The American Debt Problem Is not a Political Game - It Is Deadly Serious

Now that we can visualize the problem in Europe, it’s time to tackle the American debt problem. Here, the story is much simpler to visualize.

- Let’s suppose that America is a family, which has a lot of money because it has a big business that generates lots of cash.

- But, instead of saving some of the cash, America spends all of it, and borrows even more cash, because its tastes are expensive and its business-generated cash isn’t sufficient to cover all its expenses.

- Everything goes along like this for years, because lot’s of American and foreign banks and governments are willing to lend the extra cash America needs to meet its expenses.

- But, suddenly, business sours and there is a lot less cash available.

- Instead of cutting back on its expenses, America says, “Hey, there are lots of banks and governments willing to lend to us so why cut back? Let’s just borrow more.”

- This goes on for several years, but the lenders get nervous and want to know when business will pick back up to its former level. When America says, “I don’t know,” the banks and governments get even more nervous and they begin to demand that America spend less.

- America says, “Cutting back on spending isn’t necessary because things will improve and you know we’re a good risk.” And, anyway, America can’t decide whether it’s necessary to cut expenses, what expenses to cut if cuts are needed, or how to pay for what it has already borrowed. So, it does nothing and continues to spend much more than it can afford.

That is where America is today.

But, finally, if America continues to spend a lot more than its business generates, its debt will grow bigger and bigger, and lenders will lose all confidence that their loans will ever be repaid, realizing that America is no longer a good risk. So, they will stop lending to America, which will no longer be able to pay even the basic expenses for health care, retirement and security.  

That’s why the budget debate is critical.

That’s why the debt ceiling must only be raised if there are clear decisions about how to begin to lower it, while, at the same time, cutting down on annual expenses.

That’s why President Obama must listen to Mr. Boehner and Mr. Paul. They understand that America is on the verge of bankruptcy. He doesn’t.