July 2011

Want to know more about the current American debt crisis? Read the previous posts in this series. Part 1 describes the basics of our national debt, and part 2 explains the present crisis.

What if the government debt reaches its debt limit, and politicians don’t pass a raise of that limit?

There is one guarantee here. If the debt limit is reached, the Treasury will not lawfully be able to issue any more debt. According to one CNN article, this will leave the country with $118 billion per month in unfunded spending. Without the ability to borrow more funds, this amount must either be cut from the federal budget, or “created” through the printing of currency. Eeek.

What are some possible scenarios?

We don’t have to worry about other countries demanding payment. What we do need to worry about is getting to a point where we can’t find investors willing to purchase our debt. If that happens, we’ll either need to drastically cut  national expenditures, or create more income to meet the debt needs of our country. Income can be increased by either (a) taxation (b) printing more currency.

Scenario A:

The debt limit is raised, and eventually a budget is passed that quickly draws down the deficit (and eventually the overall debt). Within 10 years we are back to pre-1980 debt levels.

Scenario B:

The debt limit is raised, and a budget is passed that slowly draws down the deficit. The debt limit remains high for decades, and the economy contracts as politicians continue to cycle through spending and cutting sprees. Taxes increase. Americans learn to drive used cars and cook with beans as lifestyles begin to realign with income.

Scenario C:

The debt limit is raised, and a budget is passed that focuses on spending the economy back into health. Government gets bigger, taxes get bigger, citizens get smaller. The debt to GDP ratio increases, but US debt is still funded as more favorable than alternatives. This scenario would eventually roll into either option B or D.

Scenario D:

The debt limit is raised, and then raised again, as politicians cannot agree on a budget. US long term security yields increase slowly, and then rapidly as investors become wary of the country’s ability to service its debt. Left with a huge deficit, the government prints its “necessary” debt (by some fancy pants monetizing), while telling themselves that it’s a one-time, temporary measure. The value of the dollar drops and high inflation, then hyper inflation (generally defined as inflation percentages increasing daily rather than monthly) ensues.

Scenario E:

The debt limit is not raised. A future budget is not agreed upon. Rather than drastically cutting spending to meet the steadfast debt ceiling, the government begins to monetize the debt. High inflation ensues.

Which scenario is most likely? I believe a combination of scenarios B & C are most likely, due to the current political climate. In essence, the government is most likely to “kick the can down the road”.

Keep in mind when you’re hearing the current debt proposals, that our current budget deficit amounts to $1.267 trillion ANNUALLY. Even the most aggressive proposals only attempt to capture a small amount of that deficit, leaving the remainder to be dealt with at some point in the future.

So what can I do? 

Get out of debt. This is counter-intuitive to the possible inflation we might observe given scenarios D or E, but this is an important step toward changing the American mindset toward money, which has ultimately put us in this position.

Make friends and increase your community. If our country does fall on hard times (and indeed, it already has for many) who you know will make a difference both in shared knowledge and in positive attitude.

Hedge your investments. No, not in a “I’m a fund manager trying to predict the future kind of way” but more in a “I’m a mom with little kids and I’m not sure what’s going to happen, but God is good” kind of way. Invest physically and monetarily in God’s work here on earth, taking joy in God being glorified. Consider also investing in tangibles that would maintain their value even amongst high inflation.

Memorize scripture; it’s infinitely more valuable than beans, bullets, and band-aids. Did I just use that semi-colon right? I need to get these things figured out if I’m going to home school 🙂

Tim Challies is by far my favorite blogger. He has been gifted with an amazing talent for the written word, along with the ability to consistently tether those words to truths found in the bible. I love how his articles often end in an awareness of our own sin with regards to the topic at hand. Love it, love it, love it.

Challies recently completed a short series on schooling choices. Sort of. The series ended up consisting more of a lesson on how Christians treat one another when others make decisions contrary to those we ourselves have made. Specifically, decisions that are regarding matters of secondary importance, those that are not central to salvation. Read part 1 here, part 2 here, and part 3 aqui. This is an excellent examination of the topic, exploring the way we behave towards those who choose to school differently than ourselves.

After agonizing over the decision for years (truly) we’ve decided to homeschool our oldest when he begins Kindergarten this fall. Our plan is to continue homeschooling for some time, with the knowledge that other options do exist, and may become more or less prudent over time. One of my primary motivators for keeping my heart from venturing into that “our choice is best for all” realm, is personally knowing families who have made the public school choice and whose families are excelling in that arena. Particularly of benefit is being situated next to a certain friend and neighbor whose young public-schooled children are very well behaved and exhibit superb character (certainly due in no small part to the diligence of their parents).

As I’ve said before, pride is a huge issue for me, and I ashamedly find myself all too often analyzing other family’s choices in a wierd, twisted effort to elevate my own self. “What? They eat non-organic apples?!!!” “I can’t believe they got another pet!!” “They did WHAT with their money? Those crazy fools.” Ridiculous. Absolutely ridicuous. And sinful. These matters are undoubtedly always regarding secondary issues, and yet I still act like some silly high-schooler. At the core of the issue? I must not fully understand my innate wretchedness, my sin-sick past (and present) full of trespasses against a God who has given me life and breath. I must not grasp the sacrifice that was made when Christ allowed himself to be tortured and killed in my place. And, I clearly don’t comprehend the truth that Christ endured that horror not only for me, but every other believer as well (and those who will come to believe). Even those who make different choices than I do. I yearn for the day when this truth is cemented in my heart so firmly that it controls my actions completely.