Why the Debt Ceiling Matters

Today the news is dominated by the debt ceiling. Before 1917, every time the US had to borrow money Congress had to approve it. During World War I, as expenses were piling up and more money was needed, Congress decided to give the government blanket approval to borrow money up to a certain amount. Every time the debt has gotten near that limit, Congress has approved an increase in the amount that is allowed to be borrowed. The US has never defaulted on its debt.

US Treasury bonds are considered the safest investment in the world. They are held around the world by foreign governments and investors. But most importantly, they are held by the Social Security Administration, 401(k) plans, retirement funds, US investors of all types. When Social Security and Medicare collects more in payroll taxes than it spends in paying benefits, which it did for many years, they loaned the excess to the US by buying Treasury bonds. That keeps those programs solvent, prepares for the time when payroll taxes do not cover benefit payments, AND helps the US government have money to operate.

So, the first casualty in a debt default are our own retirees, both through their retirement savings and instability for the Social Security and Medicare programs. But it reaches further than just the bond (debt) payments they were expecting to receive. If the US defaults, it will send the stock market into chaos. Again, damaging 401(k) and other retirement plans. It will hurt every investor worldwide.

Okay, so you are not an investor. Do you ever need the police? How about a fireman? How about our military men and women? Federal money goes into paying for those services. If the US defaults, that means those people will not be paid, along with the other employees who work for the EPA dealing with that Exxon oil spill, or those in military hospitals taking care of our wounded, or those in our museums and national parks or those in the IRS who collect the money that is the basis for keeping our government running.

What will happen to all of these people? Are you one of them? How will they pay their bills, put food on their tables, spend money to keep our economy running at the most basic level? Who will care for our sick and wounded? How will they get medicine, prosthetics, and adaptive devices?

In the area of finance, defaulting will lead to higher interest rates. Can you afford to pay more for your car loan? How about a home loan? Any money you borrow, IF you can borrow it will be at interest rates that will impact your cash flow and the overall quality of your life.

If the US defaults, the three credit rating agencies will downgrade the US Treasury bond ratings, which means they are a less desirable investment for investors both foreign and domestic. That means fewer people will be willing to lend the US money. We are not in a position to operate without borrowed money. Running a country is NOT like running a family. There are a lot more moving parts. No government operates without some debt and the need to borrow money. The US began on borrowed money. How do you think we fought the revolution? The British did not hand us money to fight them, we had been paying taxes to England, so we did not have it in our savings accounts. We had to borrow it from other countries and wealthy investors. We are currently involved in three wars. It is absurd to think we can run the country without borrowing money.

Okay, so you are not a retiree, you don’t work for the government in any way, you don’t invest. You are safe. Think again. You own your own business. You have a contract to provide services. If your customers are now unemployed public sector workers, you are not getting paid. If your customers are military personnel, you are not getting paid. If you provide services to local, state, or federal offices, you are not getting paid. If your company does not make money, you can’t pay your employees, you can’t feed and clothe your family.

At the very least, if you think none of those things apply to you, you use money. The good old US dollar. If the US defaults on its debt, what will happen to that dollar? It will no longer hold its value. Inflation will be rampant. If you think food is expensive now, let inflation take hold. You will be paying $5 for a gallon of milk and $10 for a jar of peanut butter. How do you feed your family then?

There is nowhere to hide. If you are in the US, this will affect your life and not for the better.

I am disgusted at our representatives in Congress who are so irresponsible as to even consider doing this to our lives.