With all the occupy Wall Street news and movement going on right now, I think we need to reflect on what the average household debt has looked like over the years. While we are in a culture of finding others to blame, it is important to realize we also have ourselves to blame. Since the 2000 house hold debt as a percent of disposable income has held at a very high level. Below is a great graph to understand this issue.

For the first time in the history of this great country the United States of America has been downgraded. We have lost our AAA credit rating due to our levels of national debt and the foolishness on Capitol Hill.

What this means for markets, interest rates, and our economy in general time will tell. Tomorrow and the days that follow could prove frightening, or we might see more of the same economic results that we have seen this year. Which is to say, not good.

I am disgusted by the behavior in Washington D.C.

Every household in the U.S.A. has to balance its budget if they want to be successful in life. Where do these politicians get off thinking they don’t have to live by the same rules? That’s not to say you never go in debt. Everyone knows there are some things that justify it but those things make up a very short list! A home, your education, an automobile, and very little else justifies major debt to satisfy the wants of now and jeopardize the needs of the future. And how much MORE immoral would it be if I were allowed to reach into your pocket to pay for my financial indiscretions?

Running national debt of 100% of GDP or more is a national security risk. We are at the tipping point. Can we recover? Yes we certainly can, but serious challenge require serious solutions! Otherwise the tipping point could go over and we could get crushed under a mountain of debt. Keep in mind our current debt level does NOT include all the future spending commitments that these professional politicians have made and for which the U.S.A. cannot fulfill.

How Might We Limit Washington?

Having a fixed dollar amount debt limit seems silly. As our country has grown and as it continues to grow federal spending will increase. (We can debate if that should be the case, but to deny that reality currently would also be silly.) What should be in place is a structure that makes it harder for the congress and the president to spend money as the debt gets larger (as a % of GDP.) I do not know what numbers should be used but to illustrate the point it would be something like this:

If government debt to GDP was under 40% then new budget/appropriations bills would require a simple majority of 51% to pass congress. If the ratio was between 40% and 75% those bills would now require a super majority of 66% to pass congress. if the ratio of debt was over 75% then those bills would require a massive majority (a term I just made up) of 88% to pass; and if debt was 100% of GDP or higher it would require a unanimous vote.

This would allow for needs which are truly urgent to the survival of our nation, like World War, to get the funding it needed, but slow down and create natural resistance to spending as the debt grew larger. Like I said, those numbers are for illustration purposes only so don’t get hung up on the details.

Would our current congress ever vote for something like this? I doubt it, that’s why we should get rid of the professional politicians, institute term limits and get some rational Americans voted in who can bring some common sense, kitchen table budgeting to that town of gluttony and crony capitalism.

The U.S. has had the idea of a debt ceiling for a long time. Through the 40’s, 50’s, 60’s, 70’s and 80’s the debt ceiling was raised but only by small amounts. Why in the late 80’s and through today has the debt limit been raised so fast? Yes, we have had wars to fund and recession we have tried to spend our way out of, but that does not tell the story of the past 30 years. Surely, we have not needed 20-30 years of record spending. Has the government promised us more then they can deliver in order to get elected?

We all like our promises. We like politicians who make promises to us and we elect them, even when those promises just cost the country more and more.

For years some politicians and others have warned us about our entitlement spending. Do they really know what they are talking about? Are entitlements really a root cause of our spending issues?  To the right is a chart of our government expenditures since 1950. The chart shows what, I am sure you have seen a lot of over the past few weeks. While this shows we have a problem it does not help us understand how to solve the issue. Let’s take this this chart down one more level, and look at government expenditures by major category.  In this chart you can see that entitlement spending in social security and Medicare having been spiking. Nearly headed straight up. Defense spending also has a very steep trend.

I am sure you have heard both Democrats and Republicans blame either entitlements or defense spending for our current issues. While it is a hard message to hear, we obviously cannot continue this spending trend. If we continue to elect only people who say what we want to hear how can we expect this to change. Politicians tell us they will pay for this or buy us that because it helps them get elected. Have we become like spoiled children clinging to which ever parent will buy us the most?

We have to demand more from our leaders? We have to demand more from ourselves. We must be willing to make hard choices and those hard choices cannot be to have the rich pay more taxes. As you can see from those charts, increased revenue cannot keep up with these trend lines without sucking it all dry.

The following video from Bankrupting America does a great job and explaining all of this. May we all, democrat, republican, independent demand more.

There is a lot of talk about the debt ceiling going on right now. Here is some information to help you understand the history of this topic.

Has the debt ceiling been raised before? Yes, lots of times. Every president except Harry S. Truman has raised the debt ceiling.

Here is the breakdown :

￭ Dwight D. Eisenhower (R): 4
￭ John F. Kennedy (D): 5
￭ Lyndon B. Johnson (D): 7
￭ Richard M. Nixon (R): 7
￭ Gerald R. Ford (R): 6
￭ Jimmy Carter (D): 6
￭ Ronald Reagan (R): 17
￭ George H. W. Bush (R): 5
￭ Bill Clinton (D): 4
￭ George W. Bush (R): 7

Is this always a battle? Yes. No party likes to cast a vote to raise the debt ceiling and the vote is always along party lines

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Keep in mind. This debate while focused on the debt ceiling is not really about the debt ceiling. It is about our credit rating and our deficit spending. Read this article for some help in understand and visualizing our deficit spending issues. The American dollar is one of the most reliable currencies in the world. U.S. treasury bonds are the most secure in the world. Our deficit spending is making other countries and rating agencies question the future of those bonds.

Will we default if we don’t raise the debt ceiling? No.

The President likes to throw around the word default a lot right now. The United States will not default! We have plenty of money coming in every month to pay our debts (over twice as much as we need). If we don’t pay, it is because the President decides not to pay, not because we don’t have the money. The real concern is that our credit rating is lowered. Our credit rating will be lowered because we cannot show an ability to get our debt under control. The following chart shows why credit rating agencies think we are out of control in our debt spending. It is hard to look at that chart and not agree. The rate at which we borrow and spend money is out of control right now.

It’s hard to believe that only a few generations ago the United States of America was the largest creditor nation in the world and today we have become the largest debtor nation in the world. How could we be so careless and to put at jeopardy our future and our children's future and our grandchildren's future and beyond. It’s immoral what we have done.

Imagine a friend who calls you up and says, “I have a financial problem. I make $58,000 a year. I have been spending about $75,000 a year and I have found myself with $327,000 in credit card debt. But I think I have a solution, spend less! From now on I am only going to spend about $72,000 a year.” (adapted from the Dave Ramsey show)

How do you feel about your friend's plan to get back to financial stability? You should feel sick and want to slap your friend in the face. Well folks, this is exactly the situation going on in Washington. The numbers are different but the ratios are the same. This friend is the government of the United States of America. What are you going to say to your friend?

Click Here for an Excellent Visualization of this Problem