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Debt Unlimited: Is It Really All That Bad?

Blog From
February 3rd, 2014

LFU_OverTop_BrokenBody_vFWe’re about to run up against yet another national debt ceiling. According to Treasury Secretary Jacob Lew, we’ll hit it on Friday. But, thanks to “emergency measures”, which he’s using, we actually have to the end of the month before we begin defaulting on our payment obligations. Lew urges “quick action” in increasing the permissible amount of public debt.

 

It seems like only yesterday when Secretary Lew was making the same pitch – debt ceiling precariously close, emergency measures almost exhausted, quick action required. Actually, yesterday was last OctoberBefore that was in May 2013 and the one before that was February of the same year and before that January 2012 and so forth.

 

Lew has very little to worry about. Congress has never missed an opportunity to raise, suspend or otherwise skirt the debt ceiling. Since 1960, it has avoided the limit 78 times, 49 of them during Republican presidencies and 29 during Democrat White House terms. This month’s increase will make it an even 30 for the Dems.

 

During the same period, the debt has increased from a puny $50 billion to over $17 trillion, a 340-fold increase. It is projected to hit $21 trillion by the end of 2016. Last year, just the interest payments on the debt exceeded $415 billion. This year, interest payments are on pace to top $508 billion. It wasn’t until 1975 that the debt itself surpassed $508 billion.

 

Some of the time, the GOP has made a fuss about increasing the debt. But, the Grand Old Party always comes out on the bottom of these tete-a-tetes. If there were a “Most Easily Flummoxed” category at the Academy Awards, Republicans would claim the Oscar every year.

 

Then again, they’ve got such a huge ‘L’ branded on their foreheads that you have to wonder if losing is really winning for them. They get to claim fiscal responsibility without ever having to act responsibly. Maybe they deserve the Oscar for more than meets the eye.

 

But, is acting responsibly with the national debt less that it’s cracked up to be? How bad for the U.S. is a huge negative on the balance sheet? Some claim it’s the biggest national security threat facing the Country, Edward Snowden included. Others just yawn and go back to sleep undisturbed by the mounting pile of IOUs.

 

Those whose sleep is very disturbed include such notables as former Joint Chiefs of Staff Chair, Admiral Mike Mullen, now retired. Mullen claims that high debt is bad for the military because it will inevitably lead to spending cuts and a weaker fighting force. A weaker force means a less secure America.

 

Then there are people like Ben Stein who believe that humongous debt is no threat. Or as he put it, “[T]here’s never been an example in the entire history of mankind of a large civilization that went under because of its debt being excessive.” Of course, in the entire history of mankind there haven’t been civilizations with debts as huge as ours owed to other, large countries. So, Ben’s observation is meaningless.

 

As if to confirm, Stein also says that we cannot allow the debt to reach $20 trillion and leave our grandchildren a defaulted, bankrupt America.

 

Is there something special about the nature of national and international finance that protects it from the rules of ordinary prudence? If individuals and businesses bore the same proportion of indebtedness as the U.S. Government, creditors would have shut them down long ago. Yet, the U.S. goes on decade after decade wading deeper and deeper into red ink. Its creditors not only do nothing to stop it, they facilitate it by buying more U.S. paper.

 

If national and international finance do have special protections, they don’t extend to those living in heavily indebted countries. The U.S. will eventually run out of payment options. As the debt rises, the proportionate amount of interest paid will increase in order to attract more investment. Put another way, the higher the debt, the riskier the investment, the greater the yield the paper must have.

 

Higher interest rates on treasuries have a ripple effect throughout the economy. Less money is available for government programs. The cost of goods and services goes up. Interest rates on home mortgages increase. Business investment becomes less attractive which tends to grow government and shrink the private sector. Least attractive of all, the greater the debt, the larger the specter of default, reducing the political power of the nation.

 

If you’re in the lower-the-debt-now camp, what can you do to make that happen? One writer actually suggests complaining to your U.S. Senator or House representative. He must be kidding, of course, since those objections have always fallen on deaf ears. He also suggests channeling your protests into a coalition that will act on your behalf. That’s an obvious dead end, too, for exactly the same reason. 

 

The only effective thing to do is to vote the debt hikers out of office. To do that, you need a lot of your neighbors to get on board. 

 

If you don’t think higher and higher debt is an issue, you can keep the same totally addictive personalities in office.

 

It’s your call.


 





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