Fundamental Things: debt

Showing posts with label debt. Show all posts

2/17/12

Answer the Doorbell

It's clever, and it would be funny, except it's not.

Hat tip to Homer.

2/5/12

A short while ago my friend Tom - who traded bonds for many decades and knows something about debt -sent me an email that simplified the understanding of the federal debt problem. I'm guessing he thought it might end up on this blog.

Some of you might have seen the email I'm referring to. It has been forwarded all over the net since then. I added it at the bottom of this post for those who might not have seen it yet.

The national debt, as it is sometimes called, is easily thought of as something the government owes, but we all owe the money. Unfortunately, for most people it's more of a concept than an actual problem. It's why they keep voting for people like Barack Obama and George W Bush. It's also why they haven't figured out that Mitt Gingrich won't be the correct answer to the question of how it's going to be addressed.

People have a hard time relating to numbers as astronomical as those the government owes. When the numbers become so big, billions and trillions start to run together into one big imaginary number. But remember folks, a brazillion isn't just a hair removal reference and Greece isn't just a place with goat soup and stinky cheese. If you take a good look while walking along on our national journey, you can see the end of the road that we have been kicking the can along for so long. And you don't have to squint anymore.

You can go back to sleep this election and hope the nightmare is gone when you wake up, but that hope will get you just about as far as the "hope and change" the nation bought into when a bunch of Democratic marketing slicksters sold it to them in 2008.

So how can we laugh while our money burns? It's easier if you use the tragicomedy video below as a teachable moment to make it clear just how ludicrous the debt has become as the politicians spend us into oblivion in order to buy our votes. The numbers, listed below, are the correct ones with some of the superfluous zeros removed. I was laughing at the end of the video, but only because I know the joke is on us.

The email reads;

"This rather brilliantly cuts thru all the political doublespeak we get. It puts it into a much better perspective."

Lesson # 1:

* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385

Got It ?????

OK now Lesson # 2: Here's another way to look at the Debt Ceiling:
Let's say, You come home from work and find there has been a sewer backup in your neighborhood....and your home has sewage all the way up to your ceilings.
What do you think you should do ......
Raise the ceilings, or pump out the crap?

9/20/11

It's About This Debt Problem...

If you have a few questions about the world's debt problems, I think this guy can help simplify the situation for you. Maybe Obama will read this and it will all become clear.

My crack staff of internet researchers has done it again! Thanks to Leah for finding this. We are giving her a 100% raise.

8/12/11

Belushi Explains the Downgrade

Hat tip to Dan Mitchell at International Liberty

1/6/11

Getting Numb To The Dumb

Recently, as the inanity of government policies has increased exponentially, our capacity to get used to the nuttiness has also increased.
Seemingly, we barely notice anymore. I guess you can get used to anything after a while. We get numb to the dumb.

Like some half hour TV sitcom, silly things happen all the time but within a few minutes of its ending, we forget what happened and move on to the next show. Lately, it's kind of like that with current events. But for me it's hard to shrug off some things, even when I'm in that mindset.

If you live in Illinois and you didn't get a little cross-eyed last week when newly elected Governor Pat Quinn announced that his plan for dealing with the impossibly huge debt the state is collapsing under is to borrow another 15 billion dollars, you have a better pair of glasses than I do.

But I haven't heard a peep from the "peeps." They must be numb from hearing that kind of stuff. It's so preposterous that it stretches the imagination, even in a state that sets the standard for preposterous schemes. It's your government at work.

Then there is the dumb notion that feeling up or taking nude pictures of granny at the airport will somehow make it harder for the "underpants bomber" to burn his crotch off if he ever gets out of prison. Your government at work.

Or take the case of the two airline pilots who are suing the government because they are forced to go through the full body scans and/or pat downs themselves, even though they are going to be the ones actually flying the plane. If they are themselves federal air marshals who carry guns into the cockpit (as many are), doesn't it seem just a tad dumb to be searching them first to look for weapons? And all the while the cleaning crews merely have to swipe a card to gain unsupervised access to the planes. It's your government at work.

Or how about the two guys who were rescuing a drowning deer with their own equipment when the local Natural Resources Police officers (who declined to help) decided to fine them each $90 for not wearing their life jackets while performing the dastardly deed? It's your government at work.

Or the decision of the know-it-all nannies in the St. Paul Minnesota School District who have declared a "sweet free" zone to deal with the obesity problem there. While the health implications on obese children are a problem worthy of attention, TV, video games, the Internet and poor parenting leading to sedentary kids are much larger causes of that problem. The idea that childhood obesity can be solved in this manner without taking it to its logical police state conclusion is dumb. It's your government at work.

Next up is the "gang" that was disciplined at Battlefield High School in Virginia for handing out tiny candy canes in their Christmas sweaters. The ten had to do detention because, as one school administrator explained, "not everyone wants Christmas cheer." It's your government at work. *

And the list can go on and on. What is even dumber, but cannot go on much longer, is the idea that the debt disaster which looms can be solved without any plan except more borrowing and spending. And while the above examples are actually somewhat humorous in their stupidity, the last problem is deadly serious.

According to Lewis M. Andrews of The Yankee Institute for Public Policy, three large dumb states, California, New York and Illinois are already "delaying payments" to vendors. In other words, they are currently unable to pay their bills. And with Illinois spending in 2011 projected to be 140 billion dollars more than expected revenues, anyone who thinks that Governor Quinn's plan to fix the problem by floating a 15 billion dollar bond issue will work, is truly dumb enough to buy the bonds.

The national debt has gone from 13 trillion dollars to 14 trillion dollars in just the last year and the costs of Obamacare have yet to be added to the nightmare scenario of default on Social Security, Medicare and Medicaid obligations. We are nearing a point where the whole house of cards can come crashing down at any moment. A crash that will make the housing crisis look like a smallish blip on the economic radar screen.

So the question is, can this stupidity continue on much longer just because we are getting numb to the dumb? You don't have to be smart to know that that's dumb.

* Dan Mitchell of the Cato Institute recently wrote a blog essay which I featured at The Humble Libertarian highlighting the dumb things that some agents of government have been doing lately. So a tip of the hat to him for inspiring this piece and the links that go with it.

2/18/10

Inflating the Money Bubble

Image courtesy of http://immobilienblasen.blogspot.com/

There has been much talk about bubbles lately. One was the bubble in the real estate prices. Another was the bubble of consumer debt. And stock market bubbles were all the rage just a few years ago when (then) Federal Reserve Chief Alan Greenspan made a comment about "irrational exuberance" after investors used his easy money policies to bid up the price of any company even remotely connected to the "dot com" industry. (His remark was quite premature when he made it, but the warning proved correct after a time.)

No one minds Bubbles too much as long as they own some of the assets on the "up escalator."
During one such ascension in stock prices, my former colleague and close friend on the exchange floor, "Geo", used to wear a badge on his trading jacket that said, "Never confuse brains with a bull market." Good advice, but rarely taken.

The problem with bubbles, of course, is that after they inflate too much, they tend to burst. The bigger the bubble, the bigger the bust. And when that happens even those not chewing the gum can get sprayed with the residue. Witness the last few years, when most of us got hit with financial debris as the value of our homes imploded after a real estate bubble with which very few of us had any connection.

As bad as that situation is, the next implosion may make it seem like a smallish pop by comparison. Absent any meaningful action to correct the expansion of the money supply, our once great experiment in democratic republicanism is headed for the laboratory trash can faster than almost any of us can imagine. And since no such action is yet on the radar screen, the Republic we live in threatens to become the banana variety in a historical blink of the eye.

The current President, like the last, is in denial. Just yesterday he essentially declared that the "stimulus" pork spending and big business bail-out preceding it saved the world. Nothing personal, but if he actually believes that, he is a buffoon. If not, well, let's just say he is worse than any of his critics actually realized. My hope is that it is the former. That way he can just blend in with most other politicians.

So, a refresher course in "inflation 101" is in order for all of us. In fact for many, it may actually be a primer since they have been misinformed for so long about what inflation actually is. It's not a text book concept, it is an "up close and personal" theft of all of your savings.

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output".- Milton Friedman.

What this means is that rising prices themselves are not inflation, they are the symptom of it. In other words, when your nose runs, it's because of the cold you have. That's why Kleenex and NyQuil don't correct the problem. The rising prices are the sneeze, inflation is the virus which caused it. People don't die from colds, but countries often die from inflation.

And that is why having a slowing economy can't regulate inflation. Decreased spending can stifle rising prices when they are caused by high economic activity, but since inflation is caused by devalued money (not increased demand) restrained spending can not work against it.

In the initial stages, inflation lags somewhat as the newly printed money takes a while to work through the economy, and this time around is no different. The vast amount of new spending by the economic illiterates running this country has hardly begun. And there is very little demand for new "stuff" when much of the country is unemployed. That is the reason we haven't experienced the pain as of yet. (I know it's hard to stay awake during these dissertations, but our future is at stake here.)

So it might be time for alert level one when you should "get a helmet" as comedian Ron White advises, because the time is approaching for alert level two, when you should "put the damn helmet on." When the current inflated money balloon bursts you will need one with a chin strap.

People my age still remember the 21% interest rates of the 70s quite vividly. This time around the bubble is exponentially larger, so go figure. Trillions of dollars of deficits have the presses at the treasury printing Franklin's faster than the "hope" is fading, so your retirement budget may need a few changes. Maybe a "cat food" category to replace the "cabin at the lake" category.

If you have read this far perhaps you will read the essay which will follow shortly. That piece will deal with the personal consequences of continuing the insane policies which are rendering the US dollar worthless. As a bonus, I'm going to tell you how to make the Social Security and Medicare funding problems disappear, the "Chicago way." Stay tuned.