It’s Like a Refi at a HIGHER Rate

Blue_earth moon

 

If Republicans wanted to hold the line on government spending, they would increase the debt limit without the slightest hesitation. Here’s why: failing to raise the debt limit could add hundreds of billions of dollars to government spending without any new benefit or any offsetting savings. It is just throwing money away.

There is no doubt that the government could have a better balance of spending and revenue. I don’t think I would agree with Republicans on the nature of that balance, but I think we could probably agree that current balance is not optimal. The debt limit has nothing to do with either spending or revenue. The debt limit is about paying bills the nation has already incurred.

Think of it this way.

Imagine your family is really being squeezed financially. There are a couple of things you can do. You can get an extra job to bring in more money or you can stop using the credit cards or move to a smaller house or find a cheaper cable provider or refinance your mortgage, etc. The one thing that will not stop the pain is being late on your mortgage or credit card bill. That’s going to increase the pain!

Failing to increase the debt limit is like missing your mortgage payment.

Let’s look at this in dollars and cents. As I am writing this, the debt of the United States is $16.7 trillion. This is a lot of money. You can get the current amount of the national debt at www.treasurydirect.gov/NP/debt/current.

No one knows what exactly will happen if Congress fails to increase the debt limit. The United States has the resources to pay its bills. If Congress misses the deadline, it simply means that Congress refuses to pay its bills. Eventually things will get sorted out and we will start paying them again. But the lasting effect will be that the financial markets will want to collect a higher rate of interest on the outstanding $16.7 trillion. If the rate the United States has to pay goes up only 1%, this will mean increased interest expense of $167 billion per year.

It’s like refinancing your mortgage at a HIGHER rate. It makes no sense.

Where will that extra money come from? And, more importantly, where will this money be going?

  • We could use it to finance a new war somewhere in the world (the cost for both the Iraq and Afghanistan wars were $180 billion in 2008, $130 billion in 2009, and $159 billion in 2010, but have been winding up since then), but we won’t;
  • We could more than double the federal education budget, but we won’t;
  • We could provide a 50% increase in grants to states for Medicaid, but we won’t;
  • We could triple health-related research and development, but we won’t;
  • We could more than double the transportation budget, but we won’t;
  • We could give an across the board reduction of 7% in federal income tax, but we won’t;
  • We could even afford the interest on a $10 trillion increase in the federal debt, but we won’t.

We won’t do any of this because the money will be going to people who hold bonds and other securities of the United States. These are folks both inside and outside the United States (think China) who will get an unearned windfall simply because the Congress of the United States couldn’t get it together to pay its bills.

$167 billion extra to folks with large holdings of government securities.

$167 billion extra to folks who might want to spend a little of that money supporting politicians who are eager to create this kind of chaos.

But that’s cynical. More likely, this would just be a symbolic way to make a statement: that we are spending too much. It seems like a dire action. It seems like a symbolic way to put a gun to the nation’s head and say “I dare you!”

Too much of our national conversation is about SEEMING to be right. Or about making the other side SEEM wrong. Too little of it is about working hard to achieve a solution.

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