When one of the world’s richest men speaks up, you listen.
Warren Buffett, named the “Oracle of Omaha” for his uncanny aptitude for investment, stated Monday that the debt ceiling was simply an “artificial sense.”
Buffett is referring to the U.S. public debt. As of June 29, Uncle Sam owed the world $14.66 trillion. As if that wasn’t enough already, the International Monetary Fund (IMF), an international bank which oversees the global financial system through macroeconomic policy, placed U.S. debt at 96.3 percent of its 2010 GDP.
Let me clarify what that means. GDP stand for gross domestic product, and is the total value of the goods and services produced in a country, usually over one year. So the new SpongeBob tricycle you bought is part of the U.S. GDP. The wheels and cheap plastic to make it are not counted because they are not the final product — that would lead to double-counting.
According to the IMF’s numbers, if you took all the goods and services produced by every single person in the United States in 2010 and used them to pay our debt to foreign countries, we would just barely cover our bills.
It’s easy to see why a country would like to default on its debt. Its an overwhelming amount.
A quick note about debt and deficit — deficit is essentially the difference between what we’re bringing in and what we’re sending out, and debt is how much we owe. For example, a student with $600 in bills each month who makes $400 has a $200 deficit. The student’s debt increases by $200 every month, which you can think of as the sum of all his deficits.
According The Hill, House Democrats are pushing for a higher debt ceiling, citing Ronald Reagan’s response to a similar situation, when he raised the debt ceiling 17 times during his administration and increased the debt 200 percent.
This isn’t a party-based attack on Republicans, who I can only imagine have our best interests at heart and would never consider using the economic downfall of our nation as a bargaining point. Reagan’s spending may very well have been overwhelmingly beneficial for the country — it just overshot its budget 17 times, that’s all.
The Democrats are attempting to invoke his larger-than-life memory to sweet-talk the Republicans into a debt ceiling increase.
Due to a tense political climate, politicians are still debating a solution to our drowning finances. The White House has recently agreed to a short-term increase in the debt ceiling if a plan is put into place for lowering the deficit.
Buffett recently nailed it again with his no-nonsense approach when he said the debt ceiling wastes our time — politicians, reporters, investors and citizens alike. He explained it best in his NBC interiew.
“We cannot go to Aug. 2 and tell the rest of the world, ‘Look because we’re having this little fight in our sandbox back here, that we’re going to essentially default on obligations of the United States for the first time in our