Monday, March 30, 2009
Sunday, March 29, 2009
Cuttting off Uncle Sam; Restructuring the Federal Government
Many of us are aware of friends and family who have gotten in over their heads. They spent too much on credit, bought homes that are too big and expensive, cars they can't afford, and took vacations they paid for on credit.
By now, we all sort of know the story. As the housing bubble burst, the demand curve for all consumer spending began to shift to the left forcing a natural but painful drop in the equilibrium level of supply of all consumer goods provided to our economy. This necessary drop in supply meant that businesses did not need as many workers to make as much of the things people had been buying. The result of this has been massive job cuts and large increases in unemployment.
The cheap credit madness that had went on for a long time has finally begun to unwind. Banks are lowering credit limits, eliminating accounts, and generally making it harder for consumers to spend money they don't have. This, despite what some say is a good thing! Americans need to learn to live within their means and our market based economy is starting to reinforce that fact.
Unfortunately, this tightening of credit for individuals has not occurred with our government. Instead of lowering spending as tax collections fall, the U.S. Government, in the name of things like systemic risk and Keynesian Economics has drastically increased spending.
Federal spending has increased despite the fact that there is no history to demonstrate that huge increases in spending will help us avoid the adjustments needed in our economy. While government spending may help to slow the drop in consumer demand. It does not change the fact that Americans need to spend less and save more as they look out for their own future and the future of their children. It also does not change the supply curve in that, it is true, at least in the short term that we don't need as many businesses making as much stuff for us to buy in the future as we did in the past
Also, unfortunate is the fact that the powers in Washington D.C. seemed to have bought into the idea that we can only get ourselves out of our national and personal debt problems by in essence increasing the national debt as we seek to hopefully take measures to decrease our own personal debt.
This argument does not make sense, especially in a time in this country where we will very soon need to be providing for a much larger number of older Americans. We simply will not have the money to pay for things like Social Security, Medicare, etc. Right now, our country should have a huge budget surplus in expectation of needing to provide for an aging population. Unfortunately we have the opposite, huge and growing debt.
So, if you believe as I do that we can not allow our Federal Government to make debt slaves out ourselves and our children. What can we do?
To answer this question, I give you the example of a teenage son or daughter, who after having gone away to college for their first semester, has by the end of October using the credit card you provided them, spent their entire budget for the first semester.
What would many parents do? Help them cut their spending. Cut up the credit card. Provide them with only enough cash each week to meet their obligations for that week. Have them justify to you the cost of things they need to buy like books, etc.
We need to apply this same logic to our Federal Government. How do we do that? We do that by not buying more government debt and by encouraging other individuals and other countries to do the same.
Some people in this country are afraid that countries like China will not buy U.S. Treasuries. I hope they don't buy anymore. I also hope that our government will endeavor to pay them back for what we owe them as soon as possible. I am personally not comfortable with owing a still communist country any amount of money.
On a personal level, many of us have taken money out of the stock market and have it sitting in money market mutual accounts. Many of these money market accounts hold government securities. We should look for ones that do not. If we are not comfortable investing this money back in good U.S. companies with good prospects and strong balance sheets, we can also simply put our money into banks, buy ETFs dominated in foreign currency or mutual funds or ETFs that invest in foreign currencies, debt, or hedge the market.
The point is, like a son our daughter that has overspent their limit, we need to cut off Uncle Sam. Uncle Sam does not have the right to bankrupt and thereby ruin our country, our currency, and our way of life by spending us and our children into oblivion.
Please do what you can! Spread the word! Quit buying U.S. Treasuries. Email and write letters to your mutual fund companies and banks asking for alternative investments that do not hold all or part of there value in U.S. Treasuries. If the U.S. Treasury is unable to sell bonds when they have these big and periodic debt auctions, they will be forced to restructure their spending priorities. Many of us who work in the private sector have gone through multiple restructurings at the companies we work for. It is now time for the U.S. Government to restructure as well - the sooner the better!
By now, we all sort of know the story. As the housing bubble burst, the demand curve for all consumer spending began to shift to the left forcing a natural but painful drop in the equilibrium level of supply of all consumer goods provided to our economy. This necessary drop in supply meant that businesses did not need as many workers to make as much of the things people had been buying. The result of this has been massive job cuts and large increases in unemployment.
The cheap credit madness that had went on for a long time has finally begun to unwind. Banks are lowering credit limits, eliminating accounts, and generally making it harder for consumers to spend money they don't have. This, despite what some say is a good thing! Americans need to learn to live within their means and our market based economy is starting to reinforce that fact.
Unfortunately, this tightening of credit for individuals has not occurred with our government. Instead of lowering spending as tax collections fall, the U.S. Government, in the name of things like systemic risk and Keynesian Economics has drastically increased spending.
Federal spending has increased despite the fact that there is no history to demonstrate that huge increases in spending will help us avoid the adjustments needed in our economy. While government spending may help to slow the drop in consumer demand. It does not change the fact that Americans need to spend less and save more as they look out for their own future and the future of their children. It also does not change the supply curve in that, it is true, at least in the short term that we don't need as many businesses making as much stuff for us to buy in the future as we did in the past
Also, unfortunate is the fact that the powers in Washington D.C. seemed to have bought into the idea that we can only get ourselves out of our national and personal debt problems by in essence increasing the national debt as we seek to hopefully take measures to decrease our own personal debt.
This argument does not make sense, especially in a time in this country where we will very soon need to be providing for a much larger number of older Americans. We simply will not have the money to pay for things like Social Security, Medicare, etc. Right now, our country should have a huge budget surplus in expectation of needing to provide for an aging population. Unfortunately we have the opposite, huge and growing debt.
So, if you believe as I do that we can not allow our Federal Government to make debt slaves out ourselves and our children. What can we do?
To answer this question, I give you the example of a teenage son or daughter, who after having gone away to college for their first semester, has by the end of October using the credit card you provided them, spent their entire budget for the first semester.
What would many parents do? Help them cut their spending. Cut up the credit card. Provide them with only enough cash each week to meet their obligations for that week. Have them justify to you the cost of things they need to buy like books, etc.
We need to apply this same logic to our Federal Government. How do we do that? We do that by not buying more government debt and by encouraging other individuals and other countries to do the same.
Some people in this country are afraid that countries like China will not buy U.S. Treasuries. I hope they don't buy anymore. I also hope that our government will endeavor to pay them back for what we owe them as soon as possible. I am personally not comfortable with owing a still communist country any amount of money.
On a personal level, many of us have taken money out of the stock market and have it sitting in money market mutual accounts. Many of these money market accounts hold government securities. We should look for ones that do not. If we are not comfortable investing this money back in good U.S. companies with good prospects and strong balance sheets, we can also simply put our money into banks, buy ETFs dominated in foreign currency or mutual funds or ETFs that invest in foreign currencies, debt, or hedge the market.
The point is, like a son our daughter that has overspent their limit, we need to cut off Uncle Sam. Uncle Sam does not have the right to bankrupt and thereby ruin our country, our currency, and our way of life by spending us and our children into oblivion.
Please do what you can! Spread the word! Quit buying U.S. Treasuries. Email and write letters to your mutual fund companies and banks asking for alternative investments that do not hold all or part of there value in U.S. Treasuries. If the U.S. Treasury is unable to sell bonds when they have these big and periodic debt auctions, they will be forced to restructure their spending priorities. Many of us who work in the private sector have gone through multiple restructurings at the companies we work for. It is now time for the U.S. Government to restructure as well - the sooner the better!
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