Imagine, if you will, that you are massively in debt. Perhaps you don’t have to imagine such a scenario, in the modern world only two things are certain; debt and taxes (I assume the state and its banks are working feverishly to somehow outlaw the sweet release of death). Let’s say you have a multi-decade mortgage, large student loans, car loans and a credit card carrying an outstanding balance.
Let’s say that you will shortly be falling behind in your payments so you open another line of credit. After a few more months, that card is maxed out so you take out another line of credit. It doesn’t take a genius to see that this trajectory is not sustainable. Eventually, no one will be willing to advance you any credit and your credit rating will surely suffer. In short, paying down debt by going further into debt is financial suicide.
Unless, of course, you are the US government. Economic sanity goes out the window when you have the printing press. Hence the pretend debate surrounding the raising of the debt ceiling. The fear-mongerers are out en masse stirring up, well, fear. Why, if they don’t raise the debt ceiling, old people will die in the streets. The men with guns won’t be paid. Bankers won’t be bailed out.
Even that sham of a credit ratings agency, Moody’s, is getting in on the action implying that they may consider, perhaps someday, downgrading the US government’s “AAA” credit rating if the debt ceiling isn’t raised!!!
Imagine, again if you will, if your situation of personal debt was treated the same way. What if, instead of cutting off your line of credit, banks told you to take out more lines of credit so as to keep up with your payments and even spend further? What if they told you that the only way to improve your personal finances was to go further into debt? Being human, you may acquiesce, but you will know in your head that it is financial suicide.
The government raising the debt ceiling (which they will do because they always do) will kick the can slightly further down the road. The government will be able to keep its wars going a little longer, will be able to bribe the elderly into submission a little longer and will be able to keep the easy money flowing to Wall Street a little longer. Of course, while this happens monetary inflation could reach new highs, meaning that the dollar is further weakened and that check grandma gets doesn’t buy as much as it used to.
A person committing financial suicide is lamentable, but the damage caused to society is minimal. A government committing financial suicide tears at the very fabric of society, just ask the Greeks.