Thursday afternoon I appeared on CNBC with my friend Rick Santelli to discuss the debt limit and what may happen when it is reached sometime in early August. If you saw the piece, you know that Rick became fairly passionate about his position that there should be no compromise on increasing the limit and that the government absolutely has to solve this issue by cutting spending. The video clip went viral, and I’ve been shocked at the number of emails and Facebook messages I’ve received from folks in the US and around the world. Most impressive have been the universally passionate responses both pro and con.
Many of the emails lauded or derided me or Rick without much discussion of the issue. Some were very angry and used inappropriate language. This is an important issue for our country and deserves serious, thoughtful consideration.
Before I begin, let me say that I don’t like labeling people because labels bring preconceptions that preclude open-minded consideration. After Thursday’s 4-minute segment, I was labeled as a “what’s-wrong-with-America, tax-and-spend, liberal.” Nothing could be further from the truth, and my years of writings and CNBC appearances stand in evidence. The dismissive notion that, if you’re not with us, you are both totally wrong and totally against, us is very dangerous.
Reaching the debt limit in August means that the government will run out of cash reserves and will need to depend only on the cash it brings in day by day. For the month of August, cash receipts will be about $203 billion and expenses will be around $362 billion. Moreover the daily figures are lumpy, with some days having big bills that are due and rather little receipts. If the debt limit is not increased, the Treasury Secretary will prioritize the list of creditors and determine who does and does not get paid. Almost $159 billion will not get paid in August alone. My friend Jay Powell has done a brilliant analysis of the daily flows which can be found at http://www.bipartisanpolicy.org/library/staff-paper/debt-limit-analysis
Rick Santelli and many others insist that the debt limit not be increased and that those bills simply go unpaid and that this will be the only way to rein in government’s runaway spending and catastrophic debt creation.
That Congress has not produced a budget in over a year, that they publicly commit to “Pay/GO” and then vote exception after exception, that they watch our country plummet deeper and deeper into overwhelming debt and refuse to address the major budget issue of entitlement spending is OUTRAGEOUS! Every American should be outraged. Government officials posture and preen in front of cameras as they loudly discuss spending cuts too insignificant to matter. The problem is that the spending cuts that matter may cause them to be thrown out of office by voters who may lose benefits. It’s the same old issue: our elected officials continue to vote for the feel-good instead of the correct. They want to please their voter bosses rather than make the hard, but right choices for America. And dear reader, WE ARE COMPLICIT! We keep re-electing them without demanding they do the right things. I have great admiration for Rick Santelli for standing up and yelling and bringing America’s focus to this reprehensible blight on our character and our history. Rick Santelli and I are philosophically much closer than you might think and both passionately patriotic.
On the issue of the debt limit this August, the answer isn’t that simple. We are in the middle of the weakest economy recovery from the second worst economic downturn in American history. Housing prices continue to fall. 28% of all mortgages in this country are for more than the value of the collateral house. 9.2% of our workforce is unemployed. The unemployment rate for blue-collar workers is about 14%, and the group of underemployed is over 17%.
If the US stops paying its bills, the result will be similar to you if you stopped paying your bills: your credit score will drop. Standard & Poors has already placed the United States on negative credit watch. They do that before they downgrade the credit rating. If we leave bills unpaid (whether or not S&P actually reports a downgrade), our creditors, from which we will necessarily have to borrow, will want higher rates on whatever money they may loan us.
If the interest rates on US Treasury bonds go up, mortgage rates and interest rates paid by corporations go up too. If houses aren’t selling in a 4.5% mortgage rate environment, how many folks will be eager to borrow at 6.5%? How many employers will want to add employees? Oh, and taxes will go higher.
The US Constitution is the greatest document we have. It was created as a device of the mind by courageous, high-minded, intelligent people who were willing to fight and sacrifice for a dream of freedom and possibility and dignity. It was bitterly argued and wrought from deliberate compromise.
The current debt limit threat is significant but won’t be our last. The ramifications for America and for our children and grandchildren are too dire to be shouting ultimatums. Our elected officials need to make hard choices about our economic future, and profound spending cuts are absolutely necessary. This will not happen if we voters do not demand it. It has been said that we get the government we deserve. My fellow Americans, we deserve a hell of a lot better than this, but it won’t change until we EACH assume our responsibility as citizens and demand that the tough sacrifices be made and vow individually to make them.
The Constitution provides for the right to pursue happiness. It does not guarantee happiness, and it certainly does not guarantee happiness based on taxing each according to his ability to pay and providing to each according to his need. That’s called Socialism, and it’s not what America’s about.
We’ve got a serious problem in America. Let’s dispense with the bluster and get down to the hard, unpleasant work at hand. We, like no other nation in the world, can do it.
Hang in there,