Just last week, I was having coffee downtown with my old friend, Arnold, and we began to talk about finances. Arnold told me that after we finished our coffee he was heading over to the bank to take out a loan to buy a car. Now, Arnold already owns two cars, so I asked him why he needed another one. He said he needs one to get to work, his wife needs one, and now that his son is in college, he needs one, too.
“Arnold,” I said, “you owe more on the two cars you have than they are worth. Besides that, you have a mortgage on your house, and with the housing market the way it is, you’re just about even on that. And you are paying tuition at college for your son. Your wife just took a second job because you are having trouble making ends meet. Does this third car make sense?”
“You don’t understand,” he said, “ I really want that third car.”
“Arnold, you don’t understand. You don’t have the money! If you take out another loan you will probably get into default and lose the new car. Not only that, once behind on one payment, these things tend to pile up. You could lose the other cars, maybe even the house. There’s a real good chance you and your wife could wind up in bankruptcy court. Of course, your credit rating will be shot.”
Arnold was not entirely convinced, but I told him he ought to consider doing some carpooling, maybe sharing a car with his wife on occasion, let his son go to school on the bus. “You see, Arnold,” I said, “this is exactly the same dispute that is going on in Washington right now with the argument about raising the federal debt ceiling. That’s the amount of money the government is legally allowed to borrow.
“The federal government is in debt to the tune of several trillion dollars, but the Democrats want to raise the debt ceiling so they can borrow even more,” I told him. “We can now predict that there soon won’t be enough money in the federal till to make Social Security payments, or cover Medicare or do lots of other things. The government will eventually be like you would be if you borrow money to buy that third car — which is to say, broke, bankrupt, busted, tapped out.”
“Ouch! So what will the government do so that won’t happen?” he asked.
“They should do the same thing you should do, Arnold. They should reduce the amount of money they spend so they can eventually get back to break-even and start paying off all the money they already owe.”
“Well,” said Arnold, “that makes sense to me. I’m no economist, but even I can figure that out. But those Washington guys are pretty smart, so I’m sure that’s what they’ll do, too.”
“Oh, Arnold, if only it were so. You are right that Treasury Secretary Timothy Geithner, Sen. Harry Reid and President Obama are all smart guys. But you are wrong if you think they want to cut federal spending. Their philosophy seems to be to keep borrowing and getting deeper in debt. Maybe they think eventually they will just turn on the Washington printing presses and print a lot of new paper money — but believe me, experience in other countries, from Germany to Zimbabwe, shows printing money like that causes runaway inflation, and that is a disaster for everybody. If they do that, and everyone’s dollars become worthless, our whole country will go into a nosedive and we’ll be trying to run our economy with euros or Chinese yuan.”
“Awful! Is anybody trying to hold the line for us?” he asked.
“Yes,” I said, “the Republicans in the House, and Rep. Paul Ryan in particular, are refusing to allow the debt ceiling to go up unless the Democrats and the president agree in advance to make some major reductions in federal spending. If they can make a deal, then the country will be heading in the right direction toward a strong economy and a stable currency.”
“OK,” he said, “you’ve convinced me. I don’t want to be like Washington. I’m going to pass on the third car and maybe start looking for a few other ways to shave our family expenses.”
With that, Arnold headed off down the street in the opposite direction from the bank. He left me with the check.
Howard Chapman is a resident of Fort Wayne.