majorspark;640991 wrote:It will never be an option. It will come by force. The threat of default will always cause us to find a way to raise the debt ceiling. At some point down the line the laws of economics will catch up with us and their will be no choice.
Default will never happen unless we start electing even dumber politciians. What will happen, sooner rather than later, is interest rates will start going up and they'll have no choice but to trim spending and/or raise taxes. We'll start inflating our way out (already have) before we default. As long as they can sell long-term treasuries for 5% inflation/depreciation is essentially creating free money - they'll borrow $1M today, pay $500k in interest over 10 years, and then pay out $1M 10 years from now that has a present value of only about $500k, and the whole outlay has a present value of less than $1M.
Here's another way of looking at it....How much debt can you as a consumer safely handle? If you make $100k a year, can you afford a $300k mortgage and maybe another $40k in school loans? Absolutely, that is debt service (interest + principle) in the neighborhood of 30% (the upper limit of what is considered manageable). That's 3.4X your yearly income. The debt approaching 12 trillion is about 4X treasury income. Corporations typically have debt loads of 30-50%, sometimes more, but usually better growth prospects (treasury income will only grow approximately with GDP, which on average has been 3-4%).
So you can make an argument that the national debt is actually around manageable limits. The main difference, however, vs. the two examples I provided is the home owner or corporation doesn't have increasing liabilities in the pipeline. We know SS is going into the red eventually, and then you have healthcare. I haven't done the math to know if growing tax receipts (with increasing GDP) can cover those increased liabilities, but it would seem to point to freezing other spending, at a minimum.
It's good there is a sense of urgency but I don't think the situation is really as dire as being portrayed. I would argue that there is a certain amount of govt debt that is optimal - you are effectively leveraging your economy - and while the US economy has been cyclical there's no reason to think it won't continue to grow longer-term. The argument is we are stealing from our children's future. Not necessariy - you are leveraging an investment that, if it has a positive ROI, is entirely rational and good business (done responsibly). Sure, the private sector would get a higher ROI on that money. However, a good portion of the budget is for social programs, and to the extent socialism creates positive externalities (modest wealth redistribution) it CAN make sense.
