The latest polls indicate that the majority of Americans oppose raising the debt ceiling – 63% oppose to 27% in support. A whapping 83% if you look to Republicans but what is the right thing to do?
The Congressional Research Service puts this all in perspective. We need to cut spending or raise taxes by $738 billion dollars in 6 months to pay all our bills for the remainder of 2011.
What does that really mean though – well we could:
- Eliminate all discretionary spending, including defense, and then look for another $50 billion of change in the sofa OR
- Cut nearly 70% of outlays for mandatory programs like Medicare and Social Security OR
- Increase tax revenue by nearly two-thirds OR
- Some combination of the above.
And that’s just for the rest of this fiscal year! Yes, serious stuff isn’t it? Probably not something we should play games like chicken over either.
Timothy Geithner, treasury secretary has clearly indicated to Congress the need to raise the debt limit by mid-May for the US to meet it’s fiscal obligations, and the Republican House is leveraging their votes to gain spending cuts.
White House Press Secretary Jay Carney has called the possibility of not raising the ceiling a “catastrophic folly.” However what does not raising the debt limit really mean? Some would have us think that raising the debt limit really means we are just authorizing borrowing more from “Asia” The US Government however owes money to foreign investors for sure, but it also owes debt to US pension funds and various government programs, programs essential to our parents.
Ben Bernanke, Federal Reserve Chairman also warns the consequences of the event would be catastrophic, interest rates would soar but most significantly the US would for the first time ever – default on its loans, it’s credit rating would take a hit just as yours or mine would and high-value investors would look to the Eurozone and Asia for investments leaving the US cash strapped and with poor credit.
On a personal note – I would benefit greatly from a failure to raise the debt ceiling, assuming I was able to keep my job so my rock bottom interest rate mortgage could be paid. The interest rates in the US would soar, while the US dollar would decline sharply, a perfect condition for me. I’m just waiting for the dollar to drop against the pound as I have money in the UK I want to move to the US. Combine the dollar decline with soaring interest rates offered to invest that money in the US and I could potentially realize a 20-25% gain on capital in the course of a year. However what’s good for me isn’t good for almost anybody else.
My mother and father in law would see their investments shrink again. Combine that with the talk of putting them on vouchers for Medicare and at 83, with a few strokes behind him, my father in law will finally change his opinion on nationalized medicine as he watches his ability to obtain or afford insurance vanish before his eyes.
My friends with small businesses and some of the small businesses I love and rely on will become as cash strapped as our country and all for what? So politicians can play chicken with our economy? What of US Treasuries the mainstay of our economy, when markets lose faith in them it puts all future investment at risk and hurts US Business – large and small. Alan Greenspan was just discussing this possibility with Charlie Rose and predicted the strong possibility of a worldwide financial crash and a longer recession than we’re just climbing out of.
“Just like households have personal obligations that they have to meet, the federal government needs to meet its obligations as well. I think that not raising the debt limit would have serious, very serious implications for the worldwide economy and jobs here in America,” House Speaker John Boehner, R-Ohio, said Monday. “But having said that, we’re just not going to do the typical Washington thing, roll over, increase the debt limit, without addressing the underlying problems.”
All this is happening while as ABC news reports “Republicans leaders are reportedly acknowledging behind closed doors that they will not let the United States fall into default” but will parlay their votes into demands for a balanced budget amendment to demands for statutory spending caps to a 2/3rds voting requirement to increase taxes.
We most certainly do need to create spending cuts – and what has now been dubbed “Obamacare” was intended to do just that. What we need is to educate ourselves, educate ourselves so we can’t be bullied, buffaloed or tricked into falling for false solutions. We could all take an hour – just one, and learn. Please check the information out at the Peter G Peterson Foundation. They produced a brilliant documentary I.O.U.S.A and now have one proposing some solutions.
