High finance can be quite boring for most people but for the past few weeks we have all been dragged to the mirror and forced to face some harsh truths. This government is wildly overdrawn and has maxed out its figurative credit cards way beyond the rational ability to reasonably repay them. When our leaders, those we elected, had the opportunity to make a significant change showing us they serve the people, they blinked.
What we witnessed this week was a first class con by our elected leaders in a transparent effort to pass the buck down the road and not fix anything, but hopefully more of us have been paying attention. In my opinion this isn't a political matter as much as it is a financial one. Our country is on the brink of a economic collapse, a real crisis of epic proportion.
Remember we basically have switched from a currency supported by something of value, which in our case was gold, to a currency of trust in essence a scrip. This occurred in 1974 when Nixon removed the gold standard from our monetary system and made our currency one of trust in value. The money we all carry around has value because we have mutually agreed to place value upon it, but it is meaningless beyond that which is why the level of faith in our economic decisions and health affects its value against other currencies. This is a simplistic explanation why sometimes our money is worth more than other nations and against others it is worth less.
I'm no economist nor am I an expert in high finance, but based on what I know from personal observations, if you continue to borrow and borrow and borrow and don't pay it back then eventually you cannot borrow anymore. You in essence reach your debt ceiling. Is it reasonable to go to a bank and expect them to raise your borrowing limit just because you asked them to do so? That is exactly what our government has done except they not only have the privilege of being the borrower, they also control what the bank authorizes.
By raising the debt ceiling, Congress authorized their ability to borrow money to pay their bills. In other words to pay for things they already spent. While this debate has been about raising this artificial ceiling to enable them to borrow further, the reality is this debate should be about when we are going to get our act together.
Does the idea of borrowing money to pay your bills make you queasy? It does to me. Think about it. You make $3,000 a month and need to pay $6,100 in bills. By the time a year passes, you would be in debt $37,200. In ten years you would owe $372,000 and only earn $36,000 a year. Scale that up by six or nine zeros and that in essence is what our government has been doing to us. This is a bad habit that has become too comfortable for them. It is the financial equivalent of a drug addict.
You may claim I'm overstating my opinion but consider this. When a poor soul starts to get hooked on drugs, their behavior slowly starts to modify and they rationalize their addiction. "I need it to get by" or "Just one won't hurt me" or "I can stop." The deeper they go, the more they do and the more despicable to a rational person the addict's behavior becomes. They begin to steal. They clean out all their savings. They start to commit crimes and eventually they lose total control until one of two things happen. They hit the bottom and decide they need to clean up their act or they die.
You may not like this, America, but I fear we are plummeting toward a financial bottom. Our lawmakers may have thought at one time their efforts were noble, but look at what they did. They began small spending more than they had, then when they realized they needed more and more money, they started looking around for money they could use and voila there was our Social Security sheltered funds. A little vote here and an amendment there and all of a sudden billions and billions of dollars became available for "loan". In fact some analysts say the majority of our deficit is a result of the volume of money we owe to Social Security.
Like a drug addict who drains his bank accounts for that fix, our leaders have jeopardized the financial future of all of us by removing the shelter from that fund. And just like the poor soul in denial for years, our leaders have shown this week they miss the point of our anxiety. They raised the debt ceiling to pay our bills, but none of them made any commitment to anything meaningful.
Wait, you say…they are going to make $1.2 trillion dollars in cuts. That sounds good doesn't it? Well, it would if we were talking about a stable budget, but our Congress doesn't use a stable budget. No. They use a budget with built-in increases each year. Those built-in increases raise the budget by $3.7 trillion dollars per year. Reducing that increase by 1.2 trillion dollars means we still spend 2.5 trillion dollars more each year. After ten years that level of spending will increase our debt by potentially 25 trillion dollars.
This is a major issue and it will affect you even if you decide you can't be bothered. You better be bothered. We all should be incensed by this behavior. They are on a 30 day vacation, one you and I are paying for, in private jets you and I pay for with bloated staffs you and I pay for. My suggestion is we should not let them rest. Tell them your opinion daily. Don't let them get away with this. Call them, write them and stand up and be counted.
Til next time…