When a person is facing bankruptcy and he goes to a personal finance counselor do you suppose the counselor would advise him to borrow more money? Would the counselor tell his client that he needed to find someone to buy his debt? Would the counselor conclude that his client was suffering from a lack of credit? Would the counselor suggest that his client continue in a business that was on the ropes? The answer to personal bankruptcy response would be none of the above.
What then would a counselor advise? First there would be an assessment of the gravity of the situation. What assets does the client have? What liabilities? Can bankruptcy be avoided? Are there enough assets to liquidate to create a cash flow that would meet the credit obligations? What are the terms the creditors are willing to accept? What are the future earning possibilities?
Does this sound like anything that has been pursued as bankruptcy looms on the nation’s horizon? Has America been given an assessment or simply a call for action? How many times have you heard from the politicians, “We had to do something. We had to act.” Was a consideration of what America owes mentioned? What assets does America have that could be liquidated? If the national debt is not going to be addressed how can credit be reestablished? Claiming that bad debt is the problem and ignoring an unfathomable national debt seems somewhat inconsistent. Are we saying such a large debt is good debt? A debt that is adding a huge amount of interest daily and is beyond the capacity of the taxing mechanism to repay it I would call a bad debt. If an individual told his counselor his debt was good but unpayable would that be relevant? I think we distinguish good debt from bad debt by the debtor’s ability to repay it. Certainly worthless assets won’t help much when the payoffs are scheduled and may just have to be written off as unrecoverable. So what is a proper action for a nation deeply in debt without an economy that is generating adequate tax revenue to do. Create more debt by spending money it doesn’t have or retrenching?
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To create more debt by huge transfusions of cash into institutions spending more than they are taking in and do not have assets enough to sell to cover their debt, would indicate an abandonment of financial awareness.
The common response that so many academics and politicians have reiterated for many decades is to pump money into a failing economy. This is how the history of the recovery of the Great Depression is usually presented and popularly believed. So if government spending got us out of the Great Depression it must be what is necessary if we see another depression looming. As long as that is the thinking that will be the plan of action. Why would more spending and debt be good for a nation undergoing a failing economy and not good for an individual facing an identical financial crisis on a personal basis? Both are facing too much debt. Both are facing a lack of credit. Yet one is faced with liquidation and a repayment plan and the other is faced with spending more and incurring more debt beyond what it could not pay. One approach has to be wrong.
Common sense would indicate the personal approach of assessment, liquidation and repayment to be sound decisions. This would outline a road to recovery. Once the establishment of more revenue coming in than money going out is recognized, the situation will stabilize and surpluses will begin to build. Assets can be acquired and prosperity can be realized. This is what happens to individuals when they follow the steps recommended. This is how individuals recover from bankruptcy.
What would happen if the individual took the course of the government convinced that more spending is a possible road to recovery from depression symptoms? First of all the individual could not spend what he didn’t have or couldn’t get. If he couldn’t borrow or beg or earn more money he could only either steal or counterfeit. These are the only alternatives the government has, only they avoid the illegality of these actions by declaring them to be legal when practiced by the government. Printing money by the government with nothing to back it up but promises it cannot fulfill is fraud. Taking money from designated reserve funds such as the Social Security Trust Fund is legalized stealing. Congress can make outlaws of private citizens and legalized bandits out of themselves and very often do so.
If the advice to the individual is to reduce one’s debt and live within one’s means why wouldn’t expanding that to two or more individuals also be goo d advice? If you apply it to millions of individuals which formulates a country what wouldn’t that be good advice? Somewhere someone got the idea that rules and solutions for individuals are not necessarily valid for governments. The rules and solutions to financial management are universal. They apply to individuals, families, groups, companies, corporations and yes even governments. Spend too much i.e. more than you can afford to spend and you will acquire debt which means you have obligations that must be repaid. If you cannot pay the debt you are bankrupt. Countries do go bankrupt and America is not able to deny fundamental financial management principles with impunity. America is vulnerable when it owes more than it can generate to pay for what it has spent. Whoever the creditors are can demand payment and they will if they practice sound fiscal management. The case with China is one of very serious implications. Suppose China invades Taiwan or Tibet? Suppose America defends Taiwan and China calls in America’s debt? Who does America go to borrow from? Even if another creditor could be found what would prevent the same scenario from reoccurring? Without someone to service our debt, what would happen to the value of our currency? If an individual no longer had his distant uncle to finance his debt he would have to declare bankruptcy. That would mean he would have nothing to pay for his living expenses. It would mean he could only survive if someone would either give him a source of revenue in the form of a job or a loan. Without a job a loan would be doubtful. The government has no job but it does have the ability to confiscate taxpayer wealth. When the taxpayer wealth is swallowed up by the size of the debt, the country is bankrupt as it has no means to pay back what it has borrowed. It can print money ( called counterfeiting ) but this only leads to less value per dollar which in turn requires more printing as more dollars are required for the rising prices. Inflation necessarily turns into hyperinflation if the printing is not stopped. Savings disappear, fixed incomes become inadequate and businesses fail due to the inability to buy at ever increasing prices.
The culprit behind all of this distortion is the government which was allowed to function outside its nature. It was created to protect individual rights and by giving it the power to tax (confiscate), the citizens allowed the government to violate individual rights. This is analogous to granting the power of criminality to the government. Government cannot be restrained by simply expecting it to not expand its powers. The restrictions must be clearly stated and the penalties severe. A government that can expand in any direction will conquer all in its path. After the conquest, the country will collapse under the burden of an expensive government it cannot afford.
Regulation by the government is not the answer. Regulation of the government is the requirement to uncollapse the economy. Competition, profits and surplus will move the economy forward. Regulation by the government will only distort and disrupt the economy under debt and controls that squelch innovation. We are only hearing one side of the argument as the media focuses on government actions versus free market solutions. From a free press this is unconscionable. We don’t need to hear how the government is going to subsidize and spend. We have heard all this before and it is exactly what has led to a collapsed economy. It is time to broadcast how free market expansion and innovation has brought prosperity out of poverty during the industrial revolution and continues to improve living standards at lower prices and greater availability. It is time to dismiss the government ideas and “solutions” that simply lead to socialism and failure. It time for the government to shut up and listen for a change. Its job is not or has it ever been to run a business of any kind. Running the country into debt is the only example of financial management it can exhibit. That example is now very clear and is unacceptable.Tags: Economy
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