Just Do It

You can’t pull up a news network or watch a news program without the subject of the upcoming Debt Limit Crisis showing up. There is a damn good reason for it – this is, potentially, the worst thing that could happen to our country in over a century. Now I know that there are websites and blogs out there that are claiming it is all a smoke screen, or that the problem isn’t as big as it really is, but don’t buy it.. not even for a second. This is a legal issue effecting the very core of our economy and, given that there is no such thing as “just the American Economy” anymore, it can, and already is, have world wide implications. Let me break it down for you.

_

History – or better.. How we got into this mess

_

As anyone that doesn’t live under a rock knows, the Government of the United States is limited in just how much money it can borrow. The US has had debt since it’s inception but in 1917, with the passage of the Second Liberty Bond Act, a debt ceiling was established. This debt ceiling morphed over the next 20 years and in 1939, the debt limit became a hard legal limit. In 1981, President Reagan signed off on a Congressional bill to raise the limit to more than one Trillion dollars for the first time. As it stands now, the Debt ceiling is 14.294 Trillion dollars. This limit was signed into law February 12, 2010. Sadly, we reached that Debt Ceiling in May of this year. The Secretary of the Treasury has been taking “extraordinary measures” to keep the US Government from defaulting but his ability to do that will end approximately Aug 2 of this year.

_

_

This is NOT just a government shutdown.

_

Many pundits (mostly Republican) have made statements comparing this situation to the budget crisis earlier this year, when the Government was going to have to shutdown because there was no active budget to determine how to spend government funds. There have been a number of instances where this has occurred because of budget talks failing and, while a serious situation, this situation is FAR worse.

_

The bottom line, here is that the Government has more bills than it takes in with revenue. It is no different than when you don’t have enough paycheck to pay all of your bills – something has to go unpaid. Worse, when you don’t pay your bills, the credit agencies reduce your credit rating. This effects how much money you can borrow, what that money is going to cost you if you do borrow it and what you are worth. Likewise, if America defaults on it’s debt, it will effect what America is worth (the dollar), what the interest rate will be on money we borrow and how strong our economy is.

_

To graphically show the situation, check out this article from CNN.  The first graphic in the article kind of tells the story. Daily, the US government takes in approximately 12 Billion dollars. Daily, the government spends approximately 32 Billion dollars. This is a daily shortfall of about 20 billion dollars. Without the ability to borrow money, starting Aug 2, the US government will be unable to pay it’s bills. There is no way around this.

_

To prevent an actual legal default, the Secretary of the Treasury will pay the interest payments on our debt. This 29 Billion dollar payment, due Aug 15th is essential because if it is not paid, it will have huge legal impacts on our economy. To do this, the Fed will have to hold back payments to about 55% of what should be paid – Social Security payments, Medicare/Medicaid payments, Education, Defense Contracts, Active Duty Military, Government Workers, IRS refunds to businesses andindividuals, Veteran Benefits.. the list goes on. You can easily see where this is going. Grandma won’t get her Social Security Check. A wounded Veteran won’t get his month Veteran Payment, our Active Duty Servicemen and Servicewomen won’t get their paychecks, the Federal Government will effectively shutdown… This is FAR worse than a Government shutdown. This is the first step to bankruptcy.

_

The bad news doesn’t end there. If the debt ceiling is not raised, eventually, the Fed will not be able to make our interest payments. When that occurs, things get really bad. Our investors (read – those people that the US government owes money to for treasury bonds and loans) can call those debts due – in short, foreclose on the US. Our credit rating as a country goes into the crapper and we are looking at imminent bankruptcy (think Greece). In fact, the situation is so bad, not even the national economists can predict just how bad it will  get. President Obama had to downplay the situation in his National Address for fear it would start a panic ala 1928 – as well he should, because it wouldn’t take much for this to become worse than The Great Depression.

_

The Effects of Waiting -

_

The lack of action by the US Government to raise the debt ceiling has already hurt the country. The “economic recovery” has already ground to a halt and the Stock Market has been depressing slow (and primarily negative) for months. Jobs recovery has been likewise slow (disappointingly slow which has further hurt the economy). Most of this can be laid directly at the feet of Congress dragging their feet in dealing with the debt ceiling issue.  I urge you to take a look at the embedded PIMCO video in the article. It shows an investing firm being very direct about advising their clients NOT to invest in America. It also points out the dip we are about to see in the economy at the end of Q2 when the stimulus driven US purchase of Treasury notes ends. One ratings agency has already downgraded our economy from “Stable” to “Negative”,  and Moody is considering doing the same. Fitch Ratings agency said that if we end up in the situation we will be in on Aug 2nd (unable to pay all of our obligations) they will also downgrade us.

_

The bottom line here, is that investing agencies are telling their clients to stay away. Those with money to invest in our economy are, instead investing in other places. Even our own Corporations are “diversifying” their assets overseas. This is what is killing the recovery from the recession and this is what will eventually kill out economy completely.

_

“But Moorcat, surely you realise that the deficit is also and issue?” Of course I do, and it is academic. Yes, the deficit is a problem that MUST be addressed and yes, it is a serious problem that has investors, job creators, and money people nervous. Unfortunately, it is also a smoke screen. There is NO correlation between the deficit and the debt ceiling… ZERO. The debt ceiling is about paying the bill for money we have already spent. Nothing done in the deficit talks will change that. We have already committed to paying the money we owe in previous budgets and even from previous administrations. This isn’t Obama’s problem, the Democrats problem, Bush’s problem of even Reagan’s problem. This is AMERICA’s problem right now and we need to address it right now. Everyday we delay in addressing this issue makes the issue that much worse. Every day we fail to raise the debt limit, we lose money that could have been used to fix the economy, find people jobs and strengthen the dollar.

_

Let’s make a Deal -

_

Now I get to the part that REALLY chaps my ass. The Republicans in Congress want to play “lets make a deal” with this issue. What a bunch of MORONS. Yes, you read that correctly, “WHAT A BUNCH OF MORONS”. Let me give you an analogy…

_

I don’t know how it is back east, but one of the things that young men (and sometimes young women) out here in the West seem compelled to do when they are teens and have their first car is play “Chicken”. Sometimes, the desire to play that particular game extends into adulthood and then they make money doing it for an audience (we call those demolition Derby’s…), but I digress. I have to admit, I tried it a few times. We understood the rules and (supposedly) we were willing to pay the consequences if we failed. There was two rules in particular I remember very clearly… 1) You never played chicken against someone driving someone else’s car and 2) you never played chicken against someone driving something twice the size of your vehicle. Those seemed like pretty important rules for obvious reasons. Too bad the Republicans in Congress have forgotten them.

_

What these yahoos are doing is the same as playing chicken in a Yugo against a Mack Truck. Even if they win (whatever the hell it is that they think winning is), they are still idiots.

_

The Debt Ceiling is not an issue to play games with. It has very real consequences for real people. It hurts the economy, it costs people real jobs andit is counter productive. I understand that they say they are doing it to force a dialog on the deficit, but even that excuse has gone cold given that they are unwilling to really consider any viable solutions to the deficit problem. In the end, they are simply being obstructive, and this time, it is not only going to hurt their party badly, it is going to hurt the country. In fact, as I pointed out above, it already has.

_

The idea has been floated by multiple people that the Republicans are doing this on purpose  (Yes, I am aware that these are left leaning sites… there has been a surprising silence from the Montana right leaning blogs on this issue except from the true wingnuts that claim there isn’t an issue)- an idea that I find gaining traction every day not only with me, but with many of the moderates I talk to on a daily basis. While I agree that the deficit has to be addressed, the Republicans have to know what their obstructionism is costing the American Economy and the American People. From that, I have to conclude (like the articles I linked) that the Republicans are deliberately sabotaging the Debt Ceiling discussion for some kind of perceived gain – Either the liberals are right, and the Republicans are willing to take down our Economy in an effort to make Obama and the Democrats look bad, or they believe that if they push hard enough, they will be able to kill every social program while still protecting their corporate interests by leveraging this issue.

_

If they believe that by taking down the US Economy, they can make Obama look bad, they are sadly mistaken. Polls are already showing that the American Public blames the Republicans more for the current state of affairs then they blame Obama or the Democrats. Further, the foreign investors, the Entire American Investment Community andeven some of those “corporate interests” the Republicans are trying to protect are blaming them. If they think they can use this issue to force their entire agenda, they are also mistaken. The US people would not put up with it. There is already a huge outswelling of hatred for the massive cuts already forced by the Republicans and the Tea Party. Tea Party candidates are getting killed at the polls all over the country for local elections andit doesn’t look good for the national elections next year. Further, as both the articles from CNN point out, the kind of massive cuts the Republicans are proposing will kill any chance of an economic recovery – in fact, they are likely to start a spiral of inflation that could easily lead to a true Depression. This is NOT “Stewardship” as Michelle Bachmann would have us believe, it is sheer insanity.

_

Just get it done -

_

Referring to back to one of the CNN articles,  -

Warnings from all three credit ratings agencies didn’t do it. Seven weeks of talks among lawmakers didn’t do it. Maybe President Obama’stalks with Capitol Hill brass will do it.

It isn’t as if they haven’t been told. This situation is/was completely avoidable. Had even a temporary increase in the Debt limit been made, the economy would be better, more people would be working and more revenue would be coming into the Federal Government to pay it’s bills. The situation has been critical since May (though why this has been underplayed by the media, the body politic, and the President is somewhat surprising given the scope of the situation). What Congress MUST do is pass an increase to the Debt Ceiling regardless of whether there is anything agreed upon beyond that. Going to the last minute is suicidal, stupid and damaging to both the economy and to the American Public. The very people that should be up in arms over the damage to their stock portfolios, their retirements, their bottom line (the Conservatives of America) are the ones at fault for this situation. They should be screaming bloody murder, but instead they are silent. What the HELL?

_

Each and everyone reading this post should be breaking their arms trying to contact their State Congress Critters. Every news station in America should be putting a representative of an Investment House or Credit Reporting Agency on a daily newscast explaining to the American Public just how stupid it is to NOT pass an increase. Every Corporate Lobbyist should be breaking down the door of these very same Congress Critters telling them to make a deal or they will stop getting corporate funds to campaign with. This is just how serious this issue is.

_

Update -

_

I was told in one email that this article seemed a little “Chicken Little”… Then I asked the individual if they had actually taken the time to read the links I provided. Of course, the person hadn’t. If anything, I am understating the significance of this issue. Some estimates point to the lack of action on the part of Congress as costing the US Government 80 Billion dollars a month in revenue (due to lack of investment, lack of sales of treasury bonds, lack of movement in the economy, etc), and over 200,000 jobs a month. The truth is probably higher but let’s just stick with the conservative estimate. That means, in the three months since this really became an issue (when we technically hit the ceiling), this fiasco has cost America upwards of 240 billion dollars, and 600,000 jobs. How many of those programs the Government wants to cut could be funded with 240 Billion dollars?

_

It was also pointed out to me that many economists believe that a Uber Depression is inevitable at this point. To some extent, I agree with that with the following caviat… The reason these Economists believe that an Uber Depression is likely anyway is that the Debt to GDP (Gross Domestic Product) is at or near 350%. While I admit, I don’t completely understand many of the arguments they make (I am not an economist though I did study some Economics in College), this guy makes a lot of sense because he tried to stay in layman’s terms. My caviat is that the US is capable of re-investing in production industries just like we did during WWII – IF we have the national will to do so. It would require our Government (driven by the People, not the Corporations) to pass trade laws favoring US products, pass laws eliminating corporate welfare, pass laws making attactive for US companies to invest in America (and UNatractive for US companies investing in other countries as is happening now…) and a willingness of the US people to go back to work producing things instead of the service BS we do now. Can it happen? Does the will exist for it to happen? Only time will tell, but if the alternative is a Depression that will make the 1930′s look like a party, I vote for re-energizing the American Production and Inovation machine.