Tuesday, July 19, 2011

Why the Debt Ceiling Doesn't Concern Me

Have you been hearing the talks about the debt ceiling? About how bad it's going to be if the government actually defaults on their debt come August 2?

Well, that's been the latest topic/argument coming from Washington. We are scheduled to exceed the debt limit that Congress has already raised twice this year, on August 1. Basically, under Obama's leadership and the Democratic Congress that brought us two "bailouts", Obama-care, and the takeover of two auto-makers (GM & Chrysler), we will exceed the limit of 14.3 trillion dollars. What will happen,theoretically, is that the US would not be able to borrow any more money to make the payments on the existing entitlements. (Entitlements are Medicare, Social Security, food stamps, etc.)

A lot of this argument is hyped up to scare Americans. "Oh no! Social Security payments won't go out if they don't raise the debt ceiling!" This is not accurate. The federal government takes in taxes monthly to pay for the Medicare and Social Security. The government will take in enough money to make the minimum payments on the debt.

The real issue is that without raising the debt-ceiling our credit rating will go down, making it more of a risk to loan to the US.

Well, hello. It is a risk to lend to the US. We are spending the money of my children's children's children. We are in debt to like four generations, people. Should we be considered a safe loan? Shouldn't it be more difficult to borrow money for the US?

I love to think about this in terms of a family budget. Let's say Erik has a job and makes $50,000. And our expenses are running about $43,000 a year. So we're saving $7,000 a year. And then, oops, we're having another baby. Our expenses are about to jump to $52,000 a year. But Erik's only bringing in $50,000. What to do? We have two options: 1) Borrow and pay our expenses on credit or 2) reduce the expenditures to within $50,000.

We will quickly go through our savings. And then we'll need to make the hard decisions. So, we decide to use credit. I mean, who wants to say no to themselves? And you know, Erik will probably get a raise this year. So, we can start paying it back.

But then the interest payments start catching up with us. Oh no! Now our expenses have gone up to $58,000 a year. And then, bummer, we can't really pay the interest, so we take out another loan to pay that one. And then another... Now our expenses are out of control. Not to mention that at this point I've enrolled the girls in ballet, tap & jazz, Erik and I both have new cars every two years, and I'm constantly shopping. Those are needs, right?

The bank eventually cuts us off. We are no longer allowed to take any more credit. We are such a credit risk that our credit score has tanked, thereby alerting any other would-be creditors that we probably can't be trusted with credit.

What should we do? Start trimming the expenses. The credit has to be paid. It's all stuff we've already bought. The only way out of that one is bankruptcy (i.e. Greece-this is what's going on over there! Our future if we don't change!). The only real solution is to cut down on all the "entitlements", like cable, dance classes, sell the cars and buy cheaper ones, decide if we really need a home phone and cell phones, etc. It's the responsible way.

I think it's high-time that the government start acting like everyone else in this country. Stop spending. My goodness. JUST.STOP.

And yes, it hurts to cut yourself off from things that you love. But you have to start and keep in mind that financial health goes MILES towards mental peace.

Although the scenario above is hypothetical, I'm not the perfect picture of financial health. But I can recognize an addiction when I see one and the Federal Government is addicted to spending.

The reason the debt ceiling breach doesn't bother me is because it bothers me more that Congress is actually thinking about raising it again. For the third time. This year.

What should bother us is that we apparently need this money to keep paying Social Security and Medicare. We are giving out money that we don't even have. How irresponsible is that?


chandy said...

I sure do miss visiting with you my friend!

(You're not announcing another pregnancy here are you? ;)

Mitchell and Amy Schultz said...

It's such a simple concept and yet so many just don't get it...thanks for the hypothetical Wilhelmsen story ;) that made it even better!