The Debt Ceiling

July 26, 2011

Nick Newton – Kansas City, Missouri

The Debt Ceiling: What is at Issue?

Let’s imagine you have lost your job. You are running out of money. And every day there is a new challenge. The bills are due, and the collectors are calling, and they want to know when they can expect your bill payment. You ask your family for help, and they pull together as a group to decide how to help you. They legislate your borrowing terms, and there is precious little you can do to affect the outcome. Welcome to the Debt Ceiling Issue.

Years In The Making

The United States of America has lost its job as the world superpower. We have become a debtor nation and are quickly approaching the inability to service our debt. We, as citizens, are depending on Congress to approve the new terms under which we can borrow, and they can’t work out the terms. If this continues, we will default on our outstanding debt. And believe me, our nation will be in a situation that will make the last two years look like financial nirvana.

Home Sweet Home

A country is like a household. We work, and we acquire things: a mortgage, cars, large screen TV’s. We pay for our children’s education. We either pay for these things from our current earnings, or we leverage our future earnings potential and borrow from some financial institution.

The Circle of Money

The United States borrows from us and other foreign countries. Their job is to provide roads, public services to us and provide good money management for foreign investors or holders of our US Treasuries. In the same way we invest in our children’s future, a country invests in its future: the educational system, our public libraries, our roads and infrastructure. These things provide avenues of growth for our country. Growth gives us the opportunity to attract more capital and so on. If it works properly, we create a growth/financial feedback loop that continues into perpetuity. If the chain is broken, we default on our borrowings, our cost to borrow funds increases, and that increases our debt service. Ultimately, it will subtract from the total dollar amount we can borrow, slowing our ability to reinvest in our growth. It’s incredibly circular. The increased borrowing cost stays for years and future generations bear the brunt of poor financial decisions. It is much exactly how the wealthy in society continue to grow their wealth and their uninterrupted growth/financial loop.

The Time Is Now

I will not pretend to have the answer. However, something must be done and done soon. It is not an easy task facing Congress and the President. There are many issues that cloud the ultimate resolution, but the time to act is definitely upon us.

What’s your opinion of the way the President and Congress have handled the debt ceiling debate?

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