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Congress' mishandling of debt ceiling and deficit is surreal

By Suze Orman, Special to CNN
  • Suze Orman: The debt ceiling is simply a mechanism to pay bills already incurred
  • It has nothing to do with future spending, she says, and the two issues shouldn't be linked
  • U.S. "credit score" has already been hurt, even without a default, Orman says
  • The issue is jobs, she says. If employment rises, the deficit crisis is eased
  • Suze Orman

Editor's note: Suze Orman is a financial adviser and hosts "The Suze Orman Show" on CNBC. She has written several books on managing personal finances, including her latest, "The Money Class."

Watching Washington hold our economy hostage the past few weeks, as it refuses to reach a compromise deal on deficit reduction so we can raise the debt ceiling, has been beyond frustrating. Surreal is more like it.

Here is what Congress has gotten so horribly wrong:

First, if you spend it, you have to pay it back.

As we all know, if you run up a balance on your credit card and then decide not to pay the bill, there's a huge price to pay. Your interest rate goes up, your credit score goes down and that triggers all sorts of costly dominoes to start falling. To not raise the debt ceiling is akin to refusing to pay your credit card bill.

The debt ceiling has nothing to do with future spending. It's simply a mechanism that allows the U.S. government to keep paying off the bills it has already run up. This is a completely separate issue from what we decide is the right pace of future spending for our country. The deficit reduction debate is about that future path. That anyone insists on linking the two is absurd. We must make good on paying off our bills.

Second, we've already hurt our credit score.

The fact that America has a pristine AAA-credit rating is like saying it has a really strong FICO credit score. It enables our country to qualify for great borrowing terms. But the rating agencies are now warning that our credit rating may be reduced, even if we raise the debt ceiling.

Why? Because we've yet to make any serious attempt to reduce our long-term deficit. That is, even without a default, the fact is our national finances are such a mess that investors here and abroad may likely start demanding we pay more interest when we borrow. It's like our FICO score drops from great to just solid.

An estimate from the Congressional Budget Office is that even if our borrowing costs rose just one-tenth of a percentage point, it could translate into $130 billion more in what we owe over the next 10 years. We will have Washington dithering to thank for that.

All of this would be frustrating enough if it were happening at a time when our economy was on solid footing. Yet we just heard that the rate of economic growth the past two quarters has been incredibly low, and we have nearly 25 million Americans either unemployed or stuck working part-time.

Here's what is so truly absurd: We wouldn't have a deficit crisis, if we had more people working. The revenue that would come from halving our unemployment rate would reduce our long-term debt to manageable levels.

Seems to me that's the sort of policy debate Congress should be having right about now: What's the best way to get more Americans working? When was the last time you heard a peep out of Washington about that?