Wednesday, June 15, 2011

I Don't Have to Pay My Loans Either

My wife and I have an ongoing spat. (OK, I am making it up to make a point.) The argument is centered around how much we should spend on certain items in our family budget. I think we should fill the fridge with food, fund the retirement accounts, and invest for the kid's college fund. I am willing to work a few more hours to pay for these things.

My wife thinks I'm an idiot. She can't wait to move my tail out of the house and bring in a husband that thinks like she does. She says we should work even fewer hours and cut spending. Who cares about college and retirement so far in the future. As for the leaking roof, my wife thinks a patch is better than replacement. Since she holds the checkbook, she refuses to pay the credit card bill and mortgage until I agree with her and cut our income and spending. I tell her she is nuts. She says she called the mortgage and credit card company and they were fine with us paying late if it helped us get out financial house in order.

The above example is exactly how Congress is acting with the debt ceiling limit. Wisconsin Rep. Paul Ryan says he talked with U.S. debt holders and was told a late payment is fine, especially if it leads to more fiscal responsibility later.

Back to our example. The due date for the credit card comes and goes without payment. Two weeks later the wife and I kiss and make up. The credit card is paid. No harm, no foul. Right?

Wrong! The bank now knows we are willing to leave bills unpaid even when we have the money to pay. The money was available to pay the credit card. We just chose not to pay it until we agreed to get along. The bank IS okay with the late payment because the interest rate was hiked from 8% to 18%. It will stay that way for years even with no future late payments.

Back to the real world. Do you really think U.S. debt holders will be fine with a missed or late interest payment? To a point, maybe. But really? No. Debt holders will now need a higher rate to compensate for the risk. Not just the risk of hard economic times, but lover's spats, too. Treasurys will no longer be the premium cash management tool they once were. All Americans will pay the price then for the stupidity of Congress and for a long time.

The Republicans and Democrats in Congress need to stop acting like an old married couple with an ax to grind and start acting like the professionals the American people thought they hired to run the country. Americans, and the world, are counting on it.