The Debt Ceiling, The Day After, The Day Of…

by | Aug 3, 2011 | Economy, Government | 3 comments

It’s 7:42 a.m. on Tues­day, August 2nd, 2011.  Work­ing from home today, and into my cof­fee by 3/4 of a cup.  Today is the day our gov­ern­ment votes on the debt ceil­ing.  I have not had much time to research the way I would ulti­mate­ly like to, how­ev­er, here is my pre­dic­tion based on some of my own research.

  1. What is the debt ceil­ing for?  It is to lim­it law­mak­ers spend­ing.  We can see it works, huh.  Obvi­ous­ly not.  I am per­son­al­ly won­der­ing what the use is of being able to raise your own cred­it lim­it?
  2. We have to raise the debt ceil­ing because there are two oth­er options:  Default on finan­cial oblig­a­tions as a coun­try or raise tax­es by bil­lions (sev­er­al hun­dred bil­lions) of dol­lars.  Both are real­ly bad.  Here is why.  First, rais­ing tax­es by hun­dreds of bil­lions of dol­lars will put mar­kets around the world in the toi­let for a mul­ti­tude of rea­sons, not to men­tion the fact that it will spi­ral an already crip­pled U.S. econ­o­my into a depres­sion, if we are not already there.  Peo­ple already have stopped spend­ing, and are being more cau­tious.  Imag­ine if your tax­es hit 60% not unlike Ger­many?
  3. Default­ing on finan­cial oblig­a­tions, hmmm…  I won­der what would hap­pen if every­one stopped lend­ing us mon­ey after default­ing on loans.  What would that do to the econ­o­my?  What would that do for the gov­ern­ment?  What would that do to the mar­kets?  I have per­son­al­ly had cred­it card issues in the past and know what it is like to “try to catch up.”  Imag­ine our coun­try hav­ing to dou­ble up on pay­ments on oblig­a­tions to Chi­na to catch up?  Seri­ous­ly?  Again, detri­men­tal to investors and our econ­o­my.  This is again high risk, hurt­ing the US econ­o­my dra­mat­i­cal­ly.
  4. What if we just cut spend­ing?  Not sure that is going to hap­pen either.  Cut­ting spend­ing puts more peo­ple out of jobs, and bud­gets have to be re-eval­u­at­ed.  If not done right, from every­thing I have read, the gov­ern­ment may not have the funds to make it to the end of our fis­cal year.  At least that is the argu­ment.  While I don’t agree with this assess­ment, I am not a finan­cial expert.  In fact, I may be a lit­tle con­fused.
Now, reach­ing the debt ceil­ing today, or let me rephrase, reach­ing our gov­ern­men­t’s cred­it lim­it today, will not tech­ni­cal­ly shut the gov­ern­ment down.  Although, maybe it should.  Maybe it should close and lock the doors and spi­ral us into a finan­cial obliv­ion.  This isn’t some roman­tic “get the exist­ing incum­bents out dream.” I know that sounds harsh, but I am not con­fi­dent that they are going to come up with a good or right solu­tion.  This may need to be done to actu­al­ly take action on bal­anc­ing our nation­al bud­get.  Con­gress’s bor­row­ing pow­er needs to be lim­it­ed going for­ward.  To that end, in the next four hours, if our gov­ern­ment decides not to raise the debt ceil­ing, and cut costs, gov­ern­ment may be forced to par­tial­ly shut down.
Unfor­tu­nate­ly, I think there is no right answer for any of us.  There are reper­cus­sions for the com­mon per­son like you and I no mat­ter what deci­sions they make.  I am just not sure I trust them to make the right deci­sion…
By the time you read this, a vote will have been cast, and we will be spec­u­lat­ing about the fate of our nation, finan­cial well being for fam­i­ly, friends, and future. I hope it is pos­i­tive for all of us.

This video added at the end of the day, post vote

Vis­it msnbc.com for break­ing news, world news, and news about the econ­o­my

Print Friendly, PDF & Email
468

You may also like

3 Comments

  1. Arsenius the Hermit
    Arsenius the Hermit on August 3, 2011 at 1:08 pm

    My thought is this. If you don’t have it, don’t spend it. If that means the wel­fare checks don’t go out, and the gazil­lons of gov­ern­ment work­ers don’t get paid, what of it? That’s all going to hap­pen any­way if we keep print­ing fun­ny mon­ey and spend­ing more than we take in, while bor­row­ing 45% of every dol­lar we do spend.

    Reply
  2. MasterPo
    MasterPo on August 3, 2011 at 2:38 pm

    “default” is impos­si­ble. Nations dont defult the way you and I or a busi­ness it even a city.or state can default. Why? Sim­ple: a nation­al gov can print all the mon­ey they want. Unfor­tu­nate­ly the val­ue of that mon­ey becomes less and less but they can do it (as we are).

    Besides, even in these times the u.s. gov takes in about $200 bil­lion a month.

    Reply
  3. MasterPo
    MasterPo on August 4, 2011 at 9:59 am

    To con­tin­ue, the nation can’t default unless the gov­ern­ment pur­pose­ly says they aren’t going to pay back the nation­al debt (which can hap­pen but is the “nuclear” option).

    What does hap­pen is the val­ue of the nation­al cur­ren­cy (i.e. the Amer­i­can dol­lar) declines, the costs of the things we need to buy goes up because the cur­ren­cy is worth less and less, the costs to bor­row mon­ey for the nation go up (high­er inter­est rates) which trick­le down to the rest of us for our own loans, and even­tu­al­ly no mat­ter what is said in pri­vate those for­eign gov­ern­ments that now buy our nation­al bonds just won’t any­more. That’s the end of it.

    We’re pret­ty close to that now.

    Nor­mal­ly for­eign buy­ers account for 60%+ of the sale of Trea­sury bonds. How­ev­er, now the Fed­er­al Reserve buys over 70% of our bonds! (some­thing Ben said under oath he would NEVER do!)

    ps- Just heard on the radio that QE3 is a go.

    Watch this video. It’s eerie how accu­rate it is. http://www.youtube.com/watch?v=2N8gJSMoOJc

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *