Something Called A Debt Ceiling

Earlier this week, Professor Obama gave the country a lecture about "something called a debt ceiling."  My wife and I looked at each other, stunned.  It was being explained to "the people" as if we can't understand the meaning of two simple English words.  And it was explained as something being in crisis outside the realm of Mr. Obama's making.

To quote a civil rights leader:

Let's talk right down to earth in a language everybody here can easily understand.  Everyone agrees that America has a very serious problem.  Not only does America have a serious problem, but the people have a problem.  America's problem is us.  We're her problem.

Malcom X

Message to Grassroots

October 10, 1963

 The plain language I am talking about is called a credit limit, and like most families that deal with their own credit limit every day, the government's credit limit is maxed out.  Finally.  But self-reflect on the reason why.  We are the reason.  We elect the politicians that continue to spend, continue to grow government.  It is because we have our hand out, and Mr. Obama has used that fact to his advantage.

Malcom X was speaking of the oppression of the white man over the black man, and the usefulness of bloody revolution to affect change.  In an ironic twist, and by a measure of how far the country has come in the 40 years since his speech, no revolution was required.  An election did the trick.

President Obama is using the government's money, our money, to wield his power to impose social change.  The government spends so much money now, that we have to raise more in order to demonstrate to debt holders that we have a means to sustain the current debt trajectory.  Where is that money going to come from...

Money means power.  As the government controls more money, it wields more power.  This power restricts liberty.  This power restricts the pursuit of happiness.

Put your hand in your pocket.  Let us change the words to make the meaning clear.  America has reached her credit limit, and by doing so, has breached the constitutional covenant to secure the people's inalienable rights. Those rights are only secured by limiting the government's access to money.  If we fail to take a stand now, the next revolution will be fought between those with their hand in their pocket and those with their hand out.

Height of Irresponsibility

Let's role play for a moment...

You are the CEO for a charity.  You have a strategy to grow those services, based on commitments you made to the board of directors, which selected you for the job.  In the past, you have borrowed money to fund worthy programs that your charity supports, and you have accumulated a debt that takes 10% of the money you take in to service.  That debt, over the years, has taken many forms and comes from many sources...banks, corporations, and individuals.  Part of the reason it has been so easy to accumulate the debt is because of your benefactors.  You have wealthy benefactors you can count on for roughly 60% of your operating needs, but you need to find the other 40% from somewhere else, because your budget for services rendered has grown so large.

Your benefactors are wise.  They placed certain controls in your company's charter.  You have an upper limit on which you can borrow, and you have to go back to them and ask to have it raised if you want to spend more than you take in.  This has also built additional confidence with your current debt holders, but more importantly, your future debt holders.  You have always paid your debts because your benefactors are so reliable and because these controls provide a reality check on growing services larger than can be sustained.

Your benefactors recently have grown concerned that the debt limits have grown so large, they have been reluctant to allow you to grow it any larger.  Your charity is very popular and many people know about it.  So, you have a plan...you and your CFO are going to go on TV and tell everyone that if the benefactors do not raise the company's debt limit, you may default on your debt holders debt payments.  Everyone hears the message, including future debt holders, because remember, you still have to borrow to sustain to your budget.

Height of irresponsibility?

Consider this...President Obama is the CEO of the United States, elected by the Board of Directors who also happen to be the wealthy benefactors, Tim Geitner is the CFO.  The debt holders really are banks, corporations, and individuals.

How have their actions been any different than the role play?

No Good Crisis

It is ironic that President Obama's use of crisis to affect change may ultimately tear down The Great Society.  He actually thought that he could use confidence eroding terms like "government default" and "economic catastrophe" to his advantage by getting congress to pass more spending without forcing hard decisions on what the country can afford.

The U.S. is not yet to the point of being unable to service debt with generated revenues.  Speaking so publicly and repeatedly of government defaulting on its obligations means one of three things: 1) its simple scare mongering meant to strong arm others to go along, 2) the U.S. would actually choose NOT to pay creditors first, or 3) and perhaps most ominously, we physically CANNOT choose who to pay when, because we have not built the information systems necessary to prioritize payment (I cite "Bracing for Fallout If Debt Talks Fail" by Damian Paletta, page A4, The Wall Street Journal, July 23-24 2011).

If the United States would actually choose not to pay creditors, and thus send payments to fund domestic obligations first, can one imagine what will happen to interest rates?  Can one imagine what would happen to banks that hold no reserve against the change in value of U.S. treasury bonds (which will naturally plummet)?  No responsible financial manager would ever do this, even if the news headline reads "China Gets Paid Before Grandma", unless that planner were a narcissistic politician...

Is it possible that the most powerful country in the world, with the most advanced technology in the world, that spends more money on government than any country in the world, did not add payment prioritization mechanisms to its financial management system, after the debt debates in the 1990's?  Irony truly indeed if we actually have the cash to service our debts yet we cannot sort the debt service payments from the Great Society payments.

Mr. Obama as the chief executive of the government, will be presiding over the most unprecedented spending prioritization exercise of the Great Society ever imagined.  In other words, a tear down.  His cynical strategies have come full circle.