BloggeRhythms 4/19/2011

I don't know if it's just me that has trouble figuring out all the verbiage coming out of the administration about the debt ceiling, and perhaps I need some help in understanding what they're saying, because it's all very confusing to me.

Just yesterday I wrote that when it comes to commercial loans, the first thing any lender wants to know is exactly how the borrower is going to pay them back. Because, if the lender can't collect for any reason, they've got a bad deal on their hands. And, if there are too many non-paying borrowers on the books, the next thing you know, the lender's out of business. A very simple way to confirm that premise is to simply look back at what happened recently to world-wide banks. Scads of them went broke due to bad or uncollected debts.

Now, when it comes to the debt ceiling, the U.S. has clearly demonstrated that it can't maintain it's budget on what it collects in the normal course, so it supplements the shortfall with borrowed funds. At the moment that amounts to more than $14 trillion bucks. However, with all the money the government spends, seemingly without rhyme or reason, they have to come back to the trough again and again or else, they say, the nation will financially go belly up.

So, how does the administration believe it can solve its current financial dilemma? By borrowing more of course. And this is what they said according to Fox News: "the White House has warned that failing to increase the (debt) limit in the coming months could be ruinous for federal finances and the economy as a whole, because the nation's creditors may lose confidence in the United States' ability to pay its debts."

Now this where I get confused. Because if I understand the White House's message, they fear creditors might become concerned if the nation can't borrow any more money, thus risking a default on loans, because access to more borrowed funds will be cut off. So, that says to me that a government that can't afford its obligations right now, forcing it to borrow, can't pay back what it owes without more loans. And that's an incredible financial catch-22 which will keep growing until the real issue is faced. The debt limit isn't a problem at all, what needs to be stopped is the thoughtless spending.

That's it for today folks.

Adios