We have been hearing a lot these last few weeks about the national debt and the debt ceiling. It’s a complicated subject which both sides of the aisle want to reduce to simplistic terms.
The Right would have us believe that we are carrying the heaviest debt load ever and that it is a relatively new phenomenon, neither of those things are true. We carried the highest debt load at the end of WWII as a percentage of GDP, which is how it is always charted.
The fact that the nation has had debt since its inception is nothing new either. In fact, all governments everywhere in the world have debt and always have. We could have a debt free nation if we had no government, but only the most extreme radicals want that, we can see the results of that in Somalia.
The right would also have us believe that a default is no real catastrophe either, again this is wishful thinking.
If we were to default, the world would view our government as dangerously incompetent and irresponsible. The economies of the entire world are in the end based on the strength of our dollar and the reliability of our government to make good on our obligations.
What we and the rest of the world are seeing right now is a Congress which is giving conflicting orders to our Treasury Department, orders which are both binding but which cannot be carried out at the same time.
We also have the problem whereby the forced spending cuts that the right wants to impose are going to kill the economic recovery, a recovery which is already sluggish at best. At this time the Treasury is borrowing $1 for every $5 that it spends, and that ratio is much greater in the short term because the influx of cash is sporadic — like a salesman working on commission rather than a salaried worker.
The salaried worker knows exactly how much he will receive in a pay period making it much easier to budget his spending. The salesman working on commission has a general idea of what he will make over the course of the year but some pay periods may vary. This is how monies come in to the Treasury.
If the Treasury is squeezed by restrictions on borrowing, it will have a problem paying. It cannot prioritize payments as has been suggested; it has to pay all of the bills due in the month.
As you can see, this is not a simple problem with a simple answer, it is very complicated and what may seem like a small hiccup in cash flow is something that will have far reaching implications for many years. Allowing the government to default by refusing to raise the debt ceiling will not solve a spending problem, it will only exacerbate it by costing the government billions over an extended time period.
The short video below is about as simple an explanation of the debt as can be given and illustrates the situation without taking sides.