Business, Commentary, Politics

Children with Checkbooks

01.27.08 | 2 Comments

Children with Checkbook, What do you mean I'm out of money? I still have checks!

“What do you mean I’m out of money, I still have checks!”

Here’s a hypothetical situation: You have a friend or family member with the following financial profile. The person earns $18,000 per year, this person spends $30,000 a year financing the $12,000 annual deficit with credit cards. Over time this has resulted in a $90,000 total debt level which is increasing each and every year. Now the person is starting to feel the negative impacts of their lifestyle with declining credit ratings and a steady erosion of the value of their skills in the market.

What advice would you give this person?

Would your first inclination be “Hmm, I think you should borrow $1,500 more and spend it on something nice? By all means, don’t pay down your debt, put it in the bank or use it somehow increase your earning power, make sure you spend it.” I’m reasonably sure that any sane and mature person would not propose such a solution to the problem because indeed, it’s no solution at all, it simply exacerbates an already intractable situation.

Politicians are smoking really good stuff if they really believe the so called economic stimulus package solves a single issue (other than their reelection chances.)

Since the people who are regular visitors here are intelligent, I’m sure you know that the “person” above represents the government of the United States and the solution is a proxy for the “economic stimulus package” in process in Washington D.C. The numbers are to scale, simply small enough to be “real” to people who work for a living. Once the situation is placed in this context, the so called solution is laughable. I don’t know what these politicians and their advisors are smoking, but it must be really good stuff.

How anyone could propose such patently stupid solution? How could the mainstream media not call “bullshit?” And what about the financial markets, surely these financial professionals wouldn’t be hornswoggled by this horse hockey? (BTW, it’s increasingly clear that our market system is nothing more than legalized gambling writ large, as long as there is profit in the transaction, no matter how stupid the transaction, it will be completed.) It’s mind boggling. This is the time for leadership to actually address the core issues at hand:

  • Our government has no fiscal discipline or accountability
  • There is zero leadership in Washington on the core issues
  • Our government is no longer representing the people’s will
  • In short, the criminals are in charge of our public bank

So the question is, what are we going to do about it? Are any of the Presidential candidates part of the answer? The only candidates addressing core issues are former candidates (or soon to be former candidates.) The front-runners have an active interest in maintaining the status quo, regardless of how they market themselves. The solutions aren’t that tough, if you were advising your hypothetical friend, you would suggest that they consider three activities:

  • A – Reduce spending. In this case, let’s say to $1 trillion. That’s a nice, generous allowance.
  • B – Stabilize income streams. For Uncle Sam, that means don’t screw with taxes, income needs to be predictable as we dig out of the hole.
  • C – Use the resulting “surplus” from actions A & B to eliminate debt. We’ve become a society of borrowers, leverage can be good (when buying a house for instance – a long-term tangible asset) but we need to get back to basic fiscal diligence and institute a policy of zero debt and spending within our allowance until we get through this crisis.

Once we’re at zero, then let’s have a discussion about what to do with our new found funding.

The US is flabby and flat and the tape measure shows it. First we need to eat our vegetables before we can think about dessert.

We can (and should) reduce the tax burden on our population. We can (and should) ensure that all people have good health insurance (and if you’ve got means and don’t wish to participate in that system, that’s your choice – this would be for people who do not have that option.) We can (and should) ensure that we have a strong defense and secure borders. We can (and should) provide care for those who are unable to care for themselves. But all of this is the dessert, first, we’ve got to eat our vegetables…

It’s not hard to imagine why our politicians aren’t jumping up to lead with actual solutions. It’s an election year and what better way to secure your position than by “returning” money to voters^H^H^H^H^H^H, I mean tax payers. It’s so much easier than the truth and much more effective in manipulating the sheeple to maintain their level of apathy. In recent comments President Bush (and he is by no means solely responsible for this mess, Congress is equally culpable, and we, the People bear the burden of blame too) said the “stimulus package” would get the economy back on its feet. That’s false, the problem is structural and must now be addressed.

The US National Debt is now $9,000,000,000,000,000. Or, $9 Trillion Dollars. By this time next year with the “stimulus package” and status quo spending, it will be $10,150,000,000,000,000. This isn’t pretend money, this is our money and, make no mistake about it, our debt. How are we going to address this issue?

The market performance of the last few weeks is a symptom. The disease runs on untreated. I fear that we will wait until our choices are reduced from their present level (many) to the point where there are only a few options to address the issues, all bad. We’re going to get what we deserve since we’ve left the children in charge of the checkbook with no oversight.