Friday, 25 February 2011

The USA Debt problem and me

As a semi responsible 32 year old mortgage owner I have a household budget. I created it in excel and it’s pretty nifty.  You can change one figure, lets say my income and it effortlessly auto-populates the net result changing what might have been a loss into a much more pleasing number.

It’s always tempting to play around with the numbers in a new budget.  What if there was another $1000 added to the weekly income?   Easy.  Saving for that trip to England would be a cinch.  What if that figure was $2000?  Easier.   I could take that trip to England and get the exterior to my house repainted.  A trip to England appeals to me.  Greatly.  I also very much want to change the colour of my light brown house.  The trim is a darker brown so you could see how desirable new colours are. The 22 year old me, would have considered taking out loans, credit cards and borrowing money in various ways to pay for these things I oh so desperately yearn for.  The 32 year old me, however, understands the fiscal irresponsibility of that seemingly easy option and has had some brushes with consequence over the last ten years.

Today I learnt that since 2008 the Statutory Debt Ceiling in the United States has been raised on five different occasions. At September 30th 2008 the total Federal debt was $10, 011 billion.  Today, February 2011 it’s somewhere in the region of $14,754 billion and rising.   Fourteen thousand, seven hundred and fifty four billion dollars in debt.  For a beautiful fleeting moment I thought, hey… if the United States Treasury can run a budget by raising it’s debt level every time it wants to pay for something…. Why can’t I?  They’ve got more experience than me.  Hell, they’ve established highly successful careers in accounting and economics.  Surely, they’re at the top of their game, managing one of the largest economies in the world.  Sadly, the fantasy of getting everything I wanted right now didn’t last for long because despite my complete lack of accounting or economic experience the one thing I can recognise is this is a recipe for disaster. 

So I asked myself why is the highly experienced United States Treasury committing such obvious Hare Kare? Because it has no choice.  The thing about balancing a household budget is – it’s easy.  Even when it’s hard.  If you don’t have enough to cover your expenses there are really only two options to consider – earn more money or reduce your costs.  In a home this could be as difficult as getting a second job or stopping the cable, internet, phone and other essential-non-essential monthly bills.  For the United States Government it’s as difficult as raising taxes and cutting essential programs, funding and government payments.  Each of these ideas are incredibly difficult for a government to broach that wants to consider the concept of re-election and in today’s political climate they seem impossible fullstop.
Since I was 22 the United States Government has been spending more than it’s been earning.  While I acted smarter with my money the United States Government acted more irresponsibly.  And now it’s fucked.  Utterly.  The debt has ballooned a staggering 151% since 1997 and 60% of that has happened in the last four years.  The problem with this isn’t just the amount of money they now owe, it’s the financing costs.  See, even I knew at 22 the more I owed the more interest I had to pay and the more I had to earn.  As an individual the decision to burden myself with debt is a fairly uncomplicated one.  Although the outcome is painful, all it involves is putting on my big girl pants and getting another job or living without the things I want to need so I can make the repayments.  For the United States Government being weighed down with fourteen thousand billion dollars in debt and change is an extremely complicated matter.  The only way to get out of the nightmare is for two hundred million people to have to share the weight of a burden they didn’t create.  It’s asking everyone to man up for something they had no hand in creating.   Unfairness aside, it also demands political will, courage, reform and collaboration – All of which are sadly underrepresented in all levels of government. 

Fear not, there is another option and it involves no political will, courage, reform or collaboration. Although, it will require two hundred million people to make a bold change in the next ten or so years.
Keep doing what you’re doing and don’t affect any change.  Hear me out, this is quite a well thought out plan of avoidance.  Currently, 46% of federal debt is owned by foreign countries.  The largest holder of US Treasury bonds is China.  They’re also stockpiling US currency.  So, here are the fundamentals.  Sell China more US Treasury bonds (aka federal debt made to sound all investmenty) - they can easily afford to purchase them with the vast sums of dusty US dollars they’re sitting on. Keep selling them as fast as you can, not just to China but Germany, the UK and any other country that shows interest.  When the bonds start to mature and the government can’t make the payments everyone packs up and moves into Canada.  All the foreign countries that own the treasury bonds can divide between them the land of what once was the United States of America as payment. Obviously, the land has isn’t going to quite cover all of what the United States Government will come to owe in foreign debt but if each of those countries are free to re-sell each state, put it on the real estate market and get what they can for it the trade is pretty fair.  And so what if “neighbourhoods” like New England drop in value because all the states are on the market at once.  It’s not really our concern.  We’re ok because everyone gets to start all over again in Canada.   Maybe there we’ll find the American Dream.   

Disclaimers -

* The author of the above words has no formal or informal qualifications, experience, or foundation for knowing anything regarding financial matters either governmental or otherwise.

** Nor is she a citizen of the United States, Canada, China or any of the countries mentioned in the above words.

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