Debt of Honor

What is the game of debt being played on us?

What is the point? This talk of raising the debt limit or being held to the debt limit... what is the point? What do you think the discussion is supposed to accomplish?

This is being played as a dire crisis that can't be solved by anything less than indentured servitude... anything less, and financial Armageddon will come down

on us all. Really? President Obama claims he may not be able to pay the military or social security

*** WAIT - Timeout***

I thought the Social Security Trust fund was fully funded for the next several decades?!

Am I delusional? I don't think so... I clearly recall that as being what Reid, Pelossi and Obama told us, reassured us, swore to us... right?!
Google says: "That is true" - Way, wayyyy back in February of This Year, Jack Lew, President Obama’s budget director, facing a debt limit increase within a few weeks of saying this, said in USA Today,

“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

Sen. Harry Reid went so far as to say

"Social Security was fully funded for the next 40 yrs! so stop picking on Social Security"

He said that Republicans who were trying to warn people that the system was in danger, were

"Using scare tactics, saying the programs in crisis and on the verge of bankruptcy, that is a myth, and it is not true"

How can they now say that it all comes to a crashing halt if the debt limit isn't raised next week?

Oh... that's right, they said it... lips were moving... then and now... got it. Moving on.

Are Social Security recipients at risk of not receiving their checks, or not? Immediately? No - unless of course President Obama wants to starve them for his own political gain, that is. Ok, I realize that might not be very reassuring... but I'll come back to that in a moment.

Maybe we should take a couple steps back. What is our debt limit? What is Debt? How should debt be dealt with? Is unmanageable debt dealt with responsibly and honorably by seeking more of it? Is it honorable to ask for more of what you cannot be sure you can repay?

What's the story?

The Story
To hear many of these politicians, economists & talking heads left & right, describe it, the debt and our ability to pay any of it, are being treated as inseparably tied to our decision not to borrow more, as if the decision to not borrow more, means that the United States Govt is suddenly and entirely flat broke, everyone still having a job will lose theirs, all of our savings will vaporize and we will be entirely unable to make any payments on our debt... does that make sense?

These talking heads are blathering on that we face catastrophic failure - that nothing would be paid.

That's a lie. Period.

Nothing about failing to raise the debt limit, or even defaulting on the debt (which is not the same thing at all), would instantly prevent our tax revenue from streaming in; the US Treasury does have an unimaginably huge debt, but it also still has a reasonably dependable flow of tax revenues coming in that cover the monthly service of that debt, as John Browne points out,

"Many of the key people responsible for America’s historic mess, including the President, Treasury Secretary Geithner, former NEC Director Summers, and Fed Chairman Bernanke, have pronounced publicly that a failure to lift the debt ceiling will cause a catastrophic Treasury debt default.

This is simply not true. The US Treasury has tax revenues that cover the service of its current (staggering) debt of some $14.3 trillion."

Look at it this way: You wake up after a long spending binge and realize you bought or agreed to buy more than you can afford, so you apply to have your credit card limit raised. You call up your friendly neighborhood (India) help line, and they say 'Sorry, no - we are not confident in your ability to handle a larger loan balance at this time.' Does that mean that you are suddenly and instantly broke and unable to pay any of your bills?

No? Neither is that the case for Uncle Sam.

What would you have to do? You'd have to sit down, look at your bills and assets and decide which bills to pay first, which to pay last, what you can return or sell and and also decide which drains on your cash flow are not essential and can be dispensed with... right? So would Uncle Sam,

"In this event, it is unlikely a default will occur. Historically, governments prioritize debt service above all other expenses. If the expansion of funds via debt becomes impossible, the Treasury will cease paying other expenses first, starting with "nonessential" discretionary expenditures, and then move on to mandatory expenditures and entitlements as a last resort."

If it were you, and you didn't get your debt limit raised, would you choose to continue buying happy meals, renting video games and paying your full service NetFlix account first... while pushing off your mortgage & car pmt? No...?

What does it tell you when President Obama gets in front of the cameras and says he's worried that he might decide to do just that by possibly not paying his most important bills, in favor of his least important ones?

As Chief Executive, it is true, he is the one who must decide what will be paid, what will be paid first, and how many non-essential programs will be kept, and which dropped, so that our monthly income can be directed to wisely pay our bills. And by least important or non-essential, I mean payments such as these, an example of cuts (meaning the programs are still there) being proposed in the current round:

• Save America 's Treasures Program. $25 million annual savings.
• International Fund for Ireland .$17 million annual savings.
• Legal Services Corporation. $420 million annual savings
• Endowment for the Arts. $167.5 million annual savings.
• National Endowment for the Humanities. $167.5 million annual savings
• Hope VI Program.. $250 million annual savings.
• Amtrak Subsidies. $1.565 billion annual savings.
• Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
• U.S. Trade Development Agency. $55 million annual savings.
• Woodrow Wilson Center Subsidy.$20 million annual savings.

The fact that these programs, and many more like them, still exist, means that the liposuction has yet to be begun. If the President chooses to continue funding NPR, ACORN (or whatever name they're going by these days), making foreign aid pmts,  expanding EPA regulations, caring for the snail darter saving funding, or whatever, while choosing not to pay Social Security and the Military... I suggest that a nice loud chorus of IMPEACH THE SOB!!! would be very much in order.

But I don't think (hope) even Obama would do that. But he sure is willing to try and scare people into thinking that he'll have no choice but to do just that. What does that tell you about him? Is that not political posturing at its very worse?

The Other Story
The other story being peddled is that choosing to increase our debt limit is little different from asking your Uncle Sam to come in and work an extra weekend or two to catch back up on things and then all will be fine.

Is that the case? Is raising the debt limit simply saying yes to 'rolling up our sleeves' and handling the matter?

If you got that extension on your credit card bill, and your mo. pmt. was raised... what do you suppose your friendly neighborhood customer service person would say if you called up and said,

"Ya know, thanks for raising my limit, do you want me to pay my increased bill for one or two months?"

Don't you think it might be something like,

"Sorry? No sir, that is your new payment until you pay down your debt - and that is going to take you quite a long while I'm sure".

This is not a simple matter of 'rolling up our sleeves' and 'eating our peas', and shame on President Obama for trying to con people into thinking of it as little more than that. He's not only asking for a debt limit increase, but also asking to pile on trillions of dollars of more programs & purchases! Purchases which come with long, long term obligations to repay.

This is despicable. Nothing less.

This is not a matter of 'Uncle Sam' putting in extra effort, but of Govt saying "Yes!" to taking more of what is yours, and doing so for a much longer period of time. Any increase in the debt limit means taking on more debt and more interest which adds a very, very large number of dollars to what you, your children and grandchildren will someday have to pay back. IOW this is a Tax INCREASE on a massive scale, but not only that, it is a tax increase that is far too close for comfort to being a defacto extension of indentured servitude upon the American people. If your child could be born today with tens of thousands of dollars of debt on their heads can be called many things, but Free, isn't one of them.

Not only are we being obligated to innumerable more years of Taxes, but we are also being saddled at the same time with even more, and more regulations - regulations that will restrict our power companies ability to supply power to us, regulations that will make it difficult for them to even stay in business, regulations which are preventing business from expanding, operating or being created.

Why?

A Debited Honor
Again, what does defaulting on the debt mean? It means not paying your bills. For you and me, it would be limited to saying "I'm out of cash, I can't pay my bills." and then your creditors looking over your books and deciding whether to repossess, extend further credit, or something else. But that's not the case with government, government can do what we can't - they can technically pay their bills... while at the same time, not pay those same bills.

How? they can print their own money, and they pay out x number of funny money bills, along with n number of 'actual' bills.

That is something which the Federal Govt has been doing to handle it's debt problems since around 1918 - we've been allowing that very thing to be done, and it has been doing that very same thing pretty much continuously, ever since.

As a result, your dollar today, wouldn't buy a nickel's worth of candy in 1914 - and that would have bought a lot of candy. Back then.

What do we do?

Is it wise to pretend there's no problem, declare that 'lucky day! we have an increased debt limit!' and increase the burden on all Americans ability to pay their bills even further?

The Answer?
First, recognize that the necessary and most productive thing to do to repay your obligations, is the best course of action, despite the fact that it will be difficult and will involve pain, but knowing that once confronted, the disaster you've been trying to ignore can begin to be dealt with, and your real situation can actually have real progress made towards handling it.

By hitting the debt limit on Tuesday, Aug 2nd, and NOT raising the debt limit, we would be finally confessing that the check is not in the mail - but that it will be, and here's how we are going to be paying our debts and obligations on such and such schedule from here on out. Economist Peter Schiff notes,

"While President Obama would find himself walking through a minefield of special interest groups as he chose where to cut, I expect the overall effort to be broadly popular. This is, after all, what the boisterous American Tea Party has been demanding all along. And the ultimate result would be a renewed faith in the US dollar and Treasuries."

Failing to do that, if the Republicans game the system to make token cuts, little spending decreases and raise the debt limit - as the leadership seems inclined to do - it will be disastrous. Peter Schiff continues,

"In fact, the Republicans have in their hands the opportunity of a lifetime, the chance to force the Administration into good sense, while avoiding the political fallout.
Increasingly, it appears likely that the Republicans will buckle. If they do, Americans will be faced with a package that both sides will claim as a victory. The losers will be hard working, patriotic Americans and those around the world who believed the United States was good for its word."

This is not a game for politicians, don’t let them treat it like it is one. They care about power, theirs. What do you care about? This isn’t about doing what will get them re-elected, this is about doing what needs, must, be done. This is about restoring the full faith and credit of the United States of America... and that’s a tall order. And a steep climb. But standing with the deal making status quo is not an option - there is no honor in that - and that path is crumbling beneath our feet right now, and you know it is. We either begin climbing up or we continue falling down at 32 feet per second, per second.

Call your representatives and senators - tell them to do the difficult, right, honorable thing - Cut our expenses, Cut the Regulations!, Cap the taxes and Balance the budget (just not with the current Balanced Budget Amendment).

However, unlike what many of my fellows have said, I don't see sunshine and lollipops following doing what needs to be done. Refusing to raise the debt limit would cause disturbances, it will cause disruptions in markets - for a while, it will cause even greater inflation than we are experiencing now... but it would also be the start of finally beginning to fix the matter, and enabling it to be turned around. Just as by sitting down with your creditors, reviewing your finances, and temporarily swearing off frivolous spending, would cause you some significant short term difficulties, it would also enable you to begin making payments on your debt, and your creditors would finally be assured that your financial behavior would become responsible and that they could have confidence that they would be paid, without having to call vinny and the debt collectors on you.

The actual result of not raising our debt limit, of actually dealing with our debt, and of meaningfully cutting expenses, removing the regulatory burdens that are hobbling our economy and ceasing to live beyond our means, would be to restore confidence in the full faith and credit of the United States of America, in more ways than one, and then we would be on the road to recovery... only at the beginning of it, true, but on the right road nevertheless. Finally.