Mountain of Debt

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Mountain of Debt

Postby Chris Fleming on Fri Jul 03, 2009 8:28 am

http://finance.yahoo.com/news/MOUNTAIN- ... et=&ccode=


Nice to see this sort of thing being talking about more and more openly in the media.
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Re: Mountain of Debt

Postby H2O on Fri Jul 03, 2009 8:49 am

It's been being talked about for a while, but it does seem that the general public is becoming aware. The solution is pretty obvious, it's just that people don't like the answer.

I'm a financial advisor by trade, so every day I talk to at least 3 or 4 people with debt problems. My advice basically boils down to the same thing with everyone. Get a budget, stop putting your money away into retirement and other investements and shore up your cash. I often tell people to pick up a second job as well. Deliver pizza, wait tables, get a paperroute, etc.

You need to bring in more and/or spend less. You have to create a surplus to service the debt while building up a cash reserve to prevent future debt.

It's no different for the government. Congress needs to raise taxes AND cut spending at the same time. The surplus needs to be divided between paying off the defecit and creating a federal 'cash reserve' to pull from as emergencies WILL occur.

Conservatives need to realize that the longer we put off raising taxes, the higher the tax rate will become by necesity, and the liberals need to realize that we simply cannot afford to do all of the things we would like to for the people of this country.

We're at a point where we all need to suck it up and do our part. That means paying a lot more taxes and getting a lot less for it. I don't like it either, but that's the reality.
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Re: Mountain of Debt

Postby Chris Fleming on Fri Jul 03, 2009 10:43 am

No politician is going to say it, but the government does need to cut spending, and WILL have to raise taxes in some way. Tricky thing that, especially on the latter, because there does come a point in which higher taxation makes the idea of actually working a hard sell. In any case, the government has these two options to deal with debt: print more money and keep pushing the problem forward as long as possible, which has been par for the course, or, raise taxes, as I just mentioned. There is a third option of actually paying its debts but we all know that this won't happen and probably can't even happen at this point, as the US needs to borrow to even "pay" the interest on its debt in the first place. Like the saying goes, if you're riding a tiger, you can't dismount.

What people don't get is this: we are so filled with the entitlement mentality that NOT being able to permanently retire and live off of some kind of annuity and social security is the destiny for most. Firstly, although we have been paying into the system for years, there are people who think that there is some account waiting for them when it is time. Wrong. That money has long since been taken from you and spent. Even companies who still have some kind of pension program do not do this and many are in the red as well, just like social security. The whole thing rests on perception and the problem being pushed forward. And for those who know how it works, that money taken from you today is going for today's recipient, the underlining assumption is that the system is sound and, like a pyramid scheme, will be there for you too one day.

Considering how there are at least a few trillion in 401K's, IRA's, etc, I wouldn't be surprised if the government seized these and absorbed them into the social security system. This would obviously be highly illegal, but in times of severe economic trouble, history shows that laws tend to be ignored. Getting paid back in "comparable" social security "benefits" would be what the government would do, probably after much of those accounts would have lost much of their value in the mean time anyway, much to the dismay of the people who did what they were told, invested in the market, and saved for their future.
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Re: Mountain of Debt

Postby Teazer on Fri Jul 03, 2009 1:07 pm

Chris Fleming wrote: No politician is going to say it, but the government does need to cut spending, and WILL have to raise taxes in some way.

i.e. fiscal conservatism. Sounds great to me.

the government has these two options to deal with debt: print more money and keep pushing the problem forward as long as possible, which has been par for the course,

While this happens to some extent, mostly the government borrows more money rather than prints. Otherwise there wouldn't be a deficit.

or, raise taxes, as I just mentioned.

and/or spend less.

There is a third option of actually paying its debts

That's just the result of spending less than they tax. It's not really a separate option.

but we all know that this won't happen and probably can't even happen at this point, as the US needs to borrow to even "pay" the interest on its debt in the first place.

It doesn't 'need' to, though the government might choose to do so. It's all a question of whether what representatives think they're spending on is more important than the cost of delaying the payment (ie extra interest).

NOT being able to permanently retire and live off of some kind of annuity and social security is the destiny for most.

quite likely. I'm certainly not planning on it.

there are people who think that there is some account waiting for them when it is time. Wrong. That money has long since been taken from you and spent.

social security is set up so current workers support current social security recipients. It has been that way since the program started and mostly works pretty well. A problem develops when a decreasing number of workers gets overwhelmed by an increasing number of retirees. The only solutions are some combination of cutting back on benefits/pushing back retirement age, combined with investing in education, infrastructure and technology to make workers more productive during the good years. Unfortunately the retirees all vote and will probably try to screw over the existing workers. It'll be interesting to see how well that works out.

Even companies who still have some kind of pension program do not do this and many are in the red as well,

Yeah, that's where there'll be a lot of problems. Companies end up reducing benefits or going through bankruptcy to avoid their obligations. The current system of ensuring they maintain enough value to payout to their recipients is pretty crappy.

the underlining assumption is that the system is sound and, like a pyramid scheme, will be there for you too one day.

It's not a pyramid scheme unless there is some process that ensures greater benefits as time goes on.

Considering how there are at least a few trillion in 401K's, IRA's, etc, I wouldn't be surprised if the government seized these and absorbed them into the social security system.

The fiscal side of the government can certainly do some crazy stuff when things get tight.
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Re: Mountain of Debt

Postby Chris Fleming on Sat Jul 04, 2009 2:02 pm

"i.e. fiscal conservatism. Sounds great to me."

And it would be great. But I don't think we're going to get there. What I was talking about in regards to our government cutting spending and raising taxes was that this sort of thing would be in RESPONSE to our massive debt. Our gov will soon realize that it can't spend more than it makes and just monetize the whole thing away. While that thought has been in vogue for a while now, it is wrong nonetheless. But, rather than taking responsibility, the gov will probably do its utmost to keep things as they are and hope for some kind of a miracle. Cutting spending would be great, but considering that it takes, what, a billion dollars a day (if you want to think of it that way) to run the government, doing so is like a drop in the bucket. Raising taxes and attempts at scaling back spending are but a symptom of a larger problem, i.e., debt.
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Re: Mountain of Debt

Postby Chanchu on Mon Jul 06, 2009 10:22 pm

California is fracked the hand outs can't seem to be be stopped...
IOU's being passed out to CA creditors- wonder if I will be able to do that at tax time...
rigghhhttttt.... :(
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