Showing posts with label Spendthrift. Show all posts
Showing posts with label Spendthrift. Show all posts

April 27, 2021

Motif For The U.S. Economy


This seems like it could be a major theme of the U.S. economy. 

"Buy Now, Pay Later!"

And then...

"Foreclosure"

You can't borrow infinitely.

It eventually has to be repaid. 

Where will the money come from?  

Print more.

Worth less!  ;-)

(Credit Photo: Andy Blumenthal)


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January 14, 2019

Unbridled Government Spending

I liked this notion from Margaret Thatcher:
The problem with socialism is that eventually you run out of other people's money. 

And from the Wall Street Journal:
The problem with resisting socialism is that until the money runs out free-spending progressive politics are remarkably seductive. 

In other words, we love to spend what appears as "free" government money--more and more entitlements, bigger and bigger government...basically, we can't resist the candy in the candy store.

But the problem is that the money eventually runs out and by then we have gone too far and are left eating our own flesh. 

 Why can't we spend our precious money and scarce resources prudently and also save wisely for a rainy day--why do we have to act like pigs in the poke?

(Source Photo: Andy Blumenthal)
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August 17, 2013

Economics, Pendulum Style

To combat the recession of 2007, the Federal Reserve initiated an aggressive policy of Quantitative Easing--purchasing federal debt en masse to flood demand for Treasuries and lower interest rates to near zero to stimulate the economy. 

As of June 2013 the Feds balance sheet has swelled to over $3.4 trillion in assets of treasury debt. What happens when the Treasury has to repay those trillions? 

Who is the Treasury going to borrow that money from and at what interest rate? 

Just like raising demand for Treasuries lowered interest rates, increasing the supply of Treasury debt to pay back the Federal Reserve will make interest rates go way up the other way. 

Rising interest rates makes borrowing more expensive--e.g. buying a car with an auto loan is more expensive, buying a home with a mortgage is more expensive--and inflation can skyrocket. 

But what is worse is that despite the recent slowing of the growth of the national debt, many economists calculate the total US debt at a whopping $70 trillion when you include the host of unfunded liabilities including social entitlements such as Social Security, Medicare, Medicaid, as well as government loan guarantees (mortgage, student loan, etc,), deposit insurance (i.e. FDIC(, and the money owed to the Federal Reserve. 

What is really sad about this is that the entire wealth of American families in this country is guess what--also $70 trillion--which means that we are essentially a bankrupt nation:

Family assets of $70 trillion - Family liabilities of $70 trillion = a big fat 0 in the kitty!

To pay back the $70 trillion, it is not realistic that we will simply "grow our way out" of this fiscal mess with a GDP growth rate over the last 20 years of a mere 2.6%.  

Also, we will likely not confiscate people's assets to pay off the debt, rather we will print money--lots of it--so that we end up paying back the trillions of past debt in much devalued future money. 

Head we win, tails you lose!

The problem is that devaluing the dollar will mean that American family savings will become worth less as well--with the risk, at the extreme, of wiping out mass amounts of savings altogether. 

Despite sequestration reducing the rate of our debt growth, the aging baby boomers with the resulting liabilities for their care will soon escalate the debt problem once again. 

David Walker, a former U.S. Comptroller has warned about our national debt problem as well as many prominent economists. 

Like a pendulum swinging from one extreme to the other, the spendthrift ways of the past will by necessity lead to penny-pinching in the future, and inflation rates of near zero since 2007 will lead to hyperinflation after 2014.  

It reminds me of the story of Joseph in the Bible, with the 7 lean years follow the 7 fat years (in Egypt that time)--this is not just providence, but common sense economics. 

Good times will come again when there is a return to the mean and the pendulum hovers near center, but the swings until then can be wide and scary.

Of course, like taking your medicine, the earlier we start to course-correct our nation's finances, the sooner we get healthy again. ;-)

(Source Photo: here with attribution to zzz zzz)

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December 21, 2012

Building Happiness, One Contribution At A Time



There was an interesting editorial in the Wall Street Journal (20 December 2012) comparing people who win the [Powerball] lottery to those on social entitlements.

The author, Arthur Brooks stipulates that money unearned--"untethered from hard work and merit"--does not make people happy.

Brooks states that "Above basic subsistence, happiness comes not from money per se, but from the value creation it is rewarding."
And this seems to jive with the concept that the greatest producer of happiness aside from social relationships is doing meaningful and productive work (and generally good deeds), not having lots of money and things!

In terms of winning the lottery (big) and not finding happiness, there was another article to this effect in Bloomberg BusinessWeek (13 December 2012), about someone who won the $314 million Powerball jackpot and had at one time been the largest lottery winner in history--but in the end, he found nothing but misery (lost his granddaughter, wife, money, and ended up a substance abuser) and wished he had never seen that "winning" ticket. Instead, he appreciated his previous life when he was known for his "good works," and not just his money!

According to Brooks, "While earned success facilitates the pursuit of happiness, unearned transfers generally impede it." And CNN reports that now more than 100 million Americans are on welfare, and that "does not include those who only receive Social Security or Medicare."

The result as Brooks states is the fear is that we are becoming an 'entitlement state," and that it is bankrupting the country and "impoverishing" the lives of millions by creating a state of dependency, rather than self-sufficiency.

So are social entitlements really the same thing?

No. because without doubt, there are times when people need a safety net and it is imperative that we be there to help people who are in need--this is not the same as someone winning the lottery, but rather this is genuinely doing the right thing to help people!

At the same time, everyone, who can, must do their part to contribute to society--this means hard work and a fair day's pay.

However, With the National Debt about to go thermonuclear, and the fiscal cliff (in whatever form it finally takes) coming ever closer to pocketbook reality, the country is on verge on confronting itself--warts and all.

We all woke up this morning, and the world was still here--despite the Mayans foretelling of the end of the world today. Perhaps, the end was never meant as a hard and fast moment, but rather the beginning of an end, where we must confront our spendthrift ways and historical social inequities.

While we cannot erase decades of mismanagement, what we can do is continue the march to genuinely embrace diversity, invest in education and research, help those who cannot help themselves, work hard and contribute, and build a country that our grandparents dreamed of--one that is paved in opportunity for everyone!

Let us pray that we are successful--for our survival, prosperity, and genuine happiness. ;-)

(Source Photo: here with attribution to Brother Magneto)

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