Debt reduction doesn't stand a chance if you leave the back door open
You know how debt reduction and government come together, don't you? Like oil and water. "Reduce" and "debt" = oil and water. Government, in spite of what they say from time to time, only piles on more and more national debt. That's what it's gotten to.
There was a time when government tried - and even succeeded - in paying off its debts. In fact, when our country began, the Founding Fathers debated the wisdom of government carrying permanent debt. Even Alexander Hamilton, who wanted a strong Federal government and who lobbied for that government borrowing money right away, wasn't comfortable with having a permanent government debt. He said the debt should be paid off - and it was.
Hamilton also explained why paying off the debt was so important. For a young country like the United States, Hamilton knew that to the extent we paid off our debts on time, we would be able to borrow money if ever we needed to borrow money again. People called Hamilton a financial genius, and in many ways that was true. But this idea is really just common sense, don't you think?
Fast forward to today. There will be no paying off our current national debt. It won't ever happen. There's imply too much of it. I could write a blog a day for a year and still not explain the extent of the debt our government owes. We're simply at a point where we borrow for virtually everything we need.
If you tried to put it in the context of your own life, it's almost to the point where you'd have to borrow money to buy that cup of coffee you get on the way into work in the morning.
We all hear about the big things: social security, medicare, the defense budget, welfare, thousands of entitlement programs, subsidies to farmers - an endless list of items for which we borrow money. But maybe you never heard of "backdoor financing."
Backdoor financing means the government borrowing money without going through Congress. Not that Congress puts up much of a fight in controlling government spending, but apparently even Congress isn't creating debt fast enough for some people in government. So the government engages in backdoor financing.
The government simply borrows money on its own by going directly to the Treasury Department. I'm not sure what the procedure is, but maybe it's something like this: President Obama calls up Treasury Secretary Timonthy Geithner. "Hi Tim, it's Barrack. Hey, we sure could use a few billion to help us with (fill in the blank). You know, I'm so busy, I just don't have time to haggle with Congress on this one...and it's just a few billion. So how's about you rustling up some money and sending it over hear to the White House. OK?"
Now don't think I'm picking on Obama. He didn't create backdoor financing. It's been around for years. The point is, it's a symptom of things spinning out of control. In fact, some state government specifically prohibit it because it's - well, doesn't it strike you as something that's just not right? We've got a process in place for government to raise money in the light of day for us all to see. Why should they go behind our backs?
Doesn't it strike you that going behind our backs means something's really not kosher?
Well, it only accounts for a small amount of what government spends. But I don't think I'm making too big a deal out of this. It's the principle of the thing.
I remember the first time one of our sons told me he had borrowed money - even though he borrowed it from one of his brothers. It really upset me. Why did he borrow it? Why not tell me he needed money? (Probably because he knew the answer he'd most likely get from me.) I just didn't like the idea of any of our kids developing the habit of borrowing money to get something, when they had every opportunity to save or earn money to get what they needed or wanted. I especially didn't like the idea that he'd done it in an almost "sneaky" way.
And isn't that kind of what backdoor financing is, a sneaky kind of borrowing? And are we so far gone that government has to resort to borrowing money in this sneaky way?
So if you're waiting for government to kick off a debt reduction program any time soon - as in anytime in your lifetime - forget it. I fear we're past the point of no return. As for what that means, what it could lead to in the coming months and years...well, we may be looking at a point in time where the government of the United States reneges on its debt. Imagine the U.S. declaring bankruptcy? That's what reneging on your debt really means, doesn't it? That's how serious this is.
I was going to say that we should, at the very least, close the backdoor. Stop this backdoor financing stuff! But when I think about it, I don't know if it would make any difference. The time for debt reduction has sadly passed.
Well, it's not the sort of upbeat comment I'd prefer leaving you with before Christmas and the New Year. So rather than just sign off on that note until 2010, I want to wish you a Merry Christmas and Happy New Year.
Two days until Christmas and I'm just winding down. It's been a heck of a year in this business of money, and I'm really looking forward to some sort of real break. Fortunately, markets tend to calm down for a week or so this time of year, so I guess I can relax a bit.
I hope 2009 was good to you. If not, 2010 is waiting in the wings, God willing. Just try to get some time off and relax with family and friends for a few days, OK? Enjoy great food and drink. Read a good book, watch some good movies. Christmas comes but once a year.
I'll see you in January 2010.
There was a time when government tried - and even succeeded - in paying off its debts. In fact, when our country began, the Founding Fathers debated the wisdom of government carrying permanent debt. Even Alexander Hamilton, who wanted a strong Federal government and who lobbied for that government borrowing money right away, wasn't comfortable with having a permanent government debt. He said the debt should be paid off - and it was.
Hamilton also explained why paying off the debt was so important. For a young country like the United States, Hamilton knew that to the extent we paid off our debts on time, we would be able to borrow money if ever we needed to borrow money again. People called Hamilton a financial genius, and in many ways that was true. But this idea is really just common sense, don't you think?
Fast forward to today. There will be no paying off our current national debt. It won't ever happen. There's imply too much of it. I could write a blog a day for a year and still not explain the extent of the debt our government owes. We're simply at a point where we borrow for virtually everything we need.
If you tried to put it in the context of your own life, it's almost to the point where you'd have to borrow money to buy that cup of coffee you get on the way into work in the morning.
We all hear about the big things: social security, medicare, the defense budget, welfare, thousands of entitlement programs, subsidies to farmers - an endless list of items for which we borrow money. But maybe you never heard of "backdoor financing."
Backdoor financing means the government borrowing money without going through Congress. Not that Congress puts up much of a fight in controlling government spending, but apparently even Congress isn't creating debt fast enough for some people in government. So the government engages in backdoor financing.
The government simply borrows money on its own by going directly to the Treasury Department. I'm not sure what the procedure is, but maybe it's something like this: President Obama calls up Treasury Secretary Timonthy Geithner. "Hi Tim, it's Barrack. Hey, we sure could use a few billion to help us with (fill in the blank). You know, I'm so busy, I just don't have time to haggle with Congress on this one...and it's just a few billion. So how's about you rustling up some money and sending it over hear to the White House. OK?"
Now don't think I'm picking on Obama. He didn't create backdoor financing. It's been around for years. The point is, it's a symptom of things spinning out of control. In fact, some state government specifically prohibit it because it's - well, doesn't it strike you as something that's just not right? We've got a process in place for government to raise money in the light of day for us all to see. Why should they go behind our backs?
Doesn't it strike you that going behind our backs means something's really not kosher?
Well, it only accounts for a small amount of what government spends. But I don't think I'm making too big a deal out of this. It's the principle of the thing.
I remember the first time one of our sons told me he had borrowed money - even though he borrowed it from one of his brothers. It really upset me. Why did he borrow it? Why not tell me he needed money? (Probably because he knew the answer he'd most likely get from me.) I just didn't like the idea of any of our kids developing the habit of borrowing money to get something, when they had every opportunity to save or earn money to get what they needed or wanted. I especially didn't like the idea that he'd done it in an almost "sneaky" way.
And isn't that kind of what backdoor financing is, a sneaky kind of borrowing? And are we so far gone that government has to resort to borrowing money in this sneaky way?
So if you're waiting for government to kick off a debt reduction program any time soon - as in anytime in your lifetime - forget it. I fear we're past the point of no return. As for what that means, what it could lead to in the coming months and years...well, we may be looking at a point in time where the government of the United States reneges on its debt. Imagine the U.S. declaring bankruptcy? That's what reneging on your debt really means, doesn't it? That's how serious this is.
I was going to say that we should, at the very least, close the backdoor. Stop this backdoor financing stuff! But when I think about it, I don't know if it would make any difference. The time for debt reduction has sadly passed.
Well, it's not the sort of upbeat comment I'd prefer leaving you with before Christmas and the New Year. So rather than just sign off on that note until 2010, I want to wish you a Merry Christmas and Happy New Year.
Two days until Christmas and I'm just winding down. It's been a heck of a year in this business of money, and I'm really looking forward to some sort of real break. Fortunately, markets tend to calm down for a week or so this time of year, so I guess I can relax a bit.
I hope 2009 was good to you. If not, 2010 is waiting in the wings, God willing. Just try to get some time off and relax with family and friends for a few days, OK? Enjoy great food and drink. Read a good book, watch some good movies. Christmas comes but once a year.
I'll see you in January 2010.
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