Financial Incompetence
by Ted Slater on 07/01/2009 at 11:01 AM
Politicians love to spend money. And they love to confiscate it from those around them. It's a lovely cycle, one they love to ratchet up each year as they grow dissatisfied with the status quo.
Now these politicians are in a lovely pickle: The folks they've been shaking down are running low on money to give. And yet the spending continues.
And so, naturally and obviously, the politicians are finding themselves in a financial crisis.
What to do? Cut spending? Limit the growth of spending? Increase taxes? Print more pieces of paper with numbers and dollar signs on them?
Nah, they're adopting a solution they learned in middle school: They're scribbling IOUs.
Yup, politicians in the state of California haven't been able to figure out how to make their expenditures equal to their income. And so instead of paying their financial obligations with real money, they're handing out $3.36 billion this month in pretend money.
Cute.
The chairman of the state Budget Conference Committee explains how they've come to find themselves with a $24 billion deficit: "'Live within our means' doesn't mean anything."
Maybe I should be encouraged by this attitude. Maybe this particular politician has been pursuing God's wisdom by immersing herself in Ecclesiastes.
Or maybe these politicians are just financially inept.
1. farmer Tom said the following at 12:02 PM on Jul 1:
Our nation and its people are in for some very hard times. There are several states beside California, including Illinois, Arizona, Indiana, Ohio, Connecticut and Mississippi, which are unable to pay their bills, and more are yet to come.
If you have a government job, live off of government handouts, or are expecting to receive Social Security, you had better start making alternative plans. "What a man soweth, that shall he also reap" is just as true today as when it was originally written. We as a nation have tried to borrow our way to prosperity and we are going to pay a fearsome price for our profligacy.
And many of you are still convinced that it is the role of government to compel charity. What happens when the government is broke, can't pay it's bills and the Chinese or whoever refuse to lend us any more money?
Who will do charity then?
Funny thing. Soon the church of Jesus Christ will have to do charity again, just like we are commanded in Scripture, because the government will be unable to compel the citizens to give enough to fund the government charity scams.
2. Adam said the following at 12:08 PM on Jul 1:
I wonder if this would work on my house... "Here is an IOU for the balance. I'm certain I'll pay you someday. But I don't really feel like paying right now. That's not a problem... is it?"
3. Aurora said the following at 12:14 PM on Jul 1:
Ted, as you break a sweat throwing the politicians under the bus, save some energy to heave California voters right behind them. While politicians have surely not done their best by the people that elected them to govern, they have also been hampered by that same electorate that seems to have never met a bond measure they won't pass. It seems no one understands that a bond measure is a loan -- we in California have been borrowing money for what on paper are worthy causes but in reality, we cannot afford. I've lived in California my entire life and love my state -- it's awesome at every level. And it's a place with more resources that spell success than any state has a right to. And yet, here we are with no budget, mired in debt. I'm sad and angry...FYI, thanks to bond measures, sales tax in Los Angeles County went up to 9.75 percent today...it's higher (approaching 11 percent) in some cities in the county...ridiculous...
4. T.Smith said the following at 12:21 PM on Jul 1:
To be fair, Farmer Tom, some Christians are giving charity on a regular basis. Also, many Christian churches are in debt, so they will fail at providing charity in the future.
Despite the derelict attitude of churches, financial management is a concern in the Bible as is debt (for instance, Romans 13:8). I think that it's interesting how Christians over the last few decades have written about "purpose driven lives" and "blessings from God" when in reality, these same Christians are borrowing way beyond their means. Imagine if credit was unavailable (what will happen with the next decade)? Do you think that Christians would feel as blessed by God?
Some would, especially those of us who've managed without debt, but for others, it is going to be a time of profound suffering.
5. brx said the following at 12:42 PM on Jul 1:
It's great that they're finally waking up to the problem of spending every last dollar for years. Except that I live in California, darn it!
Now, if we could just get them to realize that cost-effectiveness can be measured, that audits are meant to provide corrective feedback, that non-citizen low-cost (slave) labor causes inflation of profit margins that eventually burst with destructive force, and that furlows don't fix a systemic problem of over-par salaries...
Grace, peace & ingenuity for depressions
6. Carl said the following at 1:23 PM on Jul 1:
We already have an 'IOU' system. Its called a Federal Reserve Note.
China has lent us near $800B of them up until March 18, 2009 when the FED and Treasury started fabricating IOUs out of thin air (aka monetizing).
Cut up the credit cards and read Jeremiah 29 - prepare for the worst and pray for the best!
7. Mark W said the following at 1:33 PM on Jul 1:
"If you have a government job, live off of government handouts, or are expecting to receive Social Security, you had better start making alternative plans."
We should be so lucky. Unfortunately, the status of the U.S. dollar as world reserve currency gives the Keynesians that run the U.S. federal government and the federal reserve the ability to just print more and more money to pay off (and also inflate away) whatever debt they've gotten themselves into. This is exactly what's happening right now. Gov't workers would be the least affected by this, as the gov't would, of all institutions, have the most ability to increase salaries to keep in line with inflation. The rest of us will see the value of our savings and salaries diminish as a result of the government's financial ineptitude.
Of course, if and when the rest of the world gets fed up with this enough to realize the dollar for what it is (a glorified IOU with rapidly diminishing value), they could decide to stop using it as a reserve currency. There is quite a bit of evidence that China, and possibly other nations are already moving in this direction. If and when this were to happen, in the worst case (but not that unlikely) scenario, the value of the U.S. dollar would plummet, we would possibly enter hyperinflation, the gov't would collapse under its own weight, and all of our dollars would be worthless. But that's probably at least a few years off.
Regarding CA, we should at least be grateful that Obama hasn't offered them a bailout.
8. Jehtro said the following at 4:59 PM on Jul 1:
They say that in a democracy people generally get the government they deserve. It happened with Bush who put us in this mess. Seems it's happening in CA too.
9. Leah said the following at 5:47 PM on Jul 1:
Wow, I didn't think you could get much more financially inept than our prime minister & treasurer, but this takes the cake.
10. Kyle said the following at 6:15 PM on Jul 1:
Try sending the government an IOU come next April and see what happens (or, do as several Obama officials did, and just don't send anything).
The continued brain drain in CA, as those with degrees seeking to earn money and make something of their lives flee at the first chance to do so, will only make it worse for those in Sacramento.
Kyle
Savannah, GA
11. Reid said the following at 6:44 AM on Jul 2:
This sounds to me like one of the classic cases in which the individuals involved may be competent, but as a group they are collectively incompetent.
I'm purposely not jumping deeply into the macroeconomic discussion, except to quickly note that 1) credit on both a public and private level is a vitally important tool when used judiciously (otherwise I wouldn't own a house or have a highly-beneficial college education), 2) tying currency to the value of a fixed good and not retaining control over the supply through a central bank didn't work any better at moderating the business cycle.
12. JuliestD said the following at 8:27 AM on Jul 2:
The reason they're having to give out IOUs is because there are real people who need some assurance they're going to get paid, and that is all that the government officials have left in their power to do. They don't decide how the money is spent, but their office is required to issue the money.
The people who need to really be prayed for are those who are dual-income California government families. Because of the cuts that are being made by Gov. Schwarzenegger with the furlough days, some families are experiencing a 30% pay cut. In California, the cost of living is already so high, and a cut like this could really put a lot of people in financial danger.
I pray for all the people of California. There are no easy answers here at this point, and since CA is the sixth largest economy in the world (the WORLD people!), and it is now nearly 42 billion dollars in debt, we are all in trouble. The money that California needs isn't just going to appear, no matter how much spending is cut, because spending is attached to real peoples' incomes, who then reinvest in the economy.
Please everyone -- be praying for the governments of the states and the federal government in the USA. And certainly, pray for good government everywhere in our world! We're all interconnected!
13. Mark W said the following at 9:15 AM on Jul 2:
Reid,
On your first point I would agree to a certain extent. But pushing the public debt to the mammoth level that it is currently at and then continuing to spend like a drunk kleptomaniac in Vegas on new and unnecessary programs is beyond irresponsible and could prove disastrous.
On your second point I have to strongly disagree. Compare the economic history of the U.S. pre-Fed (1912 and before) and post-Fed (1913 and after). I think you'll find that one of the two was much less volatile. (While you're at it, look at what happened in the decade following the suspension of the gold standard in 1971.)
14. Amir Larijani said the following at 10:42 AM on Jul 2:
Farmer Tom for President!
15. Mike Theemling said the following at 11:49 AM on Jul 2:
California is in some ways a microcosm of the nation in general. It will be interesting to see how it plays out.
Bottom line is that like the Federal government, about half of California's budget goes to entitlements programs like medicare and prisons (see chart here). Hmm, almost half of a entire budget swallowed up by entitlement programs. Sound familiar (Medicare/Medicaid and Soc Security)?
Now CA is essentially doing what the Federal government has done for years: give IOUs. Don't get me wrong, debt at the macro level isn't necessarily bad (as it provides a mechanism in which banks can give loans to lend/invest). It starts turning into a problem when the confidence to pay it back becomes suspect (basically when the ratio of debt to GDP becomes too large), and that confidence is beginning to wane. Yes, California has certainly issued bonds before, but it's gotten to the point where you wonder if they will just use one form of IOU to pay another (much akin to using one credit card to pay off another).
The UK recently had its AAA credit rating reduced by the World Bank. If you think such a thing could never happen to the U.S., think again. And here's the scary part. This monetary leverage that other countries have on us can seriously impact other policies we have including national security.
But none of this should be any surprise, and we have no one but ourselves as a whole to blame. Because the politican who stands on a platform of fiscal responsibility (read: budget cuts) will almost always lose to the one who promises the same or more (usually more) entitlement spending. We all want to cut spending, just not our programs.
16. John said the following at 12:28 PM on Jul 8:
Reid,
Why should we "moderate" the business cycle?
Why in the world is that a goal of the government?
17. John said the following at 12:30 PM on Jul 8:
Mike,
You're right.
That's why the founders limited the vote.
They were concerned that what is happening, abuse of the masses with promises of a chicken in every pot, would happen.
Imagine that, they were right!
18. John said the following at 12:32 PM on Jul 8:
Juliest,
No, in fact, there are easy answers.
Cut out entitlement programs!
Punish and lock up business that are exploiting illegal immigrants.
You'd have a balanced budget by next week.