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Debts, deficits, defaults, and deadlocks
July 25, 2011 - Stephen Browne
Is anyone willing to admit they don't understand what's going on in congress over the debt ceiling negotiations?
Don't be embarrassed, there's a reason you don't understand. The fact is, economics is not all that complicated - it takes an awful lot of deliberate obfuscation to make it seem complicated. The economy of a country is no different from your own household economy, it's just lots bigger. To illustrate, here's a handy-dandy glossary of the terms you hear tossed around in the news.
Deficit: the difference between how much money you made this year, and how much you ran up on the credit card.
Debt: the sum total of all the money you put on the credit card over the years.
Debt ceiling: your credit limit. The stuff you want to buy this year costs more than you're allowed to borrow, so you ask the credit card company to raise your credit limit.
Default: what happens the day you can't put it off any longer and have to tell VISA and/or MASTERCARD you can't pay what you owe - or worse, you can't even pay the interest on the debt you've racked up.
Now for "you" read "The United States of America." Simple.
Q. Whose fault is it, the Democrats or the Republicans?
A. Both and neither. It's our fault. We wanted lots of things and we wanted someone else to pay for them. Republicans and Democrats merely have different ideas about what we can't live without, which is why there's a deadlock. Both were willing to indulge us in our fantasy of making the other guy pay for all that stuff - and in a democracy everyone is someone else's other guy.
Q. How do we fix this?
A. We probably can't. Figures differ depending on who's counting, but generally agree that seizing every penny of every personal fortune over $250,000 would not get the federal government through a year of spending.
Q. So what happens when the country defaults on its debts?
A. Nobody really knows, but for sure nothing good.
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