Raising or Not Raising the Debt Ceiling: Does it Affect the Average American?

Raising or Not Raising the Debt Ceiling

WASHINGTON D.C. – As Congress debates raising the debt ceiling after threats that the U.S. would lose its credit rating and cause a “huge global panic,” Americans have shown in recent polls they’re not supporting another increase.

(See Real Tips for Getting Out of Debt at the bottom of this article)

Daniel Massucci, a CPA at Massucci & Associates, believes the economic statistics are straightforward: Do not raise the debt ceiling.

“America is, in effect, bankrupt,” Massucci said. “It’s ‘stated’ debt, the dinner table figure of more than $14 trillion, is projected to grow to nearly $20 trillion, or nearly 90 percent of the total gross domestic production of the United States by 2020. Unfortunately, the country’s ‘unstated’ debt is even greater – projected to be potentially more than $150 trillion when adjusted for inflation.”

Andrew Schrage, Executive Editor of Money Crashers who has an extensive background in economics and finance, said raising the debt ceiling would have a serious long-term impact.

“On the one hand, Congress would be able to keep borrowing money to pay off existing debts,” Schrage said. “This would reduce the likelihood of default in the next few years.  On the other hand, if the budget isn’t balanced in the process, debt would continue to grow.  The United States is already saturated with debt, and both domestic and foreign lenders are already beginning to question if it can pay the debt back.  The Treasury may have to significantly raise interest rates on their debt as the Federal government becomes a riskier borrower.  The only way to counter this would be to significantly cut spending or raise taxes – or both.”

But failure to raise the debt ceiling would be felt by Americans immediately.

“The Treasury actually pays many of its debts by borrowing more debt,” Schrage said. “If the debt ceiling is not raised by August 2, there is a real possibility that the Federal government will default on some of its obligations. This could cause many grave problems.  These include destroying the United States credit rating, devaluing the United States dollar, government shutdowns, and the possibility of a global depression.  The government could still possibly avoid a default by making significant spending cuts and raising taxes. Such actions could, in turn, drastically improve our credit standing, but also risk a double-dip recession.”

Greg McBride, Senior Financial Analyst for Bankrate.com, said it is imperative that Congress raise the debt ceiling immediately for the sake of American citizens and Baby Boomers.

“They need to raise the ceiling and quit playing a high-stakes game of chicken,” McBride said. “The consequences of not doing so? Think back to September 2008 after Lehman failed … it’s like that, and possibly worse. If credit doesn’t flow and asset prices plunge, the economy comes to a screeching halt. Unemployment jumps and fear grips spending and investment. At the household level, this reduces buying power and the lifestyle we enjoy; which is especially troubling for the millions of Baby Boomers moving into retirement who will be dependent on fixed incomes.

McBride argues that the answer is raising the debt ceiling, and slowly cutting the government spending until the government no longer spends in excess of tax receipts. But cutting spending too quickly, he said, could plunge the U.S. economy back into recession.

But Massucci said that is a fear tactic used by politicians to spin the problem.

“They have baited the majority of American citizens with entitlements the government never had any business even associating itself with, and they now use the age old scare tactic of threatening the loss of those entitlements unless we hold tight to the status quo,” he said. “’The debt ceiling must be raised,’ they argue. ‘The world as we know it will otherwise end.’”

Massucci said the “world as we know it” would indeed come to an end – something he fully supports.

“It is in that end that lies the only true hope for America,” he said. “The status quo is the political system’s last resort. The final stop on their journey in career politics. They care not that the status quo ultimately equates to the destruction of America; they care strictly for their own personal safety and security that is protected by the status quo and threatened by any alternative course of action.”

Massucci said it is the out-of-control government that has ruined America.

“Make no mistake, this is not a Democrat or Republican problem. It is a government problem,” he said. “What began as a government by the people, of the people and for the people, has become a government of, by and for its own existence.”

“But risking default by not increasing the debt ceiling is like waving around a loaded gun – the best case is that nothing bad happens,” McBride said.

Schrage said individuals should learn from the crisis the government is facing.

“It is not uncommon for people to owe more money than they make in a year,” he said. “In fact, the average person’s credit card debt is about $15,000 per household. Combine this with money owed on mortgages, student loans, and outstanding legal or medical bills, and it is clear that the debt issue is a micro-problem, as well.  Anyone who is in these situations needs to start cutting their debt substantially and learn how to make a budget.  Unlike the government, they cannot continually borrow more money to pay off previous loans.  Whenever possible, they should also prioritize the loans that charge the highest interest rates.  Getting out of debt requires a lot of discipline, but is possible for anyone regardless of how much they owe.”

Massucci said Americans could relate the Federal Government’s current problem to that of a 65-year-old father who owes $400,000 but whose assets are worth less than $200,000. The man borrows more money to help his struggling children, thus creating a long-term nightmare for a short-term solution. Ultimately, he will leave his economic mess to his children and family to deal with.

“America is essentially at a similar crossroads,” Massucci said. “It can borrow more just to keep the status quo intact and make the world appear wonderful for another day, but at the same time, it will be setting the stage for ultimate disaster. Or, America can turn the page, accept responsibility, and claw its way back to the foundations of freedom it was once built upon …”

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Copyright St. George News, SaintGeorgeUtah.com LLC, 2011, all rights reserved.

Editor’s Note: In an effort to help the average citizen with their own economic struggles, St. George News and Fox News KZNU have partnered with a dozen financial experts who have agreed to work with local resident to help them climb out of their financial hole. St. George News will be following the stories of these residents and reporting on their progress and the programs used to help them become debt free.

Real Getting Out of Debt Tips by Nicole Covganka, Retirement Planning Group

–                Struggling with credit card debt – call the credit card company. They do not want see your card go unpaid.  Most of the time they will work with you to reduce your interest rate or reduce your payment.  If they aren’t willing to help, ask them for a referral. The credit card companies have resources to help their cardholders.

–                You MUST sign up for your employer retirement savings plan. Who cares if they do not match your savings. Even if you can only afford $10 a paycheck, something needs to go into that account. Also, you get a tax savings instantly because you aren’t taxed on the $10.

–                Stop using your credit card or debit card. To help you get a grip with what you are spending, use cash!  It makes you think twice when you physically have the money in your hand vs. swiping the plastic.

–                Pay yourself first. I know everyone has heard this, but seriously take a little bit out of each check. Open a savings account at a DIFFERENT bank and make sure you do not have an ATM card or any access besides going to the bank to get the money.

–                You are responsible for your retirement, not your employer and not the government. It is never too early or too late to start saving.

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