Raising the debt limit is a major concession
The media meme that Republicans aren’t willing to make any concessions is bullshit. Their base doesn’t want to raise the debt limit, and Republicans are willing to concede that the debt limit be raised.
Their base is reasonable in not wanting to raise the debt limit. Imagine that you’re pulling in $5,000 a month1. But you’re $200,000 in debt and paying $1,000 a month in interest payments. You’re not even paying the debt down, you’re just paying the interest as it accrues.
You run out of credit, and increase your own personal debt limit to $250,0002. When you get to that new debt limit, your monthly interest payments will have increased to $1,250 every month. That’s $250 less a month to go for all of the stuff you can’t afford anyway. And it means you’re going into debt $250 faster every month—with nothing to show for it but even higher interest payments tomorrow.
Your friends and family members who tell you you need to stop increasing your debt and start decreasing your spending are being reasonable—far more reasonable than this hypothetical you who just keeps on spending more and more on interest, spiraling deeper and deeper into debt. So when tea partiers ask their representatives to hold the line at raising the debt limit, they’re not just reasonable, they’re right. The more money we spend on interest payments, the less revenue we have to spend on other things—and so we end up going into debt faster and faster. At some point the mathematics of the situation will force us to stop, but when that happens we’re fucked. Tea partiers are right that we need to stop before math forces us into insolvency, which makes all of the Republican plans that include raising the debt limit huge compromises.
I chose those numbers to be easy to understand, but the real numbers are even worse. Our annual revenue is about 2.15 trillion; our spending is 3.77 trillion; our debt is 14.3 trillion; and our interest on the debt is 414 billion.
If this were an individual making the very nice salary of $100,000 a year, they’d be spending $175,000 a year, and $20,000 of that would be just interest on the debt. And they’d be $665,000 in debt.
Just looking at those numbers, this individual is obviously heading for a major financial collapse that they won’t be able to recover from. How do you pay a debt that is more than six times your salary? But the numbers are even worse than they look: the interest payments are much lower than they’ve been historically; interest rates are very low today due to the recession. If interest rates were more like what they were in 2006, this person’s interest payments would increase from $20,000 to $30,000 a year—dropping their effective salary by over ten percent. Go back to the interest rates on January of 2001 and interest payments increase to more than $40,000 a year.
We’d be paying over 40% of our revenue just to pay the interest on our debt; we’d be paying 860 billion dollars a year on interest payments—and that’s assuming that we don’t increase the debt limit! Unless we start paying off the debt now, we are headed for a major financial collapse.
Allowing the debt to increase is a major concession. It should come with major cuts in spending now, not just theoretical cuts in future budgets. And any cut whose immediate cut is less than the amount of interest we’re paying and whose long-term cut is less than the debt increase is a frivolous proposal. The sane proposal is to stop increasing our debt and start decreasing it. Anything less than that is a compromise with reality.
In response to Defaulting on our debt is an executive choice: If we default on any debt payments, it is because the White House has made the choice to default. There is no need to default even if the debt ceiling isn’t raised for a long time.
A very nice salary in this climate, though I’d have to assume it’s before taxes.↑
Don’t try this at home: raising your own credit limit probably brings some sort of fraud charges.↑