pay these loans. They spin the issue as if it will be the end of the world if this doesn’t happen.

Let’s review the basics of public debt. Many years ago, the American government asked to borrow money from creditors as they did not have enough tax revenue to pay for spending. By doing this, they made those expenditures even more expensive as interest was added. You borrow money for only one reason: you don’t have the money now but you plan on having it later.

It is now later. They don’t have the money. To resolve this predicament, the solution is to go into even more debt.

So, the American government borrowed money a long time ago with the thought that they would be in a better financial situation in the future. Past borrowing has made current payments more difficult because of interest. Now they don’t have the money, so they want to again incur more debt, which will again make everything more expensive.

In typical Washington DC fashion, they want to rush the issue now, now, now and warn of dire, immediate consequences. Can we, for once, think of the long term? Can we fast forward another 30 years? How about just 10? Are we then going to pay off the loans, with something other than more loans? Precisely how much will taxes have to go up for our grandchildren so they can pay off the heavy bills we are leaving them? Perhaps instead of raising taxes, money will get printed to pay off this debt, which is a de facto default; the loans are paid back with the same dollar amount but those dollars are lower in value. We just keep shifting the burden to different people at later dates.

This cannot go on forever. It needs to stop.

There is also concern about America’s credit rating. If the American government does not pay on their loans, their crediting rating will lower as they have proven to be unreliable in paying money to those they owe. To remedy this problem, where they can’t pay money to their creditors, they want to ask other creditors to give them money. Would you loan money to someone who you knew was borrowing money in order to pay a debt to someone else who they did not have the wherewithal to pay? If the debt ceiling gets raised for the very reason that the American government can’t pay on their loans, this situation should also cause the American government’s credit rating to go down.

A lower crediting rating is a good thing. It means less people will borrow from the United States. It means less debt that the government can plunge me, you, or our children into.

The American economic situation now is like an owner of a credit card who cannot make a monthly payment and is asking for a raise of the maximum debt of the credit card so they can use that credit card to make the monthly payment. It is completely embarrassing that the country with the largest GDP is in this position. It is absurd to think that this is what will save us from the economic meltdown people keep warning about.

Yes, there will be a meltdown, and we are already seeing the effects of bloated spending and poor monetary policy. A simple quick fix of raising the debt limit is not the answer; it will prolong this and make it worse. Tough decisions on taxes and spending need to be made; otherwise we will be in this same position, except even worse, just a few short years from now.

Amber Pawlik
July 29, 2011

On ‘Demand Side’ Economics: Why Spending Cannot Improve the Economy but Freedom Can
Amber Pawlik
This article seeks to explain as clear as possible one of the most intellectually difficult economic concepts to grasp: how inflation will destroy an economy. It is meant to give answers to the economics questions many people have today. It covers the basics of economics and then argues against the long held belief, originated by John Maynard Keynes, that stimulus money will jumpstart an economy. It can be considered an Economics 101 and 201 course.

This article is protected under the US Copyright Act of 1976. No part may be copied.

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