Imagine owning a million-dollar home with a $100,000 mortgage. You’ve got $900,000 of equity, so you’re pretty well off. But well off or not, you’re still required to pay the mortgage.
Now imagine that you don’t have the cash on hand to make a monthly payment. In fact, the only way you can scrape it up is to either forgo paying other bills or charge it on your Visa. Are either great options? No, but your only other out is much worse: not paying your mortgage at all. Miss the payment entirely, and your delinquency will be printed on the front page of your home-town newspaper. Your bank will raise your rates; or perhaps, stop lending to you altogether.
In short, your inability to borrow could plunge your household into a severe financial crisis.
What would you do? What most people would do – or at least should do – is two things…
- Use their Visa to make the mortgage payment
- Take immediate steps to deal with their financial issues.
This is the problem America now faces. We’re one of the wealthiest nations on earth, but for years we’ve been spending more than we’re taking in. It’s a problem for which there are ultimately only three solutions: spend less, take in more taxes, or a combination of the two.
Democrats want to spend less and take in more taxes. Republicans want to simply spend less. But while they quibble over which approach is better, the mortgage is coming due.
Two days ago the United States reached its debt limit. Without congressional approval, the U.S. can’t “pull out the Visa” to pay it’s bills. The Treasury Secretary shuffled some expenditures and bought Uncle Sam a little more time – we now have until Aug. 2 before some group will go unpaid, but the deadline is looming.
It’s too late now to meet our obligations by either slashing spending or raising taxes, because either approach will take years to solve the problem. In the meantime, the only way to pay the bills is to borrow more.
So what should we do? According to a recent poll, most Americans think we should simply not pay our bills.
On May 13, Gallup released the results of a poll suggesting 47 percent of Americans want their representatives in Congress to vote against raising the debt ceiling – to effectively not allow the government to borrow more. Among Republican voters, that number was 70 percent. Only 19 percent of Americans (8 percent of Republicans) want the debt ceiling raised, with 34 percent saying they don’t know enough to offer an opinion.
Only an idiot would think it’s a great idea to pull out the Visa to pay the mortgage without first working on a solution to the cash-flow problem. But to not pull out the Visa at all? That’s only going to make the situation worse – a lot worse.
Here’s what the President said at a recent town hall meeting, as quoted in this recent Yahoo News article:
“If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system.”
Here’s another quote, from Matthew Zames, JP Morgan managing director and chairman of the Treasury Borrowing Advisory Committee. It’s from this New York Times article.
“Given the magnitude of the adverse consequences a default would have on Treasury borrowing costs and the health of the broader economy, action is urgently needed to increase the statutory debt limit.”
There are, of course, lots of people who disagree. Here’s Sen. Pat Toomey from this article on Real Clear Politics
‘This administration has resorted to repeatedly mischaracterizing and exaggerating the consequences of a delay in raising the debt limit. Apparently, they hope to intimidate Republicans into capitulating to their wishes to continue unconstrained deficit spending. This is a dangerously irresponsible tactic. It needs to end”
Despite these strong words, however, keep in mind that even Republican leaders like John Boehner want the debt ceiling raised. Their fight is about attaching budget cuts to the legislation that will raise it.
So here’s what I don’t understand: Why do so many Americans not want the ceiling to be raised at all?
Community members, what do you think? Is my analogy above off-base? Is the President exaggerating the problem? Should our congressional leaders refuse to raise the debt ceiling? Forward this story to your friends, then leave a comment below, or join the discussion on our Facebook page.