What If Your Family Owed Uncle Joe $14.3 Trillion?

The high debt could cause a drop in the nation’s credit rating and a loss in confidence by the country’s lenders.

Posted: 05/17/2011 07:31 AM EDT
Filed Under debt

What If Your Family Owed Uncle Joe $14.3 Trillion?

If the federal government were a household, its chief financial officer would have some explaining to do. There would be stammered words about how more is being spent than being earned and how will bills be paid.

 

When a family hits the limit on all its credit cards, friends and relatives familiar with it may stop lending money. Well the federal government is in a similar fix. On Monday, the United States hit its $14.3 trillion limit on federal borrowing. 

 

The Treasury would like to raise that debt limit and borrow more to continue paying bills and making investments in different areas. That approach appalls fiscal conservatives, and many moderates, as the United States may default on its debt for the first time.

 

The result could be a drop in the nation’s credit rating and a loss in confidence by the country’s lenders,  such as China, in the same way that uncle Joe may decide not to bail out the family that keeps spending more than it earns. Of course, China, which has to keep a billion plus people fed daily, has more invested in this country than Uncle Joe does in the family.

 

Thus, the battle is joined between the Obama administration and the Republican-led House of Representatives. The Obama Administration wants to raise the debt limit and negotiate with the GOP about further spending. The latter refuses to raise the credit limit unless the president agrees to major spending cuts or makes concrete steps to decrease the federal debt.

 

If an agreement can’t be reached to raise the debt limit, as the Associated Press reports, the results will be tough choices. Will Obama trim the budget into the early fall and risk “defaulting on payments to investors in government bonds; raise taxes immediately; or some combination of the two.”

 

To some that would be like telling uncle Joe that his loan won’t be repaid but the family still expects him to pay some of its ongoing bills.

 

In a scenario like that blame will be assigned and someone is likely to be kicked out of the family if it come down to a vote. Let’s say in 2012. The question is who will go?

 

(Photo: Mark Wilson/Getty Images)

From Our Partners