Raising the ceiling
Purchsasingb2b: July/August 2011
“The federal government of the most powerful nation in the world is now well over US$14 trillion in debt.”
I spent my summer vacation in the United States. For the first two weeks of July, I enjoyed the sun and heat of Las Vegas. And while I didn’t spend much time in my hotel room—other than to sleep—I did watch a little bit of TV news. The Big Story was the tug and pull between the Democrats and Republicans about raising their country’s debt ceiling. The US, unlike most countries, has established a “limit” on the amount of debt it can take on. But there was always a surrealistic quality to the discussions. The ceiling had already been raised 70 times since the 1960’s. And it was unimaginable that come early August, military servicemen would not get paid, social security recipients wouldn’t get checks and congressmen would not have their expenses covered!
You’ll be reading this column well after August 2. But I’m certain of a couple basic facts. The first is that no one missed receiving the money they were owed. Fact number two is that the federal government of the most powerful nation in the world is now well over US$14 trillion in debt, which works out to 50,000 George Washingtons for every man, woman and child—with special sympathy for the young’uns because they’re the ones who will be on the hook for the unconscionable spending binge of the past forty years. Compounding the problem is that the United States is consigning itself to a prolonged period of slow economic grow and tepid job creation.
It’s a matter of simple arithmetic. Let’s think of a single individual. He’s doing okay, he makes US$40,000 a year. But he owes a lot of money and wants to pay it down before he gets too old. He could try to find a part-time job or cut back on his spending. Most of us appreciate that the logistics of finding another job are daunting enough, let alone that very few of us particularly want to work evenings and weekends on top of our normal nine to five. So instead he’ll figure out how to get by with a bit less. Consumer spending is two-thirds of the economy. If that flat lines, then it’s inevitable that GDP goes nowhere. It’s just common sense.
No one—and by no one I really mean the politicians—wants to confront the truth. Because the truth is that the road to economic ruin is paved with deficit spending. There isn’t a single US president in my memory who left office with the country in better fiscal shape than when he assumed the reins of power. George W. Bush was terrible; Barack Obama is just far worse. So the debt ceiling can be raised…and re-raised…then raised again…and it won’t come close to addressing the structural problems the US faces. b2b
Toronto-based Michael Hlinka provides daily business commentary to CBC Radio One and a column syndicated across the CBC network.