Debt downgrade redux

On another blog, I saw a straw-man (inaccurate) attempt by a commenter to characterize the US gov debt deal and subsequent credit downgrade.   He wrote:

Send a letter to your credit card company telling them you are
refraining from paying the amount due so as to force
yourself to not use their credit card anymore. Check your credit rating before and after and let us know what happens.

He missed several key attributes, but I liked his device of using our personal situation as an analogy to help non-finance folks understand the debt deal and the subsequent downgrade from the rating agency.

Here’s what I think is a more accurate portrayal of what happened:

Call your credit card company, ask them to raise your credit limit because you will need to borrow more from them to pay them back AND to keep paying for you and your friends to stay in the penthouse suite and fly private jets. But reassure them that you plan to sell your private vineyard, so all is good.

If they are stupid enough to raise your credit limit, THEN actually borrow against it and do exactly what you told them, except publicly announce that you’d really like to keep the vineyard.

Just in case you need some help piecing that together, here’s the translation to the US gov situation:

Call your credit card company, ask them to raise your credit limit [do nothing to curb your spending even though you can see the debt limit approaching for the last 12-24 months] because you will need to borrow more from them to pay them back [service national debt and interest] AND to keep paying for you and your friends to stay in the penthouse suite and fly private jets [continue to pay enormous amounts of entitlements to special interest groups]. But reassure them that you plan to sell your private vineyard [promise to cut some spending in the future], so all is good.

If they are stupid enough to raise your credit limit [pass deal to raise debt limit], THEN actually borrow against it [actually borrow more money] and do exactly what you told them [continue to pay enormous amounts of entitlements] except publicly announce that you’d really like to keep the vineyard [go on air after after downgrade and while markets are tanking and say that more spending is the key].

Now, there’s just one more part to this exercise.  Put yourself in the creditor’s shoes.  Your friend just asked you to borrow money to do all of this stuff like above.  Are you going to lend him the money or tell him to kick his friends out, get out of the penthouse, sell the vineyard and stop flying on private jets?

My guess is that you wouldn’t lend him the money.  In your eyes, whatever credit worthiness he had prior had sunk lower in your estimation and his habitual unwillingness to change his ways would not reassure that you could expect to get your money back.

But, be careful.  He’s a crafty.  He might try to appeal to your emotion (which is a fallacy, btw).  But don’t think about me.  If you don’t lend me the money, you’re going to hurt my friends.

Of course, he doesn’t want you to think about him because he hasn’t offered to make ANY sacrifice of his own.

My guess is that you would still say, Tell your friends they are capable.  Make some serious adjustments to your lifestyle and good luck.  At some point we really do need to eat our peas — and no, that does not mean to continue to avoid making adult decisions.  That mean to make adult — or tough — choices.  I hope it all works out for you.

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