Entries Tagged 'Economics and Investing' ↓

This weekend we’ve seen the results of “my way or the highway” ideological thinking in Norway. We’ve also seen it closer to home. The FAA (Federal Aviation Authority) was de-funded on Friday, leading to the furlough of 4,000 FAA workers and transfer of taxes on passengers’ tickets into airline pockets. Airport shutdowns are immanent, as well.

Is this how the debt crisis will go? Just like the financial crisis — in slow motion, with one agency after another folding its wings? Until the whole house of government threatens to collapse on all our heads? Could the damage done ever be undone?

Well, of course not! Because there is no debt crisis. The debt crisis is a hoax, manufactured by politicians to make us all amenable to changes they know we won’t like. Paul Ryan’s “budget” proposal was the bugaboo that will make us think anything less that that is a relief.

Time and time again we are warned that we will have to make sacrifices and give up things we don’t like. But no one ever tells us exactly what is in any of those budget proposals. When the fake “settlement” happens as we are right on the brink of the fake “crisis,” we’ll have no time to look at the details. We’ll just have to swallow things we don’t like. Again. How nice! Are you fuming? I am.

The deficit problem

All we really have in the US is a distant “deficit” problem. We’re overspending at a rate that — in the future — could take us to a point where we couldn’t pay the interest on money we’ve borrowed (i.e., US Government debt) There’s no huge problem with overspending as long as you can pay the bills you owe along with your the interest costs on your debts each period they all come due.

And there’s no reason a government shouldn’t be in debt for things that are good for the nation. Good debt for a nation includes things that bring in more revenue: support for exports, support for business expansion; support for education, health, and well-being of its workers; and support for the infrastructure business needs to function.

The United States has created its own “crisis.” We do not need to have a debt ceiling. Other countries don’t have one, and they do just fine. And we aren’t the country with the most debt-to-GNP (gross national product)! Not by a long shot. The United Kingdom, France, and Germany all have higher debt-to-GNP ratios than we do. And those countries also have lower (negative!) per capita debt-to-income (or the effective net worth per citizen) than we do. [Note: “effective” means “actual]  We actually have a positive debt-to-income ratio. Interest on our government’s debt hovers around 40%.

Yet these European countries aren’t having a crisis, well, at least not in direct relation to themselves, only through their connection in the European Union with Greece. And what is Greece’s debt-to-GNP ratio? In June of this year, a blogger wrote, “Greek debt is now at a staggering 150% of its GNP.”  Pundits are predicting it might even rise to over 400% Ireland, Portugal and Spain are in similar straits. Now THAT Is a real debt crisis.

The US debt crisis is a bunch of BS (and I don’t mean Bruce Springsteen!) Continue reading →

Right now debt is a four letter word in America. With the advent of the recession, Americans cannot bring themselves to believe again that owing money could ever be a good thing. But the fact is, good debt is what made this country great. In our attempt to lower the debt ceiling (how much we can owe) and the deficit (gap between what we can pay and what we actually owe), we may very well be throwing out the baby with the bathwater.

Personal debt has become an enormous problem in this country too. Recently I was inspired by a video by Robert and Kim Kiyosaki about how they got out of debt. So, a look at how to get out of debt for individuals was my original intent in blogging today. But I found that before I could get to that topic or to the issue of our national debt, some clarifications are necessary and unavoidable. Before we can even start to “get out of debt” we have to first understand what debt actually is. Continue reading →

The head of a family was laid off from a high-paying manufacturing job that technology was making obsolete. The family called in a counselor to talk about what to do. The family’s expenses had been unusually high over the past few years with a lot of unexpected bills. The family was deeply in debt.

The spouse of the head of the family lived on a trust fund left by a parent. The spouse did not want to spend the trust fund on family expenses. The fund was for the spouse, not the family.

Now, with no job for the head, and the spouse unwilling to draw on reserves, the family was in crisis. Continue reading →