Tuesday, January 15, 2013

Riddle us this: Why does a refusal to take on more debt mean a default of existing debt?

It is amazing how the populace is consistently manipulated into "group thought" by the media, the supposedly conservative media and the liberal media, and politicians.

Start with the notion of the "fiscal cliff" to convince the lemmings to rush over the cliff of increasing taxes, without addressing spending.  From Fox News to NBC, the very vision of an approaching "cliff" of spending cuts was peddled to the public to place fear in the hearts of Americans, democrat and republican.

Now, on to the debate over raising the debt limit.  Let's talk about this as adults, applying simple math skills and logic, instead of buying into the fear drilled into our heads by the media and politicians.
  • We have annual deficit and an accumulated debt because we consistently have spent more than we have received in revenue.
  • As a result, we owe principal and interest on that debt to the people from whom we have borrowed it.  In other words, those annual payments are one part of the "operating budget" of the United States.  
  • The interest payments are but one of many of our expenses.  Indeed, they are the "first expense," the one expense that is a promise we already have made and must fulfill before everything else.  These interest payments presently comprise 6% of our present national budget.  This is to more than double in the coming decade, precisely because of Congress' deficit spending (approved by, yes, the Republican House).
  • Now, many politicians have promised to end deficit spending, meaning to stop -- on a going forward basis -- spending more than we take in.  This surely seems like a common sense proposition.
  • A simple way of stopping spending more than we take in would be to -- guess what -- refuse to authorize more debt for the nation.  
  • If we refuse to accept an increase in the debt ceiling, other than some unconstitutional attempted executive authorization of the same, then by law the Congress and the President must spend only what they take in.  Voila!  No more deficit spending.
  • Now, here's the catch, the media and politicians tell us that the refusal to take on more debt means -- definitionally -- that we have to and will default on our ongoing debt obligations.  Huh?  Really?
  • Let's say that again.  If we refuse to borrow more money, we are told that that we will be unable to pay our existing obligations of interest we have undertaken.  
  • Now as intelligent adults, not emotionally, media-driven bots, carefully ask if that proposition is true.
  • Why is it that the refusal to take on more debt means we can't make payments on the on-going obligation that in 2013 equals about 6% of our total federal spending?  
  • Obviously, facially, patently, manifestly, that is simply untrue. 
The reality is that what politicians are really saying when they tell us "a refusal to increase the debt limit will cause us to default on our debt, an entirely unacceptable consequence for America," is two things:
(i)  We, the politicians, are unwilling to make even the most modest changes to the federal budget to stop deficit spending.  In other words, if given the choice between cutting spending and the horrible consequence of defaulting on our debt, we would chose the unacceptable consequence of defaulting on our debt, damaging the creditworthiness of America.  We are so unable and unwilling to cut spending, that this draconian consequence is the only possible outcome of refusing to increase the debt limit.
(ii)  We are so insistent on continuing our reckless spending habits, we want to frighten you gullible voters into thinking that increasing debt is preferable to actually cutting spending (i.e., doing what many of us promised to do -- stop spending more than we take in), so you won't be so angy with us for refusing to cut spending.
So, the next time a politician tells you that they voted for an increase in the debt ceiling to "avoid defaulting on our debt," ask them to explain to you how in fact that is so.

Because, it is in fact not so.

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