DrFever
New Member
As the White House and Congress debate the value of multi-trillion dollar national debt for funding the economic stimulus and the federal budget while removing "toxic assets" from bank books to ignite fresh lending, there's a school of thought about a personal finance that merits our consideration as guiding principles for national finance.
I'm speaking specifically about the idea that we should avoid unsecured debt.
In personal finance, secured debt refers to any financial obligation backed by tangible property like a house or a car or precious gems. Unsecured debt refers to any financial obligation not backed by anything tangible, as with credit cards or student loans.
The theory is that secured debt prompts personal responsibility. Failing to make a car payment or mortgage payment could mean losing your car or your home, so you will do everything you can possibly do to make those payments in full and on time.
The theory is that unsecured debt prompts recklessness. Failing to make a credit card payment or student loan payment may increase your debt and damage your credit rating, which seems to many like remote and distant consequences, so there is scant pressure to make payments in full and on time.
On a national scale, the U.S. national debt is unsecured by anything tangible. President Franklin D. Roosevelt in 1933 and President Richard Nixon in 1971 effectively ended the gold standard backing U.S. currency. Since then, our money supply and national debts are backed by nothing more than an insubstantial promise, "the good faith and credit of the United States Government."
Consequently, when China and other investors commit billions and trillions of their capital to buy U.S. Treasury bonds and other investment instruments to support the operations of the U.S. Government, they are taking a tremendous risk by making these unsecured loans.
If the U.S. Government ever defaults on our national debts, our creditors will have no recourse. They cannot foreclose on the federal government and take possession of the Washington Monument or the Lincoln Memorial. If you buy a Treasury bond, you have no security beyond faith in your government.
Because the U.S. in now trillions of dollars in debt, unsecured debt, I'm profoundly concerned about the temptation for Congress and the White House to engage in reckless spending.
Please appreciate that my concern is nonpartisan. I'm definitely not siding with the reactionary Republicans or Blue Dog Democrats now hampering national recovery with ideological posturing that does not jibe with economic realities today.
In fact, I generally support proposals by the Obama administration to increase funding for education, green energy and other national priorities for long-term economic recovery. Further, I favor ending the Bush tax cuts for those making more than $250,000 a year while cutting taxes for the middle class.
However, as I said, I'm concerned that the stimulus and related spending for recovery is being financed by unsecured debt. I believe we need some skin in the game. At minimum, I think our national leaders should have some personal financial stake to make sure their debting is responsible.
For example, what if each member of the House and Senate must put up one quarter of their annual salary to help secure the expansion of national debts we will incur under the proposed Obama budget. Such pledges for tens of thousands of dollars would be token commitments compared to the billions and trillions involved, yet it certainly would help keep our legislators accountable, and it certainly would build confidence in our nation's economic recovery plans.
Additionally, if somehow I was granted the power to command our government with a snap of my fingers, I would require every member of Congress and every member of the Obama administration to read a simple 300-page book by Jerrold Mundis, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.
Now in its 27th printing, revised and updated, Mundis' book offer basic principles and techniques for individuals to turn around their personal spending and debting habits to enjoy lasting abundance. His book is based on the tenets of the Debtors Anonymous program for chronic debtors and under-earners. I'm suggesting these same methods could be profitably applied on a national basis.
As one example, Mundis recommends developing a monthly "spending plan" based on keeping accurate records of expenditures in previous months. Categories in the spending plan may include food, rent or mortgage, utilities, car maintenance, clothing, entertainment, charities, etc. Amounts are allocated to each category based on previous baseline spending in each category.
Spending records are kept daily during the month. When all the funds allocated for that category have been spent, such as for rental movies, then there is no more spending in that area until the next month. You can move unused funds from area to another, such as from clothing to food, but you cannot incur any debt beyond the spending plan. You cannot use a credit card to cover shortfalls.
The core principle is that we must live within our means. If I lack enough money to fully fund my spending plan, says Mundis, I need to either increase my income or reduce my spending. I must not debt. In fact, he encourages readers to cut up their credit cards and use debit cards instead.
Can you imagine what your life would be like if you became debt free? Can you imagine what our nation would be like if the U.S Government became debt free?
So, when I hear all this talk about the U.S. Government wanting to guarantee purchases of the banks' toxic assets, offering bargain deals that will potentially screw American taxpayers and put our nation further into debt, I think of Mundus and wonder if the direction being taken by both Democrats and Republicans may may be off course.
Rather than trying to get the economy moving again by re-initiating the cycle of unsecured debt that drove us into this mess, what if we resolve to shift gears as a nation find other ways to stimulate the economy beside debting?
What if we break our addiction to debt and learn to live within our means?
I'm speaking specifically about the idea that we should avoid unsecured debt.
In personal finance, secured debt refers to any financial obligation backed by tangible property like a house or a car or precious gems. Unsecured debt refers to any financial obligation not backed by anything tangible, as with credit cards or student loans.
The theory is that secured debt prompts personal responsibility. Failing to make a car payment or mortgage payment could mean losing your car or your home, so you will do everything you can possibly do to make those payments in full and on time.
The theory is that unsecured debt prompts recklessness. Failing to make a credit card payment or student loan payment may increase your debt and damage your credit rating, which seems to many like remote and distant consequences, so there is scant pressure to make payments in full and on time.
On a national scale, the U.S. national debt is unsecured by anything tangible. President Franklin D. Roosevelt in 1933 and President Richard Nixon in 1971 effectively ended the gold standard backing U.S. currency. Since then, our money supply and national debts are backed by nothing more than an insubstantial promise, "the good faith and credit of the United States Government."
Consequently, when China and other investors commit billions and trillions of their capital to buy U.S. Treasury bonds and other investment instruments to support the operations of the U.S. Government, they are taking a tremendous risk by making these unsecured loans.
If the U.S. Government ever defaults on our national debts, our creditors will have no recourse. They cannot foreclose on the federal government and take possession of the Washington Monument or the Lincoln Memorial. If you buy a Treasury bond, you have no security beyond faith in your government.
Because the U.S. in now trillions of dollars in debt, unsecured debt, I'm profoundly concerned about the temptation for Congress and the White House to engage in reckless spending.
Please appreciate that my concern is nonpartisan. I'm definitely not siding with the reactionary Republicans or Blue Dog Democrats now hampering national recovery with ideological posturing that does not jibe with economic realities today.
In fact, I generally support proposals by the Obama administration to increase funding for education, green energy and other national priorities for long-term economic recovery. Further, I favor ending the Bush tax cuts for those making more than $250,000 a year while cutting taxes for the middle class.
However, as I said, I'm concerned that the stimulus and related spending for recovery is being financed by unsecured debt. I believe we need some skin in the game. At minimum, I think our national leaders should have some personal financial stake to make sure their debting is responsible.
For example, what if each member of the House and Senate must put up one quarter of their annual salary to help secure the expansion of national debts we will incur under the proposed Obama budget. Such pledges for tens of thousands of dollars would be token commitments compared to the billions and trillions involved, yet it certainly would help keep our legislators accountable, and it certainly would build confidence in our nation's economic recovery plans.
Additionally, if somehow I was granted the power to command our government with a snap of my fingers, I would require every member of Congress and every member of the Obama administration to read a simple 300-page book by Jerrold Mundis, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.
Now in its 27th printing, revised and updated, Mundis' book offer basic principles and techniques for individuals to turn around their personal spending and debting habits to enjoy lasting abundance. His book is based on the tenets of the Debtors Anonymous program for chronic debtors and under-earners. I'm suggesting these same methods could be profitably applied on a national basis.
As one example, Mundis recommends developing a monthly "spending plan" based on keeping accurate records of expenditures in previous months. Categories in the spending plan may include food, rent or mortgage, utilities, car maintenance, clothing, entertainment, charities, etc. Amounts are allocated to each category based on previous baseline spending in each category.
Spending records are kept daily during the month. When all the funds allocated for that category have been spent, such as for rental movies, then there is no more spending in that area until the next month. You can move unused funds from area to another, such as from clothing to food, but you cannot incur any debt beyond the spending plan. You cannot use a credit card to cover shortfalls.
The core principle is that we must live within our means. If I lack enough money to fully fund my spending plan, says Mundis, I need to either increase my income or reduce my spending. I must not debt. In fact, he encourages readers to cut up their credit cards and use debit cards instead.
Can you imagine what your life would be like if you became debt free? Can you imagine what our nation would be like if the U.S Government became debt free?
So, when I hear all this talk about the U.S. Government wanting to guarantee purchases of the banks' toxic assets, offering bargain deals that will potentially screw American taxpayers and put our nation further into debt, I think of Mundus and wonder if the direction being taken by both Democrats and Republicans may may be off course.
Rather than trying to get the economy moving again by re-initiating the cycle of unsecured debt that drove us into this mess, what if we resolve to shift gears as a nation find other ways to stimulate the economy beside debting?
What if we break our addiction to debt and learn to live within our means?
