Monday, January 3, 2011

BloggeRhythms 1/3/2011

The 112th Congress begins this week, and one of the first issues is the debt ceiling. It's now at $14.3 trillion dollars, and the actual debt is getting close at $13.9 trillion which is a pretty sizable chunk of change.

Now, there's this guy, Austan Goolsbee who's apparently really nervous that the ceiling won't be lifted. He's Chairman of the White House Council of Economic Advisers, and is urging Congress not to "toy with" the issue. He said "This is is not a game," on ABC's This Week, and went on that, "If we hit the debt ceiling, that's essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic. I mean, that would be a worse financial economic crisis than anything we saw in 2008. I don't see why anybody's talking about playing chicken with the debt ceiling."

So, in effect what I think he's saying is, the country's in huge debt now and has to pay back what it's already borrowed. But it hasn't got enough money to do that and can't cover it's current obligations, so the way to fix that is...to borrow even more.

The reason this guy's comments struck me is that I spent most of my career in the commercial finance business, primarily involved in working with businesses that wanted to finance or lease industrial equipment. Now, there's a considerable amount of knowledge you need in this arena, because financing's a pretty risky business even when you really know what you're doing. And, it's a disaster if you don't. Because it doesn't take an awful lot of bad deals to put a lender out of business. In fact, one of the proofs is, just look at at today's banking industry and the sorry hole they put themselves in out of sheer stupidity, ineptitude and greed.

But, for my point today you don't really need a lot of financial sophistication or knowledge. Because while there's a real need for some expertise to be a lender, the basics of the business are plain old common sense. And question one to any potential borrower is pretty simple: "How will you pay us back?"

Now, the answer to the paying us back question can sometimes be pretty involved, and that's where the sophistication, knowledge and experience of lender's kicks in, because they have to be able to calculate the odds of being repaid as agreed. But, no matter how much or little any lender knows, they all understand this much. If folks don't repay what they've borrowed, lenders go broke.

So, the first thing a lender would tell a potential customer that's financially strapped is that they've got to prove their creditworthy and if not, come back when you can afford whatever it is you want to finance. And, most often, the way to do that is to either grow income somehow, or most often, and usually the best -cut expenses.

And in that regard, I think this economics guy has the picture either upside down or inside out. Because the country's already proven beyond doubt it can't cover its overhead and obligations. So, step one shouldn't be borrowing more funds and piling more debt on debt. The road to a cure is chopping out tons and tons of worthless waste, eliminating costly bureaucratic do-nothing departments, and ending hand-over-hand mindless spending. And, a good place to start might be to close down the White House Council of Economic Advisers and fire all those dimwits.

That's it for today folks.

Adios

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