According to federal law, Congress must allow the government to borrow any money that is needed to pay for programs Congress passes — which sounds pretty fair to me.
Occasionally, spending will be so high and revenues so low that we will dangerously approach our spending limit — currently set at a meager $14.3 trillion.
Our solution? Well, if we ran our government like Americans do their finances, we’d live high on the cheap-credit hog, buy more bling and crap from QVC than we could ever need, then default on the debt.
And that’s pretty much the plan. Our elected officials have essentially abused our poor budget so thoroughly that we now face a crisis situation — massive
spending changes or a default on the U.S. debt.
To be clear, a default on U.S. debt means people whom the government owes cash — U.S. bondholders, foreign investors and the like — won’t get their money, or at least not when expected.
Reining in spending is not terribly difficult, not in concept at least. Bring more money in, typically through higher taxes, or spend less, namely through cuts.
But American politics has a way of actively working against this system. Voters elect politicians into office who make big campaign promises, usually to fix a current economic woe, eliminate “unnecessary” spending and lower taxes.
Politicians, in response to the people’s own desperate cry for fiscal death, lower taxes and increase spending.
And who wouldn’t be excited to hear that? It’s like your boss telling you to work less, and make more — but it isn’t sustainable.
So, now that previous generations have lived a borrowed debt, benefitting from a higher standard of living, we’re left to foot the bill.
There are several plans being passed around Congress right now. The Ryan Plan, so-called because it was spearheaded by Republican Representative Paul Ryan, would settle voters’s nerves by keeping taxes unchanged, while making massive cuts to programs like Medicare, which would be replaced by a system where the elderly would buy private insurance with less coverage, according to a recent New York Times article.
As it turns out, the Ryan plan doesn’t look like it’s winning the hearts and minds of Americans, mostly because it doesn’t deliver the impossible — free stuff.
Again, we’d like to be able to spend more than we have, feed every mouth, give top-level care to every American, fight injustice around the world and do it all without having to foot the bill.
It just isn’t possible.
Taxes must be raised, spending curbed or some combination of both. If we ignore the problem, we will inevitably face the doomsday situation — a default on U.S. debt.
And the impact of a U.S. default cannot be understated. Ben Bernanke, chairman for the Federal Reserve, warned that a U.S. default would be a “recovery-ending event.”
John Chambers, Standard and Poor’s managing director of sovereign ratings, clarified in an interview with Bloomberg, “If any government doesn’t pay its debt on time, its rating goes to D. Now, having said that, we do think that the government will raise the debt ceiling.”
When asked about the implications of a U.S. default, Chambers warned that it would be far worse than September 2008, the infamous month when Lehman Brothers collapsed and the economic outlook spiraled downward.
Left alone, U.S. debt will continue to climb, eventually
becoming so massive that not even our money-printing Uncle Sam can afford the bill, and we will default, resulting in massive economic loss — far worse than the late 2000s recession.
Like it or not, our only feasible option is to raise the debt ceiling to avoid default, and quickly put together a plan to cut spending and raise taxes until we reach a sustainable balance.
And if not, maybe Ethiopia will be willing to send back some of the food and water aid we’ve been providing — we’ll need it more.
Devin Graham is a 22-year-old economics senior from Prairieville. Follow him on Twitter @TDR_dgraham.
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Contact Devin Graham at [email protected]