What does the US debt ceiling debate (now allegedly “resolved”) mean for you? The Republicans and Democrats in the US Congress (the people who put us in this mess, and it’s fairly irrelevant to point fingers at one or the other as they are both spectacularly inept at spending money wisely or creating wealth) have borrowed, so far, $14,000,000,000,000 USD, in the name of the citizens of the United States of America, and they can’t pay it back.
These geniuses have determined that the best way to pay the interest on these loans (and other obligations) is to borrow more money, so that not only will they owe what they owe, but they will owe what more they borrow, plus the interest on that amount too.
There is a “ceiling” on how much they can borrow. But since they’re tapped out, they can just vote in a higher ceiling (which they did), which makes the ceiling not a ceiling, but more like a floating lid that can rise as high as they determine. If people can vote in a higher ceiling, why call it a ceiling, or even have a ceiling in the first place? Why not just have a floating debt number? A ceiling denotes stability, shelter, and safety from the elements. We have none of that.
Obviously, that sounds ridiculous, and you presume I must be oversimplifying things and leaving out a few salient points. I’m not. If it were you, and you maxed out your credit cards, there is something called a credit score that, when you try to borrow more money, the people (banks) you are trying to borrow it from look at to determine if you actually have the capacity to pay it back. If they determine that you cannot pay it back, you do not get another credit card. But the United States Congress has no such credit limitations. We have Uncle China, who is most willing to lend us money whenever we ask him.
The United States borrows money by having the Treasury Department issue Treasury bonds (or notes), to which people, banks, companies and countries (mostly the government of China, as they are one of the few entities on Earth that can afford such sums) give us the face value of those notes, to which the Treasury makes a yearly interest payment to the note holder, and at the end of the notes’ term, they pay the entire face value back. They kick the can down the road.
To paraphrase Frederick Soddy, they are betting that the tax revenues (the Treasury, and therefore the US Government, only receives money through collecting tax revenues or tariffs, they don’t actually “make” money, because they are not actually a business of any sort, despite rhetoric to the contrary) collected by the Treasury on the new wealth (created by US businesses from now until the end of those notes’ term) will be higher than the interest and principal of those notes. They have been wrong about that before. How many times? Precisely all of them.
It is a bet because they (nor do we) have any idea what amount of new wealth will be created by US businesses next month (if any), let alone ten or twenty years down the road. But we know the precise amount of that debt (principal plus interest, a fixed amount) with “mathematical certainty,” as Soddy wrote.
Let us put aside all the arguments of which bills we should pay, which programs we should stop funding, and which entrenched government programs are of a cost-effective benefit to us (hint, almost none of them). Let us focus on the fact that the people who have created this debt are the ones who are claiming they know how to pay it off. But first, they say, we need to borrow more. Just a little more.
Their un-mathematical argument is, hey, we just went through the worst (self-induced) financial crisis in history, and things really haven’t improved a whit in two years. So, by that logic, things can only get better, and therefore we’ll create much more new wealth than we have, and surely that new wealth creation will be able to pay the tab on this new debt. That technique is called reductio ad absurdum, and you don’t have to know Latin to know that it contains the word absurd.
Today Dating Symbol's guest author is Anthony Migyanka who is an economist, has appeared on “Cavuto” with Neil Cavuto, and is recognised by the Fox Business Network as an Investor Relations Expert. He has also contributed public company governance, stock market and economic trend commentary to other media outlets, including FamilyNet TV, The Dow Jones Corporation and the Washington Post.