This summer, I interned at a financial planning firm where I assisted the company in writing its second personal finance book. Part of my job was to research and write about large news stories concerning the financial world. As everyone probably knows, many of the headlines this summer were about the nation’s debt ceiling crisis.
The debt ceiling is the limit on how much money the United States government can borrow, and the U.S. has always been a debtor country. On May 16, 2011 the debt ceiling reached its limit at $14.3 trillion. Analysts predicted that government payouts would be able to continue until Aug. 2, 2011, but after that time, the U.S. Treasury wouldn’t be able to fulfill obligations unless the ceiling was raised or another solution was put into place. This outraged many people who depended on assistance like Social Security and expected to get back what they had contributed while they were working. Raising the debt ceiling would allow the government to borrow more money; if it wasn’t raised, lawmakers would have to cut spending to fund their obligations.
Programs like Social Security and Medicare might not have received their payments if the ceiling had not been raised. If the government had defaulted on their payments, it would have had to pick and choose what programs were most important and needed the payouts.
There were a number of proposed plans and solutions for the crisis. The Republicans wouldn’t raise the debt ceiling unless there was a large deficit reduction via drastic spending cuts without a tax increase. The Democrats wanted to raise the debt ceiling immediately to fix the short-term problem, and then employ spending cuts and revenue increases to solve the long-term problem. Personally, I would not want to pay more taxes to fix a problem the government created, as I’m sure no one else would. I agreed with the Democrats’ plan to raise the ceiling immediately to fix the problem at hand, but I also agreed with the Republican view of cutting unnecessary spending.
The government had to figure out a solution by Aug. 2, and it did. According to an Aug. 6 article published in The Economist, there will be $917 billion in spending cuts over the next decade, coupled with an increase of $900 billion in the debt ceiling. Following these steps, a congressional committee of Democrats and Republicans are to find $1.5 trillion in deficit reductions in return for a matched debt ceiling raise. After the deal was reached on July 31, it seemed that the government would be ok for the time being.
However, shortly following the resolve, the U.S. credit rating was lowered for the first time in 70 years. The U.S. has always held a AAA rating from Standard & Poor’s rating system. But following the debt crisis, the rating was lowered to an AA+, one notch below AAA. The previous triple-A rating made Treasury bonds the safest investment in the world. While these bonds are still considered to be the safest, it shows that people are starting to notice the flaws in our government.
After the recent financial crisis, Americans are now more concerned with their investments, as they should be. And our government is an investment. I agree with the S&P’s lowering of the U.S. credit rating. The debt ceiling crisis shows the many cracks in our government. If a catastrophe like the debt ceiling crisis occurred in a private company that could no longer pay back its debts, its credit rating would plummet. It should be no different for our government.
It seems like our government is more of a business every day, so it should be treated accordingly. While I still believe that investments like treasury bonds are almost completely safe, it’s nice to see that some people are noticing the issues with our government system. Even though it would be highly unlikely for our government to go bankrupt like we saw this summer in Greece, it’s not impossible.
Ashley Griesshammer is a senior editorial page editor.