The Time Has Come, Are We A Nation Of Honor Or Default

We are now one week away from running out of money to pay our national debt. But we are in a state of crisis like we have not been in for decades. The ramifications of not raising the debt ceiling will be so sever that the great depression may look like a mild recession. Does that sound too harsh? Well, here are some of the reasons why it could end up lake that.

First: The US Dollars is the international currency. All goods and energy (oil) is traded in US dollars. Many other countries, mostly small ones, and also China are tied to the US $. Most countries and businesses hold huge reserves of US$. The US is still the largest economy and any fall has a ripple effect in other countries.

Second: Interest rates on everything, homes, cars, credit cards, etc. will increase rather dramatically. Why, will when investors who buy US Treasury bills loose confidence in their investment and see there is a higher risk of getting their money back with interest will raise the interest rate they charge anyone trading in US $ because of the perceived increased risk. The nation's and most all state credit ratings will fall that indicates the bond issuer is not a solid and thus greater risk of default, which drives up the interest rate all government agencies must pay to issue government obligation bonds for school building, roads, bridges, buildings, whatever the the agency might need to borrow money for. That will cost you the tax payer much more for the same item the government builds.

Third: The dollar will fall in value thus creating hyper inflation in everything we buy. That will drive up the cost of living without a corresponding increase in wages. Oil would escalate to $150/barrel. That could push retail prices to near $5.00/gal.

Fourth: With the EU in financial trouble of their own and the risky maneuvering they are doing to save the Euro and Greece, Spain, Portugal, and Italy. If the US $ drops and we fail in our obligation to pay them the interest on the US Bonds they hold, then they will collapse from the lack of revenue from the interest on the bonds.

Fifth: China is not as cash rich as we thought. They have invested heavily in infrastructure throughout that large country with new highways, freeways, subways, monorails, high speed trains, fiber optics, dams, power generation, building construction as a level not seen since the post WWII period in Europe. They hold huge sum of US Treasury notes and if they don't get paid their interest, they could fall into a recession at a time that could create political turmoil between the peasant class and the urban manufacturing class. This could also lead to massive layoffs of these workers creating huge unease.

Sixth: Should much of the world fall into a deeper recession or even depression, the Spring Revolts in northern Africa and in the Middle-East to falter. The West would not be able to support their efforts for form democratic forms of governments and could push them into the hands of terrorist organizations. The anger to shift to the West creating greater risk of attack by these terrorists.

Now we have a situation with the hard line of no revenue increase  by theTea Party and Eric Cantor and the dysfunctional management of the Republican caucus by Speaker John Boehner is driving us over the cliff. Their demand for no revenue increase be it from eliminating many tax deductions that the rich and corporations use to reduce or eliminate their tax liability is not the best approach to reduce the national debt. They are also stead fast against allowing the tax rate on the rich to rise back to the Clinton tax rate of 39.5% from the current 35% at the end of 2012 when they expire again. If they would allow them, it would cut nearly in half the debt over 10 years, plus cuts in defense would bring the total national debt down to a manageable 4 trillion dollars. In about 15 to 20 years, the total debt could be paid off.

There only needs to be some adjustments to Social Security, like raising the cap of income for how much you pay in a year and a means test in how much you receive when retired. If you have an income of over $150,000 per year, then you may receive very little or no social security, but as your other income declines, your SS payment would increase to whatever the max benefit might be.

Medicare, like all health care, must work with the providers to see how to control the escalating costs. This is primarily focused on hospital inpatient costs that consume the majority of the funds. Also it must negotiate with drug companies to reduce medicine costs, which were not funded for under the Bush Part D plan.

We have to reverse the 41 cents of every dollar spent by government is borrowed. Some of this is the rise in taxes on the wealthy and some careful spending cuts.

The biggest question for Americans is, what government services are you willing to pay for? If the service is not worth the taxes paid, then eliminate it. Privatizing just to privatize is not necessarily a cost savings. Their fees may be much higher than the taxes you pay for the same service.

The chart below shows how employment in this recession is not like any other. It is deeper and the recovery is very very slow. There needs to be more government infusion of money for infrastructure rebuilding to create private sector construction jobs that have high trickle down benefits to the economy. Without it, we will linger as we have or even decline further. If we can increase employment, there would be more revenue to reduce the debt and pay into social security and medicare, reducing the stress these programs have.