If the National Debt Were the Obama’s Debt, and the Obamas Were Fiscal Adults

We hear a lot about the Fiscal Cliff and the Debt Ceiling.  In a few years we’ll start to hear about the Debt Bomb.  While the fiscal cliff was largely manufactured when Congress was unable to agree on how to tackle the deficit last year, and the Debt Ceiling is more of a symptom of the problem than a problem itself, the Debt Bomb is a real issue.

The Fiscal Cliff was a set of poorly planned spending cuts and tax increases (expiration of the tax cuts created under the Bush Administration back in 2003) that were set to go into effect at the end of 2012 unless Congress acted.  Congress acted by eliminating a lot of the tax increases and kicking the decision down the road until March on the spending cuts.

The debt ceiling is a limit imposed on how much the US Government can borrow.  Kind of like a family running up their credit balances to the maximum.  Normally there would be a budget in place and expenses would be planned to avoid hitting the credit limit, but the Government has not had one in five years.  Theoretically the Debt Ceiling could be used to force spending cuts, and the Republicans could force this simply by voting not to increase it.  So far neither party has shown any resolve in this respect either, so just as two fiscally juvenile adults might go out and get another credit card when they hit their credit limit and continue to spend beyond their means, the Government continues to raise the Debt Ceiling and the debt keeps on building up.

The Debt Bomb is a real issue that cannot be ignored.  The debt bomb explodes when our debt becomes so big that no one is willing to lend us any more money because they don’t think there is any way we can ever pay it back.  At that point just the interest payments on the debt alone will rival what we are spending on Defense and Social Security.  This means that the taxes of millions of Americans will be going to pay for interest on past purchases instead of new things.  We will be forced to immediately make enormous cuts.  Unless Defense and infrastructure are left to the wayside, Medicare and Social Security will be cut to the bone but the taxes for them will remain.  The debt bomb will explode within about four years unless the economy picks up drastically or we cut spending significantly.

If this were a family debt and the parents, Barak and Michelle, suddenly woke up to the devastation that awaits them, what might the conversation look like?  What if they finally got sick and tired of being sick and tired and wanted to make a real change?  I think the conversation might look like this:

Michelle:  Hey Barrack!  What’s the deal?  I went to the mall and the clerk said my credit card was declined.  I thought we still had a few billion dollars left on that credit line.

Barack:  I’m sorry baby.  I thought they would raise our limit by another trillion or so, but apparently they aren’t willing to do so without charging a lot more interest.  It is all the fault of those S&P folks who dinged our credit.

Michelle:  I thought you were going to take on another job and raise our income to cover things.

Barack:  I did baby.  I took up a paper route and am bringing in another $60 B per year, but then we had that big wind storm and I had to spend $30 B fixing up the roof.  The folks that helped fix the roof worked hard and looked hungry, so I took them out to dinner afterwards.  That cost another $40 B, so we’re actually worse off then when we started.  The S&P folks are getting ready to downgrade our credit again if we don’t raise our revenue or cut expenses to get this budget thing under control.  That will mean we’ll be paying even more to interest than we do now.  If they raise our rates just a little bit, that will cost us hundreds of billions of dollars more a year.  That’s like all the money we’re getting from Texas, just in additional interest payments.

Michelle:  I don’t know why you always need to be taking your friends out.  I mean, that Pelosi lady who borrowed the spare jet sure hit the minibar hard.  Not to mention that she and her friends ate all those snacks.  Those cost a premium, you know.  And why do you need to play golf, like, twenty times a week?

Barack:  Well, what about all of those trips you and the girls are taking?  I mean, did you really need to go to Spain with a few dozen of your friends, and why can’t you wait a couple of hours for me to be ready to go when we go on vacation together instead of running off with your own jumbo jet and motorcade?  Have you seen the cost of gas lately, not to mention the cost of ammo for all of those extra secret service agents we need because you can’t wait a couple of hours for me to act like I’m negotiating with Boehner.?  And can’t the girls just go down to Panama City on break like normal kids instead of going down to South America?  I mean, with all the money we’re spending for them to be in that nice school instead of these scuzzy D.C. schools the commoners attend, things get a little tight.

Michelle:  Look, those trips are at most a few hundred million.  We are hundreds of billions in the hole.  Why does it matter?

Barack:  Well, even if it is only hundreds of millions, that is still the entire taxes paid by, like, the city of Tampa.  Also, it is money we could cut.

Michelle:  Look Barack, I’m tired of arguing about this.  Why don’t we figure out how much we have coming in and figure out what expenses we can cover.

Barack:  OK.  Well, we actually have about as much coming in as we did back just five years ago.  The trouble is we’ve been covering the debts of some of these cities and states that got in over their heads.  If we stopped that, we’d be in better shape.

Michelle:  Well, that is just going to have to stop.  We can’t help others out when we are drowning in debt ourselves.  You’ll have to give Governor Moonbeam and Rham a call and let them know they’ll have to figure out for themselves how to make good on all of those promises that were made to their public workers and their citizens.  We’re tapped out.

Barack:  OK, I guess you’re right, but Rham won’t be happy.  At least though he’ll have a crisis on his hands.  He seems to like those.  You’ll need to stop trying to make all of the school kids in the country eat like 35-year-old women, though Michelle.  We can’t afford to try to enforce these regulations and we may need to cut the amount we’re sending to pay for that food the kids are throwing away.  Without enforcement and money the schools will likely go back to what they were doing before.

Michelle:  I hate to do it, because I’m sure I make better choices than parents do in small town America about what their kids should eat.  I guess they’s gotten by before, though, and they can get by again.

Barack:  So, who is going to tell the elderly that we’ve spent all of their money and we’ll need to cut their Medicare and Social Security payments?

Michelle:  Well, we did spend it on them, sort of.  And there are still a lot of folks who could work a few years longer if they know that cuts are coming.  It will be a lot worse for them in four years when they are firmly retired and their health is not what it is now.

Barack:  Yeah, I guess you’re right.  It sure is tough, though.  It is a lot more fun to just pay for everything.  People like it when I give them stuff.

Michelle:  I know, baby, but adults need to make tough choices that are not always popular.  It is in their best interest, though.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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