Economics from a people first point-of-view

Scenario One

A man named George comes home from work one night. He’s tired. All he wants to do is slip into something more comfortable and sit in front of the TV watching the news for awhile. George’s spouse, however is upset. The spouse has just read that you shouldn’t spend more than a third of your credit limit for your credit card. George’s credit card is at 40% of its limit.

The spouse insists that George take his card, put it in a plastic bag with water and store it in the freezer. George objects. He points out that they really need a few things around the house. He wonders how they’ll pay for the party they have scheduled for next week for their youngest child. The two argue. They argue on into the night.

The spouse, who has control of the checkbook for the family, finally says, “No more. No more credit!”

George asks, “What about the bills?” The spouse doesn’t care. The spouse has taken his card from his wallet and now refuses to pay the bills until George stops wasting their money.

The utility company is first to not be paid. It tacks on a charge and sends more bills. After all, it’s a utility company. It has to work with them. They miss a car payment. Their credit union calls and asks for its money. George says sorry, next month. He had to pay for the insurance policy on the car instead.

Then they miss their mortgage payment. After a month, they receive a call from the bank that holds their mortgage. The couple is warned that their stellar credit rating is about to slide downwards. The couple argue – long into the night. George insists what they are doing is crazy. The spouse insists that they cannot go into bankruptcy by using their credit card any more. They must start saving money.

The spouse says they will only pay minimum interest on the card and they should start cutting down on their expenses. George, stymied, tunes out the spouse and stops caring.

Cable TV goes first, then the second phone. The heat gets turned off, the car repossessed, an eviction notice arrives. The spouse is happy. At least they don’t have pay insurance on the car and house anymore. George has just been spending too much money.

But now they’ll have to find the money to move to a smaller place. They do move, but their credit rating is in the toilet along with the credit card. Nasty creditors begin calling at 6 am. and on weekends. The word bankruptcy hangs in the air.

Oh yes, each of the kids do get their birthday party, but there’s no cake and they don’t get a gift – just a greeting card from the spouse saying they can’t afford a gift this year.

Scenario Two

A man named Fred comes home from work. He’s tired. All he wants to do is sit and watch the weather channel for a spell. But his spouse says she has something urgent to discuss. The spouse has just read that using a credit card in excess of 33% of its limit can lower their credit rating. They now have 40% of their card tied up in debt. They have a debt problem.

Fred groans and sits at the table while they go over their expenses. They disagree about what debts to cut. But both agree they want to keep their good credit rating. Without it they will have to pay higher interest on the card, and that will eventually put them into bankruptcy.

Fred has a sudden inspiration. They’ll put the kids to work picking and delivering fruit from their trees in their yard and the neighbors’ trees too (if the neighbors agree.) The kids in return will have to pay for the gas and insurance on the car. But they can use it for fun as well as delivering the fruit.

Everyone pitches in. The family raises money from picking the fruit. The kids are happy. They get to use the car now, as long as they work to pay for the gas and insurance. George gets to watch the weather channel, while his relieved spouse takes care of paying down their credit card. Soon they are under the 33% mark.

The couple can now actually make and save money while paying down their credit card a little more than the interest owed each month. The couple finally celebrates with an magical evening out together.

NOTES: I used 40% as the figure because that is the amount the US government pays on servicing its current debt – 40 cents out of every dollar. And I did not make up scenario one – it actually happened in my home when I was a teen.

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 →