Wednesday, February 15, 2012
I don't know about that.. Dow dropped -97 pts... we'd call it the Best day of the calendar year. Would have been better if the drop was triple digits, and goodness knows if it ever dropped quadruple digits, causing Sincere & Severe financial pain for banks and investors, I think the response at A&G would be akin to a emotionally intense non-sexual orgasm.
So what else is in the news... lets see...
Ahh yes, file this under 'pathetic'-- Dem and Reps agree to speed up the destruction of Social Security by extending the payroll tax so common people can take home an extra $15-20/week while affluent people pocket $150-200/wk and none of it goes into the retirement fund. And of course if employees don't have to put money into Social Security, neither do employers have to match. But its election year and people prefer to live in the 'now' so everyone's happy...
Nice to see government being so generous while holding a National Debt over $16 Trillion and projected to reach its ceiling by August which means the $2 Trillion extension voted upon by Congress last summer will have only lasted about 14-15 months.
Eventually everyone's taxes will go up.. unless Presidential elections suddenly become a yearly event. The only reason the masses have not clamored loudly for such increases is that well, people are self-centered. If taxes had to be raised 3% for them but would also be raised 30% on the wealthy, most would be against tax increases.
Example: Person makes $50,000/yr. After taxes, its $35,000. The total of bills, credit cards, expenses, etc. is $40,000 (a yearly deficit of $5k) and he/she has $20,000 in accumulated debt. There is $2,000 in his/her savings account.
Now.. how does he/she get out of the red?
Unlike the US government, a person can not simply go on their computer, and print out enough money to pay the debt interest to keep creditors at bay, then keep on spending as before. When an individual tries to do it, its called counterfeiting. When a government does it, its called sound fiscal policy.
There's three ways to get rid of the debt based on the example: 1) Spend less which on an individual level, is equivalent to a government slashing its budget., 2) Generate more income which is the same as a government increasing its revenue stream via taxes, tariffs and tolls, and 3) A combination of 1 & 2.
Now if one does option 1 or 2, the process will be slow. Sure one may cut your cable bill or less times eating out per month, but to get debt down seriously, real sacrifices have to be made-- get a cheaper car, relocation to a different home or apartment, etc. These cuts will be unpleasant. Government tries to do everything possible to avoid making such cuts. Rolling back benefits and services increases the chances politicians won't get re-elected. Well then again, government doesn't mind cutting back on services and benefits to the very poor. Statistically, they are uneducated, uninformed and much less likely to vote than middle or upper class.
Now to avoid this option, one needs to dramatically increase income i.e better paying first job, or get a second job, handyperson work on the side, etc. Now if one decreased his/her yearly income by taking a job that paid less, obviously that person is burying him/herself a deeper hole. Really no different when the government gives tax breaks, payroll taxes and other discounts to to potential voters while cutting into their financial lifeblood-- their revenue stream.
So, what is the quickest and most efficient way to get out of debt? A combination of cutting back on expenses and increasing revenue. Both must occur simultaneously. In the example, the person spends $5000 more than he/she is taking in after taxes. If he/she makes $2,500 in cuts and increases the revenue by same amount, while it wouldn't cover the debt, it would eliminate the yearly deficit. That person would have "balanced" their budget for the fiscal year.
If the figures were increased to $3,500 in both spending cuts and revenue increases, that person eliminated their deficit and cut into their total outstanding debt by 10% per year. And if the person does what government does annually-- spend more while bringing in a smaller paycheck, that deficit and debt is going to get to uncontrollable levels where real pain will be felt to reduce it.
The theory also can be applied to weight loss. Reduction of food and exercise reduce weight quicker and more efficient than one or the other. And the more weight one gains, the longer and harder to get it off.
Pretty simple basic logic...
But as we've said before, government has no incentive. It is the reserve currency so it absorbs most financial shocks without the populace feeling it. The people don't want any financial sacrifice or hardship even if it means the super-wealthy get hit 10-20x harder and start paying their fair share. And no politician seeking re-election is going to run on a platform of his/her constituents feeling economic pain for long-term good.
One day hard choices will need to be made; a time when there is no option left. It will be rough, many will suffer and we all will be deeply unprepared.
Posted by Susquehanna at Wednesday, February 15, 2012