Raising the US Debt Ceiling has been a topic of discussion all over this great country. Last week, one of our trusted vendors, Tommy, asked this great question:
“How can a government that prints it’s own money go broke?” That is a simple question. One with very complex answers. Very thought-provoking to say the least.
Tommy has a simple solution. “Print up all the money we supposedly owe these other countries, stack it on pallets, and airlift it to them. Then, simply tax them whatever they would tax us on imports and exports.”
Well, hmmm…. simple enough. Would it work? Let’s look further at just what our money is:
Notice at the top of the dollar bill is the phrase: “Federal Reserve Note.” Take a look at the history of our US Dollar:
In summary, prior to Richard Nixon removing the “gold standard” of our currency, for every dollar in circulation, there was physical gold of the same value in storage, gold that is still stored at Fort Knox, KY.
And there is another analogy comparing our debt ceiling to a personal credit card. As long as you can continue to raise your credit limit, you can pay your obligations and take on new spending initiatives. When someone says NO to your request to raise your limit, you have a serious problem. You have to STOP spending. And if you cannot pay the minimum payment due, the issuing bank will stop your spending for you.
Many deficit hawks are pushing Congress NOT to raise the debt ceiling because there will still be ample revenue coming in to operate our government. That is true. But just like a credit card, when you are not able to pay your minimum payment, in this case the interest on our national debt, word spreads to all the lenders you owe, just like on your credit report.
Ever read the fine print on your credit card statement about a late payment? The interest rate goes up. The same is true with our nation’s debt obligations, only the “world market” determines how much the rate goes up.
Our nation’s budgets have been in deficit for 80% of the past 82 years, so the problem is not new. Furthermore, our total deficit has been over 10% of GDP only 4 times in history – The Civil War, World War I, World War II (aproximately 25% of GDP) and the financial crisis of 2008.
Here is a closer look of where we stand as a country right now, according to Tresury Secy Geithner in February of this year: http://www.bloomberg.com/news/2011-02-14/geithner-quietly-tells-obama-debt-to-gnp-cost-poised-to-increase-to-record.html
And now, this dilemna lies soley in the hands of Congress. Oh joy. http://www.washingtonpost.com/business/economy/congress-tees-up-crucial-votes-on-debt-limit/2011/07/17/gIQA40IZKI_story.html
There are many views on deficit spending and its effect on our economy, all of which have merit. Read this interesting commentary on deficit spending by Marshall Auerback: http://www.nakedcapitalism.com/2011/07/marshall-auerback-there-is-no-progressive-case-for-deficit-cutting-%E2%80%93-the-myth-of-the-virtuous-clinton-surpluses.html
Now is a time that our elected officials have to put politics aside. They have to quit posturing for the 2012 elections. Our nation’s debt ceiling must be raised to continue any hopes of economic recovery, but we must also have serious plans in place on how the excessive borrowing will be spent. Everyone has a right to know.
I frequently tell prospective first-time homebuyers “every day you do not own a home is another day you will have to pay for one.”
The same applies with our deficit-dilemna. “Every day we put off addressing the problem is another day we will be affected by it.”
You know what’s really funny? After hearing all of the many solutions being proposed, I like Tommy’s solution the best!
Trey Lewis is a licensed Real Estate Broker in the State of Tennessee with Ole South Realty, 615.896.0019 direct 615.593.6340. Specializing in new homes in the Greater Nashville area to include Nashville, Murfreesboro, Smyrna, Clarksville, and Spring Hill, Tennessee