Are you steaming with frustration yet with the debt ceiling drama? After last night’s address by President Obama and Speaker Boehner, you should! Clearly what we thought was leading to some sort of compromise- the new dirty word in Washington- is looking more like the story of a dysfunctional couple on the verge of collapse. Who will win, who will surrender, who will be betrayed, whose voice is bigger, and who will stay with the kids? Drama worthy of a telenolvela script for sure.
The issue, two dueling parties and speeches filled with rhetoric and accusation and very little action. And what is even more concerning, this parallel argument is happening on the eve of default.
Think of yourself for a minute as the powerless offspring of a stubborn set of parents. What happens when each side gets clouded by their own agendas and desire to win? You -the kids- are left in-between as the victim of collateral damage. And this is what is happening and could happen to us, if our American home doesn’t get in order with some sort of compromise.
So let’s follow this family-novela parallel for the sake of making sense of the non-sense.
Your family and home has reached a point when the moneys owed exceed the moneys made. So what do you do? One option could be to call the credit companies and beg for them to raise your credit limit, aka your debt ceiling. Another option could be to make some changes in the way you live, reduce spending. If neither option is viable or reached, you are stuck in a serious financial crisis. And, guess who suffers in the process most? We do, the kids and dependents that are living at home.
That is exactly what our federal government is dealing with at the $14.3 trillion dollar level in debt and August 2nd as the due date to figure out a plan to pay the bills.
So, which bills would not be paid? Who decides and why? What should we cut to survive? There has to be some sort of compromise, but when parents don’t agree to agree, there is very little left but to live with the consequences of a dysfunctional household.
So what are the consequences in plain language?
1- Default: Not having enough money to pay the bills. This makes it inevitable for the lights to go off on certain things that cannot be afforded. What would that be? Medicare, social security? Student loans? All of the above? According to a report by the Bipartisan Policy Center, in August alone, federal spending would need to be cut by 44 percent. That means the government will only be able to pay 56 cents for every dollar of its financial commitments, including the interest payments on the national debt. The math doesn’t add up without some adjustment in spending and/or revenues.
2- Lower credit rating: Debt to income ratio determines your credit score, and the same principle applies to the federal government and its credit rating. Since 1917 the U.S. has maintained a triple A rating, and without a proper plan that closes the gap between debt and income, the financial community won’t look at America as a safe and viable borrower. So whether the debt ceiling is increased or not, without adjustments to spending and/or sources of revenue the credit rating will be impacted.
3- Higher interest rates and cost of borrowing: Again, similarly to what would happen to you as a consumer with a lending institution, the riskier of a borrower you are the more expensive it becomes for you to borrow money. This will translate into a more expensive cost for borrowing money all together. Higher interest rates, higher mortgages, higher prices.
4- Riskier investments: Without issuing more debt, or not paying the bills and not being a credit worthy borrower of the world’s funds, America, the American dollar and American investments become riskier. All of a sudden treasury bonds and “risk free” investments become less attractive. A lot of investments are held in treasure assets, which is meant to be a safe place to park your money. Treasury assets have been favored but if you make them risky, people would be more hesitant to invest.
So what do we do? As passive as it seems, all we can do is wait and see. However, President Obama encouraged us to call or write to our congressman, but would that make a difference? And if we take it back to the novela-like drama, how would it read? Maybe, it would sound something like this:
Dear mom and dad,
We heard you last night, in fact, your arguments kept us up all night! We could hear you arguing from across the room, and while we didn’t fully understand what was going on, we are now realizing that this could ruin this home we love. You told us our home was a great place to be, but you are confusing us with your behavior…
So we are writing this letter because we are tired and scared. We are getting really frustrated by your inability to compromise and stay humbled and objective for the sake of our home. Can you please stop talking and talking and talking with no progress? Do something please! Please, we beg you!! We are afraid for this wonderful family and home to fall apart. Don’t you see that what you are doing is making our neighbors notice and wonder in disappointment? It’s is so bad that we are now scared and embarrassed to go outside and play with others…
And this is why, we, the kids of America, ask for one thing: could you please stop the bickering and start thinking about the consequences your behavior could bring on us? Because we want to go to college, stay healthy and live a good life, but without your willingness to move forward we will be victims left with the threat of catastrophic consequences.
So please, please… Make choices that make sense for our future and don’t sacrifice the basic needs of today along the way. Please put our best interest above your stubborn self and keep our home from falling apart.
All of us, the kids of America
Lili Gil is an award-winning business and Hispanic market expert and host of the online show Moments2CulturRise. She is also co-founder and managing partner of XL Alliance. Gil was recently selected by the World Economic Forum as one of only 190 Young Global Leaders identified across 65 countries for her leadership, community and business impact.