The Debt Cliff

A simple analogy for those trying to understand the debt ceiling debates:

The debt ceiling is a brick wall that we’re running towards. If we hit that brick wall, it will hurt. Hence, the Democrats want to break down that wall and remove it altogether so that we don’t run into it.

However, the Republicans understand something which the Democrats do not: that this brick wall blocks the path to a sheer cliff. The Republicans want to keep this wall up because of the far more severe pain we will experience if we run off the cliff. They see that the entire nation of Greece is painfully trying to climb back up this cliff, having run off the edge and been safely caught before the bottom in a net laid out by Germany. Unfortunately, no nation in the world can afford a net big enough to catch us if we take the plunge.

In the past, we’ve avoided the pain of running into the wall by breaking it down and rebuilding it further up the road. This will not help us when we run out of road. The only solution to avoid further pain is to simply stop running down this road. Though the Democrats blame the Republicans for leaving a brick wall up for us to run into, it is those same Democrats who keep us running towards it by protecting ever-growing entitlement spending, and who will run us right off the cliff edge in the absence of such a wall.

If this wasn’t clear enough, the road is the national debt, and the cliff edge is the point where our interest payments on our national debt become too large for the national budget to ever achieve a surplus again.

According to recent Congressional Budge Office models, we will officially hit that cliff edge in 2058, though that assumes that we’re willing to completely eliminate our military, Medicare, Medicaid, Social Security, and just about every other government program in order to repay our debt. If we assume that a functioning military is more important than repaying our debts, then we’re going to hit that cliff in 2050. If we assume this, and that Social Security funds are untouchable because they’re owned by the people paying into the system, then we’re going to hit that cliff around 2034. With those assumptions in place, if we want to have even a single dollar available to fund Medicare and Medicaid, we better turn away from this cliff before 2026. And of course, in 2015 (just three years from now) we’re going to hit the point where it becomes exponentially more costly to steer away from the cliff every year.

Of course, all of these fiscal scenarios optimistically assume that our credit rating is never downgraded again, and that the government doesn’t add any additional spending to the current baseline scenarios. Basically, this is assuming that we don’t further speed up our run down the road, even though we have been accelerating faster than ever before under the current administration. The more realistic scenario is that all of those deadlines will approach far faster than is currently assumed.

About these ads

2 Responses to “The Debt Cliff”

  1. Robert Says:

    There are some in congress who have hit upon what they believe is a solution. Mint a one ounce platinum coin (an amount of metal worth about $800), declare it to have a value of $1 trillion and then deposit enough of them in the treasury to pay off the national debt. This shows what I have suspected, that there are people in our government who have no connection to reality. If they decide to go through with this, why stop there? For about $8,750,000 worth of platinum, we could give a coin to every human on the planet and eliminate world poverty. Just think, every starving child in Uganda would be a trillonaire.

    • Tristan Brown Says:

      Oh, I know. Both Paul Krugman and his followers in the Democratic Party are now supporting this money-printing plan.
      http://tinyurl.com/atysmru
      http://krugman.blogs.nytimes.com/2013/01/02/debt-in-a-time-of-zero/
      The Democrats are ignorant enough of economics to think this is actually an original idea that just might work. Paul Krugman, on the other hand, should know better. At this point, I’m pretty sure he deliberately wants to destroy the United States.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: