Pass the Peas, Please or Welcome to the Hotel California

To reduce debt or raise debt? That is the question...

Debt and Congress go back like babies and pacifiers. Or rather, more like babies and pacifiers laced with cayenne pepper. The two simply do not mix. When fiscal year spending is being determined in Congress, it's outside the sphere of influence the Treasury has over it's awe-inspiring $14.3 trillion debt limit. Thus, the last six months has been a slow brewing maelstrom of media soundbites and political face-offs over how to position the band aid and what shade of neon it should be.

First quarter GDP grew by an annualized 1.8%. Historically, we're more a 2.5% growth nation. With unemployment way up and structural unemployment running rampant, the tax base is not growing. In my humble opinion, Republicans are correct in being against a tax increase. Where will the money come from? The rich have it, but not like that anymore. America's imperative to "Eat it's peas" (see the President's video clip below) means that the fun is over and it's time to get down to deleveraging. There's no light at the end this tunnel without coming face-to-face with dealing with our drunken obsession with debt.

Deleveraging is debt reduction and debt reduction is obviously our only option. Nevertheless, it's a tough choice, but the big debate in Washington is whether it's the only choice we have. Some lemons have been given to us to make lemonade (albeit without the benefit of sugar), such as high petrol prices that increased by almost a dollar in the first half of this year. Or consider inflation, which is eating away at consumer purchasing power, meaning we leave from the stores with fewer bags, if any. But the only things we are buying these days are veggies: long gone are the months-long binges on life's indulgences. Wallets are flattened, belts are tightened, as we come to know first-hand what eating, praying and living healthy feels like. Supply and demand gave us the lemons. Sheer chance presented us with the obligation to be economic stewards of all this wealth we have amassed - come what may - and be accountable for gorging ourselves on dessert first.

As the Treasury's "D-Day" of August 2nd quickly approaches, the looming question is if the U.S. of A. will be able to pay her bills. If not, it's default city. Since inflation is up and demand never sleeps, the American infatuation with credit presents an alternative to debt reduction. Just increase the debt limit. Otherwise, soldiers, pensioners, China, somebody isn't going to get paid. And just like me and you, if there's more going out than what's coming in, Uncle Sam will have to issue a few I.O.U.s, prioritize creditors, and pay on a "get it while it's hot" basis.

The Great Debate between Obama and the Republicans centers on who's the best at bluffing. Do we dare let the greatest country in the world's sovereign debt plummet to sub-AAA status and become as *gasp* Greece?? Or will even more debt fix our deleterious debt dilemma?

Neither, pardon my facetiousness. This is not an economic problem, but a political one. Greece is bad, but not as bad as the U.S. which can't lower unemployment, raise production or export goods to save our credibility in the global markets and is quite possibly staring a double-dip recession in the face. If August 2nd puts us into a tailspin it's only because we were graciously saved the embarrassment of it not happening in the previous 24 months since the Great Recession ended. Plenty of time - especially since the debt talks began in earnest in January '11 - to think of practical ways to deleverage. Like putting both public and private spending in check. Like shredding all access to easy credit. Like stepping back from the table. If you're up to your eyeballs in debt and you call Visa to issue more, they'd ask how the sanatorium got their number.

Get smart: America boasts a AAA rating alongside other countries such as Germany, France and the UK, all of which have lower debt levels. If ol' Uncle Sam was Samuel Jackson, his debt to income ratio would have him paying cash and showing 3 forms of ID to buy gum. A credit downgrade is inevitable and has been for a while since spending levels are off the meat rack. Deleveraging is our best bet to return to the long-term economic growth rates we've become accustomed to. Our vegetables, while unpopular and unpleasant, make us healthier, wealthier and wiser over time.

However, the media likes to push financial Armageddon, "the end is nigh" and blah blah, so I'll leave you on this "note" (double pun intended) regarding our raging lust for debt bound for default:

"You can check out anytime you like, but you can never leave!"
- the eagles

Prosperity and practicality,

dls