Do You Manage Your Debt Better Than the Government Manages Theirs?
Having a first row seat to observe how Washington DC handles money woes, and specifically debt issues, is enough to bring tears to your eyes.
Or, to make you laugh hysterically.
Whatever the case, it is a macro study of how NOT to deal with increasing debt.
Let's just hope that all of us in our individual families show more sense and do a better job dealing with our own debt.
Here is what it would look like if the government were contained in a single family: George and Sally have been overspending for some time.
During the recession, they have had a reduction in income.
At the same time they increased their spending even more.
Their reasoning is that you need to spend money to make money, so they have "invested" in their future by buying into several failing companies, hoping that one or all of them will rise from the ashes and save the day.
Surprise, surprise...
the crappy investments continue to stink.
In the mean time, Sally is getting uneasy about the fact that they are now spending 40% more money each month than they are bringing in.
Their combined debt is quickly heading towards an unstable level, which would include a reduction in their credit score.
In fact, lately they have been taking out credit cards so that they can make the minimum payments on older credit cards.
All of a sudden, all of those low interest rate credit cards offers that they have been signing up for to pay their bills are threatening to increase the interest rates.
It is easy to see that in their current situation it will not be long until they will default on their debt.
In the mean time, George, who is responsible for paying the bills, is holding in his hand a credit card offer of $20,000.
This would represent the largest credit card they have ever had.
And, he explains, they need that money to cover bills for the next year, or they may lose their medical insurance.
Arguments ensue.
Fingers are pointed.
But, in the end they start looking at solutions.
George wants to look at increasing income.
Certainly a viable solution, except their income is fixed.
So, he proposes to take a monthly draw from their retirement investment to increase income.
Sally points out that this is not an option, because it will weaken future income if they do that.
She insists on cost cutting.
This is where the kids start getting into the picture.
Bill, who has not been able to find a summer job, is getting worried that he might have to reuse school clothes from last year.
He protests and points out that this is unfair.
Suzy, on the other hand, is arguing that she is going to have to pay for the debts if her parents can't get a handle on it.
She wants to go back to bare minimum expenses until the problem is solved.
This article is not meant to offer a final solution.
(I could, but that will be reserved for another article.
) Certainly, a well thought out plan to increase income, one that involves increasing production, can be part of the solution.
Cutting expenses is clearly the biggest issue.
Throwing money at bad investments is never a good idea, so that must stop.
The family would definitely have to eliminate some luxuries as a part of the process.
What is certainly not a good solution is this: Sally and George agree that they should take out the $20,000 credit card, but they agree that in the mean time they are going to find ways to increase their expenses at a slower rate.
Nothing is set in stone, but they will be getting serious about it shortly.
They agree to continue to discuss next month...
Get the picture? Heaven help us if our government doesn't wake up and make the necessary changes right now to change our future.
Or, to make you laugh hysterically.
Whatever the case, it is a macro study of how NOT to deal with increasing debt.
Let's just hope that all of us in our individual families show more sense and do a better job dealing with our own debt.
Here is what it would look like if the government were contained in a single family: George and Sally have been overspending for some time.
During the recession, they have had a reduction in income.
At the same time they increased their spending even more.
Their reasoning is that you need to spend money to make money, so they have "invested" in their future by buying into several failing companies, hoping that one or all of them will rise from the ashes and save the day.
Surprise, surprise...
the crappy investments continue to stink.
In the mean time, Sally is getting uneasy about the fact that they are now spending 40% more money each month than they are bringing in.
Their combined debt is quickly heading towards an unstable level, which would include a reduction in their credit score.
In fact, lately they have been taking out credit cards so that they can make the minimum payments on older credit cards.
All of a sudden, all of those low interest rate credit cards offers that they have been signing up for to pay their bills are threatening to increase the interest rates.
It is easy to see that in their current situation it will not be long until they will default on their debt.
In the mean time, George, who is responsible for paying the bills, is holding in his hand a credit card offer of $20,000.
This would represent the largest credit card they have ever had.
And, he explains, they need that money to cover bills for the next year, or they may lose their medical insurance.
Arguments ensue.
Fingers are pointed.
But, in the end they start looking at solutions.
George wants to look at increasing income.
Certainly a viable solution, except their income is fixed.
So, he proposes to take a monthly draw from their retirement investment to increase income.
Sally points out that this is not an option, because it will weaken future income if they do that.
She insists on cost cutting.
This is where the kids start getting into the picture.
Bill, who has not been able to find a summer job, is getting worried that he might have to reuse school clothes from last year.
He protests and points out that this is unfair.
Suzy, on the other hand, is arguing that she is going to have to pay for the debts if her parents can't get a handle on it.
She wants to go back to bare minimum expenses until the problem is solved.
This article is not meant to offer a final solution.
(I could, but that will be reserved for another article.
) Certainly, a well thought out plan to increase income, one that involves increasing production, can be part of the solution.
Cutting expenses is clearly the biggest issue.
Throwing money at bad investments is never a good idea, so that must stop.
The family would definitely have to eliminate some luxuries as a part of the process.
What is certainly not a good solution is this: Sally and George agree that they should take out the $20,000 credit card, but they agree that in the mean time they are going to find ways to increase their expenses at a slower rate.
Nothing is set in stone, but they will be getting serious about it shortly.
They agree to continue to discuss next month...
Get the picture? Heaven help us if our government doesn't wake up and make the necessary changes right now to change our future.