Wednesday, July 13, 2011
Raise the Debt Ceiling & Meet Our Obligations Now
Since I am not an economist by training or profession, let me give you some of my "junk economics".
The credit rating agencies measure 2 things when assigning a credit rating to a country, state or political sub-division. The first is the ability to pay! That is the debt, sometimes referred to as debt service or interest on the debt. Can the country meet its obligation to pay principal and interest on its debt. The second criteria is the willingness of the borrower to pay that debt. In other words, a political entity could have the financial resources to pay their debt, principal and interest, but not the inclination to do so. The United States Government should raise our debt ceiling and make good on obligations that it has assumed. The alternative to paying our debts in a timely manner is undercutting our ability to borrow in the capital markets around the world. This in my opinion and quite a few trained economists is what the government should be doing. This is not something that should become a political football to be kicked around our not so level economic playing field.
There is a huge need in the United States to repair and build new infrastructure. Only the Federal Government has the resources to under take such large projects, much like pursuing a war where the nations Armed Services are called into action. When investment is made domestically and resources in the ground are used from within, the domestic economy of the United States grows at a faster rate. Money is paid out and taxes on income are collected. But, there is one more thing that takes place. There is the expansion of the money supply that accompanies this economic growth. This then leads to more economic growth and more tax revenue to pay for the infrastructure. The infrastructure also delivers an economic good in and of itself. That economic good being in the form of greater productivity of the whole economy. This greater productivity produces greater demand and greater demand produces jobs! The above is not junk economics. It works. Check the political and economic history of the United States for the years 1941 to 1945, to see how this has worked in the past. Basic economics is not that complicated, except for the expansion of the money supply that takes place during economic growth, the rest is very much straight forward and understandable.
Note. That is me looking like an economist wearing a bow tie in 2006.