Managing Debt Principles: This Is Boring

Came across this (non-verified) quote by Richard Russell of Dow Theory Letters: “An impartial study of history reveals that the more government intervenes in an attempt to minimize the severity of cycles, the more extreme and violent they seem to become.”

I dunno. Maybe I'm a simpleton conservative who just doesn't comprehend complex issues of any kind.

Whenever I read about President Obama's (or most politicians for that matter) "we have to do something" economic plan, my Bat Bullshit radar goes haywire. Just come out and say you will take from the productive and give to the inefficient and their cronies. That's all it is: Take and give away. Nothing genius or magical about it.

The worst thing anyone can do, I contend, is to force people to do things out of fear. Bailing out companies by convincing tax payers it's a good idea to save someone else's job for the greater good is an oft-repeated scare tactic passed off as truth.* Or to borrow an environmental angle, "Take the bus or the earth will perish!" That sorta thing. How can things be well thought out under such dire duress? How is it any different with spend and borrow theories set to save the economy? To me, it's more like throwing darts into the wind.

It's times like these I like to reduce things to a tiny denominator: Me. Suppose I was in debt. What would I do to get myself out of it? Well, there are any number of measures a free individual (are we really free?) could take. For instance, I could trim expenditures such as eating out or going to the local strip club. I could take on a second job. I would make an awesome Tim Horton's greeter. "Hi there! In the mood for seven ancient grains and spelt blueberry muffins? Alright, I deserved that. Maple doughnut it is!"

Whatever I decide, I would impose self-restraint and assume personal responsibility.

What I wouldn't do is take out a loan to cover another debt. Well, I would use a personal line of credit to pay off credit cards because of interest rate considerations. But I wouldn't try to "spend and borrow" my way out of my deficit rut. I wouldn't go out and borrow money from friends to splurge and maintain my lifestyle.

In other words, why would I leverage myself or go on margin to keep myself afloat? Sure, you can pull it off for a while I suppose. "Managing" debt this way is similar to how alchemists managed expectations in search of the Philosopher's Stone.

Of course, I could turn this the other way around. If someone I knew came to me to borrow cash I would examine the situation. What is the likelihood of getting paid back? Do I want to be a silent partner in the endeavor? Would I add strings to the deal? If I knew the business wouldn't fly I wouldn't lend the money. If I knew the person was a drug addict I wouldn't lend the cash but I would intervene by other means to help my friend. Ah, I would intervene! You caught me! Wait. I said I would intervene, not give cash. That would only perpetuate the problem.

I would have to assess and weigh the pros and cons, and implications and consequences of my actions. It could very well lead to the demise of a friend. It could mean I lose out on a business deal.

Whatever the scenario I have a responsibility to me and my family first.

From where I stand, governments tend to be foolish on how and who they give the money to. It's like giving cash to a coke head with the thinking they'll eventually sober up or will kill themselves if they don't get their fix. At some point the music has to be faced. So why in the world should the government behave differently?

The relationship between public figures and private executives is a tad too quaint for my taste. Neither giving corporations free reign and allowing government to expand is good for (remember, bring it down to the smallest denominator): Me and you. If you want to throw in democracy be my guest.

Of course, it's easier for the government to justify spending your cash in the name of staving off "catastrophic" scenarios. Your fears are quelled and the politicians get their votes. Nice and neat.

Too bad it's all bullshit.

So what are the probabilities of the "spend like mad and bail out" policy working? Let's just say I like the Washington National's odds of winning the World Series better. I'm considering using sports as an analogy to all this in another post.

It might make sense to most that "bailing out" is the only option, but one must ask one simple question: Is it?

Moreover, what happens if it doesn't work? Who is held accountable? )So far, Obama has a convenient scapegoat and alibi: Bush) Who is really benefiting? What if the premise employed to design these bailouts are flawed? What if nothing changes? What if inflation (or deflation) takes place? What are the mechanisms used to monitor if the spending schemes actually work? How do we know if changes take place because of natural marker forces or government intervention? What if leaders are feigning control? As one friend told me, "It's all an illusion. They (politicians and economists) know fuck all".

Yet, some people vehemently defend these policies. In doing so, they caution against exactly what no sane person would ever do with a personal household budget: borrow money to maintain an unsustainable lifestyle with money they can't or never intend to pay back. Nor would they ever be an accomplice, if they really cared, by handing cash over to a drug addict.

How does this help anyone?

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*Here in Canada we suffer from the same well-meaning but narrow thinking. We "have" to give to Bombardier to save jobs because the consequences of not doing so will be catastrophic. It won't be good for the economy, mortgages etc. Yet, no one bothers to recall two things: A) Bombardier is not a crucial player in the economy. It's just another company in a losing industry. B) Why is it my problem if someone else loses their job? Not to sound callous but my taxes should be for essentials like public health, security whatever. Not bailing out my neighbor. Especially considering if I'm in a business or a type of worker who would not have any of these luxuries if I lost my job. Who would bail out small businesses? Years ago, GM shut down their plant in St. Therese. Prior to this, politicians (and of course unions) painted evil doom and gloom scenarios for the loss of jobs. Guess what? The market and economy absorbed the workers. Unemployment (already structurally high in Quebec) pretty much stayed the same, if not improved in the years after.

Funny how that works.