"Okay, okay! Atlas is shrugging!"
Back when I was in business school at what is now the Carlson School of Management, I learned about debt. Back then, debt was not considered to be a four letter word. In fact, to grow a business, to grow your household, even to grow and develop a country, a certain amount of debt is necessary. Debt was to used as a tool for growth; properly managed debt was the way good companies grew into great companies.
Most companies still adhere to using sound analysis of equity and/or debt to fund new growth or opportunities. Many households around America have numerous kitchen table discussions on how to pay for what is needed or wanted without letting their consumer debt get out of hand. Many countries in the West on the other hand, seem to have lost their way to the land of common sense. These countries have allowed debt to transition from a tool to an economic growth eating cancer.
Lets be clear on one thing - the current shut down we are experiencing has NOTHING to do with fixing Obamacare. It is all about debt. It is all about having a spending profile which has gone totally out of whack. It is about each day, every day, spending 1/3 more than what is taken in for revenue. Like many of our Euro zone counter parts, we are the junkie with a needle waiting for "cooler heads" to prevail tomorrow.
What I find the most interesting about this "crisis" is this - we had a front row seat for over two years watching Southern Europe teeter on the edge of disaster. Some who were paying attention said things like "Wow! Maybe that could happened here!" Yes it could - and nobody did a blessed thing to stop it!
How pervasive is our economic cancer? Our President, who at times has been caught speaking out of both sides of his mouth, thought at one time this was a BIG problem. How big? He established a huge bi-partisan panel led by Alan Simpson and Erskine Bowles. The panel met for many months, spent countless hours coming up with a (somewhat) mutually agreeable solution, and then went public with it. The panel came up with "draconian cuts" as well as new revenue sources. It was scary enough to shake the President to his core. With little fanfare and help from the President, Simpson-Bowles died a quiet death without ever being implemented.
Back to our economic cancer. The truth about Simpson-Bowles is as follows - it only reduces down the growth of our debt until 2035. At that point, the deficit would have stopped growing. Our debt however, would have been untouched. This is not the way to fix the problem - to cure the disease. Deficits need to be stopped now, and the debt needs to be paid off on a glide path without ruining the economy.
When our grand kids take Econ 101 and learn about how we got to where we are, let us hope that one chapter is devoted to October 2013. Let us hope the name of that chapter is titled "The Month the Tide Turned". Let us hope that once again we can be the positive example to the world on how to correctly build and grow a country. If we don't fix this soon, there might not be any Econ 101 for our grand kids to take.
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