America Is Hurtling Toward Financial Calamity. It’s Not Too Late To Change Course

Contact Your Elected Officials

KEY TAKEAWAYS

  1. If you want to continue borrowing, you must first show the bank that you are implementing reforms to reduce your borrowing, such as paying off part of your balance.
  2. Despite record tax revenues, the Treasury has hit its debt ceiling because spending has grown so wildly.
  3. Spending needs to be cut drastically, especially as rising interest rates are causing the borrowing costs on the debt to explode.

Much of the rhetoric around the debt ceiling is either hyperbolic or misinformed, partly because federal finance seems so obtuse. So, let’s look at the issue through the lens of common household finance and really think through the problem facing our nation.

Imagine that you constantly spend more than you earn and use a credit card to make up the difference. At some point, the card becomes maxed out and you cannot borrow more without getting a credit limit increase. You then request that the bank with which you have that credit card increase your limit. Since the balance that you owe is still relatively small compared to your income, the bank agrees, and you go on your merry way as your spending binge continues.

But it’s not long before you hit your credit limit again because you haven’t fixed the underlying problem of spending more than you earn. You request another limit increase, and the bank obliges. This process repeats until the bank begins to question your ability to repay the balance owed, even if you never miss a payment. Eventually, the hole becomes so deep that you will likely never be able to dig yourself out.

At that point, the bank turns down your requested limit increase because lending to you is no longer a sound investment. If you want to continue borrowing, you must first show the bank that you are implementing reforms to reduce your borrowing, such as paying off part of your balance.

Only then will you restore the trust you shattered by racking up a mountain of debt. Until then, your inability to charge your excess spending on credit forces you to forgo some outlays, including things you may have promised to purchase for other people.

But the problem is even worse than that, because rising interest rates are causing the monthly financing charge on your credit card to rise, even without that limit increase. Your existing debt is becoming increasingly unaffordable, and you must cut back your spending even more drastically to account for the higher financing charges each month.

This becomes a Sisyphean task as additional payments to your credit card merely go towards paying higher financing charges and not making any progress on the principle.

The national debt is the credit card, and the debt ceiling is the credit limit. Despite record tax revenues, the Treasury has hit its debt ceiling because spending has grown so wildly. In fact, tax receipts have never been higher, whether in nominal terms, adjusted for inflation, or as a percent of GDP.

So, the problem is not a lack of revenue, but too much spending. It’s like the household that desperately needs to cut expenses, not get additional income—its income has never been higher.

And neither has federal debt, which is now larger than the entire economy. Imagine having a credit card with an outstanding balance larger than not just your annual income, but about five times your income—that’s the equivalent of where the federal government’s debt is relative to the federal government’s income.

That’s clearly problematic, but its not Armageddon. Not yet.

To avoid a sovereign debt crisis, something roughly akin to personal bankruptcy, the country’s finances need to change direction. Spending needs to be cut drastically, especially as rising interest rates are causing the borrowing costs on the debt to explode, even though the total debt outstanding isn’t rising.

Any increase in the debt ceiling, if one is granted at all, must be accompanied by comprehensive spending reforms which demonstrate the government’s ability to live within its means. Increasing the debt ceiling with no preconditions will only continue the nation down the path to insolvency, just like a credit card with no limit would lead a household to financial calamity.

About EJ Antoni

EJ Antoni is a research fellow for Regional Economics in the Center for Data Analysis at The Heritage Foundation.

By EJ Antoni

Read Full Article on Heritage.org

The Heritage Foundation
The Heritage Foundationhttps://www.heritage.org/
The Heritage Foundation formulates and promotes public policies based on free enterprise, limited government, individual freedom, traditional values, and strong national defense.

Trump’s Proposal For NATO To Stop Buying Russian Oil & Start Tariffing China Is Unrealistic

Trump proposed on social media that NATO stop buying Russian oil and start tariffing China 50-100% as part of his plan for ending the Ukrainian Conflict.

The Choices We Make

Death and disagreement are inevitable. Love and hate are choices. We will all die. Before we do, what choices will we make?

Elon Musk Speaks at Unite the Kingdom Rally

Tommy Robinson held rally, with Elon Musk appearing virtually, calling attention to leftist politicians who allow foreign immigrants to invade England.

Doxed Democrats Are Getting Fired Left and Left

Not a misprint because a title of “left and...

Hold Up, Feds, Without Federalism, There Is No USA

Federalism is essential to governing the U.S., yet the federal government is undermining it by bribing states to implement unnecessary federal programs.

ABC Reporter Apologizes for Calling Texts From Kirk’s Alleged Murderer ‘Very Touching’

ABC reporter apologized after describing text messages between Charlie Kirk’s alleged murderer and the man’s boyfriend as “very touching.”

Federal Reserve Cuts Interest Rates for First Time in 2025

The Federal Reserve cut interest rates for the first time this year following its two-day policy meeting that concluded on Sept. 17.

Driver Rams Car Into FBI Pittsburgh Gate in Potential Act of Terror, Official Says

Driver crashes car into FBI Pittsburgh office gate in a suspected targeted attack the agency says may be an act of terror against the bureau.

RFK Jr. Plans to Change Childhood Vaccine Schedule, Ousted CDC Director Says

Health Secretary Robert F. Kennedy Jr. plans to change the immunization schedule for children, Susan Monare, fired director of the CDC testified.

Rubio Says US Visa Revocations Underway After Charlie Kirk Death Celebrations

SoS Marco Rubio said foreign nationals who made celebratory comments over Charlie Kirk’s assassination will have their U.S. visas revoked.

Trump Supports Designating Antifa a Terrorist Organization

President Trump said he would support designating the antifa movement a terrorist organization in the wake of Charlie Kirk’s assassination last week.

US Conducts Strike on Another Drug Boat From Venezuela: Trump

Three people were killed in a U.S. strike on a Venezuelan drug boat, President Donald Trump announced on Sept. 15.

Trump Signs Memo Targeting Direct-to-Consumer Pharmaceutical Advertising

President Trump signed a memo to ensure drug ads give fair, balanced, and complete information to protect and inform American consumers.
spot_img

Related Articles

Popular Categories

MAGA Business Central