Let me start by displaying the frame of the arguments presented in the wider media.
1) The US will default if it does not continue borrowing on aug 2, 2011
2) If we don't borrow MORE money our credit rating will go down
3) We need to borrow money to pay our creditors
4) People who want to cut spending are radicals/regressives who want to kill old people and the poor
You hear it every time you turn on the news "Will the US default?" "What will happen to YOUR 401K?" and so on and so forth. So here I will give an accurate explanation of two ways this can go.
Scenario 1) We borrow more money:
Upon borrowing more money and INCREASING the deficit and national debt; we have not addressed the fundamental issues but we have camouflaged the sucking wound that is the escalating debt. MAYBE our credit rating has statyed up...but maybe not since we haven't actually addressed the debt. Spending continues and it gorws even more out of control and more intertwined with our system eventually leading to a near collapse only avoided by hugely spiking interest rates and inflating our money until it is valueless as we purchase back the debt with zimbabwe-like currency.
Scenario 2) We cut spending immediately:
The budget automatically balances and we are back to 2002 levels of spending necessarily repealing Obama-care and a lot of budget increases over the years. The recession deepens for a short period, but we continue making payments on the debt even paying some of the principle back so our rating stays high. We slowly bring interest rates up to soak up the extra dollars and strengthen US currency in relation to others abroad.
oil prices begin to drop and the recession lifts as we live within our means with a government that is considerably smaller but no less effective. Many public sector workers are now private sector workers which results in a net gain in treasury receipts without the sucking on the govt teat for paychecks. Businesses cease fearing more govt intervention and begin to invest and innovate. Wages rise and jobs are created.
Then people forget and do more stupid borrowing
I give up and my head asplodes.
