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.
July 29, 2011