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 Middle East Triumph is Worth Celebrating Even As Peace Remains Elusive 

President Trump’s bold foreign policy defies globalist appeasement, showcasing unwavering American strength and decisive leadership on the world stage.

Are conservatives fighting a fiction of woke?

Wokery, it hurts to say it, is too disorganized to have an organized cosmology or doctrine of metaphysical belief.

Illinois Democrat Offenders Reveal Party

The crime of J.B Pritzker and Brandon Johnson in this episode of American history is called subversion at the least , but could be as serious as treason.

Inside the Public School Librarian Jihad to Keep Transgender Propaganda on Shelves

Public school librarians are doing all they can to keep child tranny propaganda flowing directly into the malleable minds of their charges.

Five Reasons Why The Latest Czech Elections Were So Important

Populist-nationalist politician Andrej Babis is poised to return to the premiership after his party's victory. Here are 5 reasons why this is so important.

New York AG Letitia James Indicted on Federal Charges

New York Attorney General Letitia James was indicted by a grand jury on federal charges, according to an indictment on unsealed on Thursday.

6 Ways Vaccine Policy Has Changed Under RFK Jr.

Health Sec RFK, Jr. and officials at the HHS changed recommendations and policies for multiple vaccines, including shots against COVID-19 and measles.

Journalists Recount Antifa Violence in Roundtable With Trump

President Trump met at the White House with journalists attacked by the newly designated terrorist group Antifa, joined by Cabinet officials for a roundtable.

IRS to Furlough 34,000 Employees as Government Shutdown Halts Treasury Operations

The IRS said in an emergency message to staff that it will furlough more than 34,000 employees starting on Oct. 8 due to the government shutdown.

Trump Says He May Invoke Insurrection Act in Portland If Necessary

President Donald Trump on Oct. 6 said he may consider invoking the Insurrection Act in Portland, Oregon, if necessary.

Trump: All Medium, Heavy Duty Trucks Entering US Will See 25 Percent Tariff on Nov. 1

President Trump announced on Monday that all medium and heavy-duty trucks entering the United States will see a 25 percent tariff starting on Nov. 1.

Treasury Names Social Security Commissioner as CEO of IRS

Treasury Sec. Scott Bessent announced that Frank Bisignano, the head of the Social Security Administration (SSA), will also serve as CEO of the IRS.

Agencies Terminated, Descoped 94 Wasteful Contracts With $8.5 Billion Ceiling Value, Says DOGE

Various federal government agencies have terminated and descoped 94 wasteful contracts over the past five days, DOGE said in an Oct. 4 post on X.
spot_img

Related Articles

Popular Categories

MAGA Business Central