So, let’s play out that comparison, from which we can then determine the best strategy for our lawmakers to embrace.
Our government owes more than it brings in, so it must borrow money to meet its obligations. Its been doing this for decades, with the blessing of both Republican and Democratic legislatures. Many US citizens have done the same thing, a vast majority of them Boomers. Now, if the government does not borrow more, it will default on what it already owes, its credit rating will be devalued, bills will go unpaid, and an already weak economy will become even weaker just when it needs a boost to avoid a second recession.
Here’s the same scenario but for a US family.
For the past decade, the Highlife family has been borrowing to make ends meet as they spent more than they brought in. This included a second mortgage on their home. But now the home’s value is less than half what it was three years ago when they took the second mortgage, and their first loan value is upside down. If they don’t meet their fiscal obligations they’ll lose their home which will add yet another empty, unkempt property to their neighborhood which in turn will harm the values of their neighbors’ homes, their credit rating will tank making recovery from this bad situation that much more difficult and lengthy, and all who depend on them (children, elderly parents for example) will suffer as a result of their inability to provide the assistance they need to live decently (home care, books for school, etc.). If you were the Highlifes, what would you do to dig yourself out from under this terrible mess (besides change your name…)?
What the vast majority of us have and would do is:
- reduce our expenditures as much as possible without harming the basics we need to live (food, clothing, shelter, safety for us and our dependents, transportation, etc.)
- bring in extra income to bridge the AP/AR gap (take another job, have the older kids work)
- to avoid the disaster that defaulting on what we owe would bring to ourselves and all around us, we would use the credit and borrowing power we have available to us, but much more smartly, to get us through while the other strategies start to bear fruit, building our 5-10 year plan on the bedrock that, once a certain level of solvency is accomplished, we will no longer rely on borrowing to pay our bills
- and….we do all the above with the clear understanding that digging out will require years to accomplish safely.
There you have it. What the US government must do to handle this economic crisis just like a citizen would.