The Blatt Watch by Peter Blatt: Can You Raise My Debt Limit?

From the desk of Peter Blatt

March 19, 2013

Imagine you’re a personal loan officer at a big commercial bank. A client of yours visits you one afternoon with a sincere request: “I’d like to raise my debt limit, please.” Taking a look at his account, you see that his family has amassed a total outstanding loan balance of $167,000.

You dig a little deeper. Turns out he earns approximately $25,000 a month, but spending on average $38,000. He’s adamant about a “painful sacrifice” he and his wife have made by cutting $385 a month from that spending budget. He needs to borrow another $17,000 this month. Would YOU raise his credit limit and loan the additional proceeds?

Anyone of sound financial judgment, even of the most basic competency, would send this particular gentlemen packing. Following the meeting, the debtor may even decide to immediately call the principle balance due and begin the process to recover whatever assets he can in bankruptcy court!

A frightening piece of reality

So why does Congress allow the Federal government to perpetually raise its credit limit, over and over again? At what point will lawmakers say no and send the budget committees packing? But before you grab your pitchfork and makeshift torch and ascend upon the steps of Capital Hill, remember, it’s entirely within the legal power of Congress to allow the Treasury to raise the “debt limit”, which is in itself essentially an artificial and arbitrary number. In fact, throughout the course of our nation’s history there have been many instances of this budget punt tactic employed for legitimate and logical reasons with few ancillary consequences.

But the example above does exemplify a ridiculous scenario. If you’ve been following the talking points, figures, buzzwords, and data of our Federal debt with any fervor and regularity over the last few years, you might have noticed a subtle yet frightening piece of reality in the story of the outlandish borrower above – the numbers are representative of what we as a country owe.

This light-hearted fool owes $167,000 (U.S. Total Debt – $16.7 trillion); he earns $25,000 a year (Federal Tax Revenue – $2.5 trillion). How can this guy ever catch up and pay off what he owes?

For now, I’d like you to take a moment and check out this scary/ fun video below. It’s produced by DebtLimitUSA.org and features some familiar comedians playing the roles of the banker and the debtee in a skit that the story of the fool above is based off. Don’t turn it off early – watch it all the way through to the end for the final punch line on the very last scene.

In these days of ultra-intense Congressional budget battles, a straight talk of repayment is important.

Until next time,