Debt Ceiling
- Has your credit card been turned down because you were over your credit limit???
- Have you had a line of credit that maxed out?
If so, you know how our own US of A government is feeling right now.
Poor Timothy Geithner. The US Treasury Secretary may be facing the take-back man loading up his desk and PC as a down payment….
Although that’s not much for collateral when you owe:
$ 14,250,000,000,000.00 ( 14 plus trillion dollars, if you have trouble with all the 0′s.)
Why a debt ceiling?
How did our government who owns the money printing press get stuck with a debt ceiling?
Crumbling Debt Ceiling-Bringing Down The House?
Up until early in the twentieth century the feds were like most states, pay as you go-with congress having to approve each time it borrowed money.
Poor overworked congress got tired of having to approve every bill that had to be paid with debt instead of cash.
Voila, a debt limit was approved. As long as new debt was under that limit, no separate congressional action was required.
The debt limit or ceiling has been raised over 100 times.
It”s like telling your child his credit card can’t go over $1,000 without a come to Jesus meeting…but then raising the limit every time it get’s close. I don’t know about your kids, but mine would be headed to the liquor store with his buds! “Time to Party!”
Bumping against the debt limit…
When the feds have a debt due they can’t pay with cash in the bank, they sell a government bond or treasury note.
This extends the time they have to pay the debt. Instead of having a 5 year car note, or a 30 year mortgage, the US government sells bonds and repays the principle and interest over time to the bond or note holder.
Currently the government of China and Japan own more of our debt than any other countries.
What happens if the US government goes above the debt ceiling?
By law we cannot. If the government can’t sell bonds to meet its debt obligations, then real money has to be used to pay back it’s debt.
That would mean not paying principle and interest to bond-holders, not paying government employees, or having to close down certain government operations. (or all of the above!)
The money saved by these activities would be used to pay for the continued operation of the government-rather than borrowed money. (Wouldn’t last long as the feds are budgeted to spend 3 +billion dollars/day this year!)
Your federal government borrows money to pay back borrowed money, to pay back borrowed money, to pay back borrowed money. Bernie Madoff went to prison over a similar scheme…
What if China didn’t get paid?
What would happen if China or Japan didn’t get their owed bond money? The short answer is: No one knows-it’s never happened.
The government of Greece is giving us a little clue. To get a buyer to pounce on a 10 year Greek government bond, Greece is paying 15-20 % interest. The current 10 year notes sold by the US government are at a record low-<3%…Our government is borrowing cheap money.
If it had to pay even 6% on it’s notes right now, our financial system would be in panic.
The current controversy is not on whether the debt ceiling should be raised (except by Ron Paul…) it is whether our congress is going to tie that raised limit to spending cuts to keep the national debt from continuing to spiral upwards…
My opinion is that not tying the debt ceiling vote to a significant spending cut is like giving your car keys to a drunk child. And we all are guilty of parental neglect for letting our congress get this far in debt in the first place.
We are telling congress it’s ok to continue to spend money our country doesn’t have-and admitting we will never, ever balance our budget..
Yes it will hurt to live with the results of the government spending less money. We all are getting a little milk from the governments teat.
But I’m confident our country will come out of it stronger than ever.
Not cutting spending now will mean continued deficit spending, tax increases, inflation, and an end to America as the place for dreams to come true.
Reader questions
What say you? You ok with the government’s plan to continue spending without limits? Are you prepared for more pain if your favorite program gets whacked a little?
{Photo Credit: Justus Hayes / Shoes on Wires / shoesonwires.com}
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