Debt Limit
by Dr. Doug Cardell
Several people have suggested that I explain what's going on with the debate over raising the debt ceiling. I'd be happy to. Let's start with a recent White House Press Secretary Karine Jean-Pierre's statement on May 8, 2023, 2:56 P.M. EDT. "I really appreciate the question. But for — let's look at this for the American people who are trying to figure out — who may not know what it is that we're talking about. So let's look at it through the American families' eyes for a second. If you buy a car, you are expected to pay the monthly payments. If you buy a home, you are expected to pay the mortgage every month. That is the expectation. That is the spending that you put forth or spending that you may have done before, and now you're paying every month. If you do not pay your car payment, if you do not pay your mortgage payment, then your credit is going to be bad. It's going to hurt your credit." To continue Ms. Jean-Pierre's analogy, she seems to suggest that if you, as a consumer, have found that you cannot pay your bills, the simple solution is to borrow more money to pay them. Don't worry about decreasing spending, don't consider selling assets, don't consider ways to increase income; just increase your debt limit and borrow more money. But, of course, this will mean that the monthly payments you have difficulty making will be even higher, making keeping up the payments much harder. Unfortunately, individuals who have taken this approach have learned the hard way that this is a road to bankruptcy. Some of this discussion involves using large numbers that many people can't visualize. So here's a way to think about it: spending one dollar a second, it would take about 17 minutes to reach one thousand, but it would take about 11 and a half days to get to a million, about 31 and a half years to end up with a billion, almost 32 thousand years to acquire a trillion, and about a billion years to pay the current national debt of 31.5 trillion paying it off at one dollar a second. Wise consumers only borrow to finance large purchases like a house or a car, securing those loans with the item purchased. That is, using the house or car as collateral for the loan. These wise consumers use credit to purchase assets rather than finance spending that depletes assets. Unfortunately, the government is not using credit to buy assets. Currently, the US government holds only about four trillion dollars in assets against a national debt of almost 32 trillion dollars. If we put this in more personal terms, imagine a person earning $49,000 a year, spending $63,000 a year, and having assets of $40,000 and $280,000 in credit card debt. Would you consider loaning them money? That's the US debt picture but a hundred million times larger. They want permission to borrow more, do you think that's a good idea? Too much debt is a more serious problem for a nation than for a family: 1. Spending money to pay interest means spending less on higher priorities. 2. Borrowing to finance spending increases inflation, as seen in the last three years. 3. It creates financial instability. What would be the wisest government approach to having insufficient funds to pay its bills? First, rescind all payments other than debt service that is budgeted but not yet spent. For example, if the budget allocated funds to expand a federal office complex, that is not a debt. Congress can remove it from the budget and preserve that money. Congress can increase income by eliminating tax breaks for renewable energy, canceling funding for extra IRS agents, holding back unspent COVID funds, not funding student loan debt forgiveness, and decreasing research spending. The national debt is already $100,000 for every man, woman, and child in the United States. Setting a debt limit is a statement that obligation beyond this level is unacceptable, but Congress raises it every time the limit is reached. Are we, the taxpayers, expected to believe that a debt level that was unacceptable last year is no longer a problem? The debt is now a good deal more than the total yearly economic output of the United States. In the long run, Congress should reset the budget process so that each year's budget can only spend last year's revenue. We should hold the government to the same standard as wise citizens. It should limit spending based on income rather than debt limit. Without action to correct the situation, Congress and the White House will replay this identical drama yearly until the country is bankrupt and suffers a complete financial collapse. That means far fewer jobs, more empty store shelves, and prices so high that what is on the shelves is unaffordable.
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