Monday, July 18, 2011

Moody's Suggests US Eliminates Debt Ceiling (@CNBC)

In a suggestion that can only be categorized as ridiculous Moody's chimed in with a way for the United States to maintain the AAA rating on it's debt. Don't raise the debt ceiling... ELIMINATE IT. You can't default on your debt as long as there is a sucker out there who is willing to invest new money in you. (Reminds me of someone who is currently spending the next 150 years of his life in jail). In all seriousness though let's compare this to a real life situation. Let's say I am 45 years old (I'm not), Let's say I have a 19 year old son (I don't), and Let's say that said son has run up $10,000 of credit card debt which for our purposes is his credit limit. Option A: I tell my son that he has dug a pretty deep hole and I would recommend that he gets a job / saves money from his current job to pay down that debt. Option B: I tell him to get a new credit card before the fact that he isn't paying his old one hits his credit score and to spend as he wishes. The fact that the spending of the United States of America can so easily be compared to that of an immature teenager is the root of our problem. At this point 40 cents on the dollar of what we borrow is being used for debt serivce.
    So where does this leave us? Again we have options: A: Raise the debt ceiling, B: Unilateral debt ceiling raise from the president C: Don't raise the debt ceiling, D: Raise the debt ceiling while at the same time agreeing to budget cuts. The options are ranked from most likely to least likely to happen. Only in a democratic society like the United States would compromising and agreeing to a resolution be the least likely outcome to a situation.  I enjoyed Warren Buffet's suggestion for cutting down on the deficit, " You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election." We would have a lot of unhappy congressmen trying to figure out how to get from 60% to 3%. 
    While this is going on you have the U.S. Stock market acting like a child in a messy divorce proceeding while Mommy and Daddy scream at each other. Even if both sides come to some type of an agreement the child still has lasting effects of the battle. We are staring down the barrel of debt downgrades that will forever make it more expensive for us to borrow in the open market. It's time to do what we learned in 2nd grade. COMPROMISE. That is... Unless we just remove the debt ceiling. The easiest way to solve a problem is to remove it correct? Not exactly... What if we remove the debt ceiling and then hit the de facto debt ceiling (100 cents on the dollar used for debt service). I can see the headline now, "Bernie Madoff sues U.S. governement for wrongful imprisonment".   

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