A mansion that few can afford and even fewer would actually buy offers some insights into the debt ceiling debate. Yankee slugger Alex Rodriguez (A-Rod) took his $38 million Miami mansion off the market.
Fortunately, I had already decided not to buy the mansion and therefore have been able to reduce my debt for the year under standard federal budgeting rules. My goal is to not spend $1 billion on real estate this year in an effort to keep my debt under that amount.
In the real world, some might find it silly to say I reduced debt by not spending money I don’t have. In Washington, that is called a budget deal, and we should expect more deals like that along the road to bankruptcy.
The 20,000 square-foot home included a 3,000 square-foot batting cage that can be converted into a basketball court. The home was listed for only a short time before being taken off the market because A-Rod didn’t want to be distracted by trying to sell the home.
This home might not sell quickly when it comes back on the market. It is perfectly tailored to the needs of one individual who can afford to hold out and wait for years for his demands to be met if he chooses to ignore the reality of the marketplace.
President Barack Obama is similar to A-Rod and can hold out indefinitely in his budget battles. He will never face voters again, and laws about writing and sticking to budgets have never applied to this administration. Both Obama and A-Rod can dream the market will meet their price and if it doesn’t, neither will suffer as an individual.
The next lesson is that buyers ultimately decide what happens in the market. Yankee fans in the Bronx willing to spend $100 on a jersey with number 13 on the back don’t have $38 million for a mansion. People with that much money will just build their own mansion, unless they can get a big discount on A-Rod’s so they have millions ready for renovations.
In the global market for debt, the people with trillions of dollars to spend may decide they’d rather build their own country rather than pay for an older country that doesn’t meet their needs. If China left the market for debt, interest rates would jump and the United States might find no one willing to pay for investments to save the middle class.
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