Monday, March 17, 2008

Debt is Dumb

...as Dave Ramsey tells us so often.

The dollar continues to slide against all currencies. Maybe that's because we have about $9B ($9,000,000,000,000) in debt. Meanwhile, the porkers in the government continue to spend.
As Sen. John McCain said, things have gotten so bad in Congress that the porkaholics won’t even vote for a mere one-year pause. He was referring to the 71-29 vote against the DeMint-McCaskill budget amendment requiring a one-year moratorium on earmarks, which have been described by Sen. Tom Coburn, R-Okla., as the “gateway drug to federal spending addiction.”...From a partisan perspective, the Democrats oinked the loudest: 45 of 51 in the Senate voted against DeMint-McCaskill, while 26 of 49 Republicans cast nay votes.
For all the vitriol I hurl at the profligate Republicans, it's no secret that the Democrats are worse. Meanwhile, John McCain, the candidate shredded by the "true conservatives" in the right wing talk show world is one of the few try to stem the tide.

Over in the stock market, Bear Sterns is selling itself for 2% of it's recent stock price because it was devoured in the recent wild home loan borrowing spree. I guess loaning money to people who can't pay you back is a bad idea. Who knew?

I know this is a radical idea, but how about if we work hard, save our money and live beneath our means? We might want to try that some time.

Nahhhhhh. I think I'll go watch some MTV on the big screen TV I bought on credit last week....

Update: Our Apian Apostle has a great post on our future financial obligations. Wow.

3 comments:

Ohioan@Heart said...

KT - Debt is not, in and of itself, dumb. Misuse of debt and not understanding how and when debt can and should be used is dumb.

Two examples make the point.
Example 1. You can buy a home that retails at $200,000, with money payments at a fixed mortage rate of $1,200/month. If you are currently paying $1,500 in rent, then the debt is a GREAT investment. It doesn't matter if the house goes up down or sideways in value. You acquired debt. Lots of debt. But it saved you money in your cash flow. It is smart debt.

Example 2: Same example, but you are currently paying $600 in rent and have other monthly expenses auch that the additional $600 is not to be found. This is dumb debt.

Additionally, in times of high inflation, debt allows one to buy current goods with future cheaper dollars (at least partially). This can be smart or dumb debt.

James said...

Totally agree with you dude. But its actually worse than you point out. We're $9 trillion in debt (you had the correction number of zeros) and that's not including any measure of the commitment the government has made regarding medicare, medicaid, and social security. A GAO estimate puts that tab at $40 trillion in present dollars. Holy #^%#!!!. That estimate is derived using the accounting practices of every business in the U.S. that has a defined benefit plan. Of course the federal government doesn't hold itself to the same standard. Not sure any way out of the mess but to quite promising social security and medicare to those, say 40 years old and younger and payout everyone else.

ohioan@heart - What factor does risk play in your analysis?

Bob said...

Sen. Tom Coburn (R-Okla.) gave a speech recently about debt. In turn, I blogged about it in this post today. I think you'll find it interesting.