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My name is Michael Lord and I am a content writer at Penny Stocks Lab, a website that focuses on educating investors about penny stocks and other miscellaneous investing topics. I have an avid interest in all aspects of the financial markets and enjoy blogging about my various musings, which are... More
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  • What The Debt Ceiling Deal Failed To Fix 0 comments
    Nov 18, 2013 1:05 PM

    Democrats and Republicans may have come to an agreement at the last hour once again to strike a deal and raise the debt ceiling, giving themselves a big pat on the back in the process, but it does little to solve the nation's troubling budget issues.

    In truth, the latest agreement is nothing more than a Band-Aid for a U.S. debt crisis in need of a transplant. After much lip service and a two-week government shutdown, both sides came together to effectually buy the government a little more time to solve the nation's financial woes.

    Unfortunately, both parties will likely not come to an agreement by January 15th, and the government may once again shutdown before they decide to raise the debt ceiling yet again by February 7th to avoid a catastrophic default.

    Congress simply bought itself 90 days to finally take meaningful action and get to the root of the problem that caused the most recent shutdown and the debt ceiling battle. If it fails to do so, 2014 could be one of the most troubling years in the history of Washington and the nation's economy.

    Let's examine five catastrophic issues that the latest debt ceiling deal failed to fix.

    1. U.S. Debt Is Still on the Rise

    During the shutdown, some pundits argued against having a debt ceiling in the first place. Some even went so far as to argue that the president should be able to raise the ceiling without congressional approval.

    However, these commentators failed to mention that the debt ceiling is not the actual problem. The problem is the rising debt levels that the U.S. government continues increasing day after day.

    Of course, the bills must be paid, but everyone needs to understand how out of control the debt bills have become. A limit on the amount the government is allowed to borrow should spur brainstorming conversations about ways the U.S. can reduce its long-term debt liabilities.

    Unfortunately, this didn't happen. The U.S. debt is still on pace to hit $20 trillion in the next six years, and if interest rates rise to only five percent, the country will be paying one trillion per year on interest alone.

    Since President Obama was sworn into office, the U.S. debt has risen by an astounding 55 percent, which translates to an unfathomable $123,000 for every American worker and $53,000 of debt for every single person in the country.

    Sadly, Congress, President Obama, and the entire country recognizes this problem, but every time Congress tries to pass a bill to reel in the out-of-control budget, it runs into roadblocks. Apparently, cutting budgets created by other people's money, such as tax payers, is much more difficult than discovering new ways to spend the money.

    Despite year after year of claims about budget and deficit reductions, there is currently no plan to reduce spending any time soon. Therefore, the national debt will continue rising, setting up another debt ceiling showdown in only a few months.

    Interestingly, rather than focusing on the country's debt problems, which could have massive global repercussions, President Obama has already shifted his focus towards immigration reform.

    With an impending financial crisis and a government that refuses to focus on real solutions to its problems, it is not surprising that the U.S. was recently downgraded by the Chinese ratings agency. Unfortunately, this is only the beginning of the nation's future fiscal problems.

    2. Congressional Gridlock

    Congress only delayed the inevitable for a few months by raising the debt ceiling once again, which means we will experience another debt ceiling battle in January. Only this time around, the national debt will have inflated to an even higher level.

    Promises to cut the real reason for the U.S. economic insolvency, which are entitlement programs, will be undercut by a slew of rhetoric in an attempt to demonize anyone asking for Medicaid, Medicare, and welfare spending reductions.

    Even if lawmakers are able to come to agreement on a few minor government spending cuts, which history has proven unlikely, it will merely encourage government contractors to inflate their prices and try to grab a larger piece of the dwindling pie.

    This will inevitably create more lobbying, increasing the bi-partisan divide as politicians heatedly fight for funds from a reduced budget in order to satisfy the companies that bought them off long ago.

    3. Economic Growth is More Than Shuffling Money Around

    The U.S. used to be a land of opportunity forged by entrepreneurs that actually built industries, companies, skyscrapers, bridges, and so on. Today, however, everyone simply reaches into the pocket of another, grabs a dollar, and calls it growth.

    Jobs are not created by the government, regardless of the number of times the nation's elected officials claim otherwise. The only long-term way to reduce the debt is to increase revenue in the form of taxes through economic development.

    However, the limited economic growth rate of the U.S. in recent years has largely been driven by government spending. In addition to adopting a monetary policy of endless money printing, the government has been using borrowed money and taxes in an attempt to spur economic growth and lift the country out of the doldrums of a lingering recession.

    Today, the U.S. has become a nation of imports as the government and its citizens have become accustomed to assuming sizable debts to sustain the increased standard of living they have become accustomed to.

    The U.S. would be far better off by encouraging true economic development, fixing its tax code, and embracing industries that have the potential of creating jobs on a large scale.

    If this does not happen, the inability of the nation to produce actual goods and have vigorous domestic trade will begin affecting national security and diminishing its political leverage in countries around the globe.

    4. A Lackluster Labor Force

    The fiscal condition of the U.S. cannot be improved with an uninspired workforce that is not able to keep pace with emerging economic trends. Unfortunately, this is the current state of the U.S. labor force and there are no plans to fix it.

    Currently, there are more than three million job openings in the U.S., each of which would help inspire economic growth, improve the lives of American families, and provide much needed tax revenue.

    However, a majority of these open jobs remain left unfilled due to a lack of qualified applicants, which says a great deal about a U.S. education system that is failing to equip young people with the skills needed to compete in the global economy of the 21st century.

    Interestingly, the U.S. spends more per student than any other country in the world. However, instead of cultivating ideas to help education better match the needs of today's job market, bureaucrats in D.C. simply want to spend an ever-increasing amount of money.

    This seems like the easy solution, but it is only a matter of time until the costs become unsustainable. The U.S. must undergo comprehensive educational reform in order to secure a strong long-term economy. The longer the government waits to address these educational issues, the longer the country will be afflicted with economic uncertainty, stagnation, and inequality.

    Citizens that lack the skills needed to secure employment must resort to seeking aid from the government, which only further increases the nation's debt, stifles economic growth, and swells the welfare state.

    5. Declining Dollar

    The debt ceiling deal may have bought the U.S. a little more time, but the dollar will only continue to decline in value until Congress and President Obama make hardline decisions, allowing the country to finally regain economic stability. Although it is still the world's reserve currency, it will not retain its global importance if the U.S. defaults and becomes entrenched in economic calamity.

    Unfortunately, the current solution of endless money printing is increasing inflation and also driving the value of the dollar down. Therefore, the dollar will only stabilize and begin enjoying increased purchasing power if politicians develop and agree upon a permanent solution to the U.S. debt crisis. Until then, Americans will be inundated with a weakening dollar, in addition to stagnant wages and a rapidly increasing cost of living.

    Bottom Line

    The U.S. government must come up with a solution that ends its indefinite borrowing and incessant spending. It is only a matter of time until the U.S. is either forced to take drastic measures to inflate the currency and meet its obligations or default on its debts.

    In a perfect world, the government would stop mediating and let industry and businesses grow exponentially across the country, allowing the U.S. to actually make up some ground on the debts that have been run up, but the world is obviously not perfect and this will not happen any time soon, if at all.

    On a final note, the recent debt ceiling deal may not have been enough to prevent a U.S. credit rating downgrade. Fitch issued a warning the day before the deal was struck, stating that they were considering a credit downgrade, and it may still be a very real possibility.

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