Debt

As the debate begins anew in Washington on the federal budget, it may be an appropriate time to revisit and clarify the more salient points that are driving the issue: the debt limit, the deficit, and the national debt.

Politicians are making self serving public statements that they will not support raising the national debt limit without some manner of nebulous budgetary  concessions and so the question arises what exactly is the national debt limit, and why would our elected officials choose to either raise the limit or allow the nation to go into default.

The national debt ceiling is exactly like the credit limit on a bank issued credit card. The amount you are allowed to spend is a predetermined number and you are not able to spend more than that without the issuing bank raising your credit limit. You must show the bank that you are of a sufficient credit risk with sufficient collateral resources to warrant elevating your limit.

Suppose you have automatic payments registered with that credit card account – if you exceed your limit and the bank does not raise it, you will not be able to meet those financial obligations and you will go into default. Should you default on enough different accounts, or default an excessive amount of times, your credit rating will suffer, making any further borrowing almost impossible. If you are able to secure financing, the interest rate will almost border on the usurious.

This is the situation facing congress at this moment – raise the national debt limit or risk default. It is irresponsible for lawmakers to threaten default; insuring budgetary restraints and responsibility are necessary, but allowing the credit rating of the United States to slip into that of a third world potentate is absurd. The United States must honor its financial obligations; the debate must center on how to do so, not if to do so.

The first step in that debate must center on the deficit, the annual number that delineates the negative budgetary shortfall discrepancy between what the government takes in on receipts and what it expends in the course of its business. This is where a balanced budget must be written  and passed. Those politicians who cry for a constitutional amendment mandating that congress pass a balanced budget are abdicating their most basic fiduciary responsibilities. There are several valid and responsible reasons for having a budget deficit - war, national disaster, economic downturn, etc.- but  altering the constitution to avoid doing so may sound popular but is inherently dangerous for the future financial health of the nation.

What ultimately may be of the greatest harm to the country is the national debt, which in a thumbnail description is the accumulation of all current and previous budget deficits. Included in the debt are such things as Treasury bonds and other such monetary instruments, so the reality is that there will never be a zero sum of national debt. The crushing aspect of the debt however is the interest that must be serviced upon it, which at its current rate makes it impossible to properly manage. Simple arithmetic demonstrates that, if left unchecked, one hundred percent of the money the government receives in tax receipts will go not to bring down the debt but merely to pay the interest on that debt.

The reality is that such inevitabilities are unsustainable and so the hard choices must be made in managing the national debt ceiling, the deficit must be eliminated by a balanced budget, and the debt must be brought into a manageable format so that this nation can thrive and flourish without the debilitating financial strains put upon it by our current leaders and their unwillingness to act in the national best interest.