I think that we as Americans are going to find out very soon what makes our Government tick. The gravity of the situation In Washington grows as the calendar races toward August 2. While many economists say a genuine default is unlikely because politicians in Washington will ultimately agree on a way to raise the debt ceiling, naysayers in Washington have downplayed the potential consequences such as higher interest rates and skyrocketing inflation. What would actually happen if the United States blew through the August 2 deadline is a subject of intense debate.
Secretary of the Treasury, Tim Geithner, told Speaker of the House, Representative John Boehner, in a letter in May that the United States must raise its statutory $14.3 trillion debt ceiling by August 2 or risk defaulting. This default he wrote “would have a catastrophic economic impact that would be felt by every American.” A broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on the National Debt, unemployment benefits and tax refunds. Higher interest rates would kick in immediately and borrowing costs would escalate. Home values would decline and the value of retirement savings would also rapidly decline.
As August 2 approaches, the bond market could start the panic by demanding higher yields on U. S. debt. The U.S. may never regain its gold-plated standing in the bond market again. It is possible that Obama could initiate a government shutdown if the debt ceiling is not raised in time in order to meet some of the government’s liabilities. Another possible risky solution for the government is to start to print money in the months to come to meet its obligations. The risks here are obvious as inflation would lead to the decline of the value of the dollar and we would become a Zimbabwe before long. In Zimbabwe, the Reserve Bank of Zimbabwe printed an oversupply of money leading to denominations of Zimbabwean dollars in the billions. It took six billion dollars to take the local bus.
I remember the missile crises in Cuba in 1962. No one knew as we were peacefully walking around that nuclear missiles were aimed at the United States in that October. Fortunately, the crisis was averted. Today, the United States is like a man or woman on death row. We know what is coming but steps to avert this crisis are not being taken. I do not sense any urgency in Washington. I am now starting to wonder if this issue could be beyond the skill and capabilities of those in our elected offices. Many of our elected officials have never had to deal with anything of this consequence. A friend of mine told me once that anyone can manage a company during the good times. It is during the bad times that the skilled manager earns his or her money.
We need to not only get our spending house in order but the United States has to do many things such as revising the obsolete U. S. Tax Code, restructuring our entitlement programs, and adjusting to a balanced budget going forward. But what I am afraid is happening is that the politicians are concentrating on the 2012 elections. Well guess what guys, we may not have to worry about the 2012 elections if we don’t take care of the August, 2011 crisis.
