Well, the crisis was averted and the US was saved from defaulting on its finances, so what does that mean? In short, it means the US can now borrow more money to fix its problems. A rather backward way of thinking about getting out of debt if you ask anyone in finance. The easy way of saying this is that the US will borrow up to 4 trillion more dollars to cut 2 trillion from its deficit and eventually bring its debts down to a manageable level. The issue here is the root of the problem was borrowing and in order to right themselves they have to dig a bigger hole. As you might imagine, this has banks wondering how the US will go about fixing the many problems it has and had before the great debate about defaulting.
I won't lie and say I was surprised by the fact that the US voted on a plan before the deadline came. What I will tell you is that, if anything, the events that took place show just how badly a country can dig itself in and just how bad the world economy is right now. If you look a little further back into the news you'll find several stories about US expenditures that would lead you to think that almost every American citizen is on a non-stop shopping spree with Daddy’s credit card. The housing crisis, for example, saw the entire economy brought to its knees—and I don't mean just the American economy, I mean the world economy, with its borrowing against borrowing and playing a sort of shell game moving money around. The ripple effect around the globe was banks closing and merging in order to survive and even some raising rates in the hopes it would blow over. Take Britain as an example; the people of Britain were told their tax money would be used to bail out major banks and to stabilize the country's economy. The problem was that the banks ended up giving themselves pay raises and not stabilizing the economy fast enough. If you’re going to line your pockets with other people’s money, make sure no one knows. Let's face it, what they did was legal embezzlement.
So why should we care? Well, our economy is a global economy; nations are tied to each other and rely on each other for trading to exist. The major issue with Canada's economy is that it relies so much on our American friends. While recent efforts have been successful at establishing free trade with Europe, we are still not in any better shape to stabilize our economy. The fact is that some of those countries are in worse, or just as bad, shape as the United States; places like Spain where over-spending habits led to a decrease in their credit rating and in turn, a spike in interest rate,s as well as decreases in investments. Another country is Greece who has been overspending for so long they will have to sell off property to stabilize themselves. While Canada has been safe so far, we are not out of the woods yet.
Take the average Canadian in the 1960s for a moment and look at their spending: chances are, they often saved and bought very little. Granted they had fewer needs, but the lesson they kept in mind was "I don't care about keeping up with the Joneses". Now today's average Canadian is completely different and loves to spend money and use credit like money and saddle themselves with debt to meet and exceed the Joneses. We have taken a lesson from some of these debt ridden countries that spend and spend with no thought to the fact that at some point you have to pay back credit. The only upside to the fact that the average Canadian is saddled with debt is the fact it has kept interest rates low, because let's face it, if your interest rate on your credit card went up you might not even be able to pay off the interest, let alone the principal. This effect has also allowed housing rates to stay low as well so people will buy more housing and help stabilize the housing market. The problem is buying a house and paying month-to-month means you still have a huge debt to pay off and thus paying it off faster is always a good idea. People often get into the habit of saying "what does it matter if I have a mortgage payment? It's better than paying rent." Very true, but it's still debt. If it didn't work for Greece, why would it work for you?
So what does the future hold for the US, Canada, and possibly the world in terms of money? Well, the best we can do is hope that spending is kept to a minimum and paying down debt is a priority for many. The United States may have averted a depression, but still may lose its credit rating anyway because they didn't cut enough out of their spending habits to make anyone want to invest in them. Also, it sent shock waves around the globe that the world will not tolerate and even the American people won't tolerate anymore. The fact is we are all tied to the economy in some way or another, from the highest of government officials down to the lowest of beggars on the streets, and we'll all need to change our ways to improve life from here on out and make it easier for future generations to build. We'll need to reinstate values of saving that Canada was once known for, and we'll need to make sure that our American friends understand that they too must change and trim down their spending. The best way to help right now is to lead by example, show everyone that while that brand new car might be nice and that new government building may be shiny, it will cost money over time, and it will be money we can never get back.
