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Debt Deal Reached
Global markets are on the rise in response to a deal between President Obama and congressional Republicans on the debt. The deal would cut more than $2 trillion from federal spending over a decade. However, most economists think this isn't enough and does not remove the threat that the nation's AAA credit rating could be downgraded.
This is very basic math ... so basic that when you're taught how to balance a checkbook in high school, they don't even teach it in Math class. It's a general life skill and our country is failing at life in general.
Yes, but when using your checkbook you take the value of the currency as a given. A state has (limited) control over the value of it's currency (by limiting or expanding the available sum of printed money), thereby it also has (again, limited) control over the value of it's own dept. Now you might say that playing with the value of the currency can have complex consequences, and that would be true. Still, macro economics work differently than micro economics.
"No plan under serious consideration cuts spending in the way you and I think about it. Instead, the cuts being discussed are illusory and are not cuts from current amounts being spent, but cuts in prospective spending increases. This is akin to a family saving $100,000 in expenses by deciding not to buy a Lamborghini and instead getting a fully loaded Mercedes when really their budget dictates that they need to stick with their perfectly serviceable Honda." http://www.ronpaul2012.net/2011/08/01/ron-paul-on-the-debt-ceiling-debate-just-freeze-the-budget/
Dallas Real Estate
I think giving up military bases could be a profitable adventure. I used to live in Kadena AFB in Japan (I was a military brat), and the bases take up like 10-20% of the island we were on IIRC. Lawns are unheard of off base, but yet many of us were housed in small homes with lawns. I'm willing to bet Japanese investors would go crazy over that land (so long as the US military hasn't massively polluted it; that's been known to happen).
SSC
So if you're trying to balance a budget, how in the hell do you justify spending way more money than you take in?
I'll take a crack at this.
If you evaluated private enterprise budgets the same way you did the federal budget, you'd see that it's quite common for even profitable [note 1] companies to lay out more cash than they take in, by issuing corporate bonds. If you step back and look at the actual financial effect of issuing a bond on a corporation, you'd see that what it does is allow the corporation to spend more cash than its operations can raise. Why would they want to do that? Because restricting their spending to what they take in also restricts their ability to grow.
If you are an engineer, you'll recognize this as an optimization problem. The corporation can always grow more by outlaying more cash, but its supply of cash is limited. So it obtains more cash by issuing securities to be paid out from future, expanded revenues. But there is a point where the interest burden on the debt assumed exceeds the amount of growth generated. That determines the point at which you stop borrowing. If businesses were deterministic (which they aren't), there'd be an equation of corporate value as a function of cash outlay that takes into account the present value of growth against interest costs.
Of course this is a gross simplification, of course, but the financial principle is the same. You manage your cash outlays and borrowing in such a way that (a) you maximize net growth while (b) being able to meet your current obligations.
I don't spend more money than I take in.
Didn't take a student loan, did you? Nor a loan for a house?
The problem with people and credit cards (or bad mortgages) isn't taking on debt per se, but taking on debt to obtain things of no long term value or dubious long term value. Let's take an eighteen year-old who wants to be an engineer. Would it make sense for him to work for ten or fifteen years at a low wage job so he could pay his way through college without borrowing? You'd be a fool to advise that, because the education would add so much to his value as an income generating concern that a loan at reasonable interest rates is a financial no-brainer.
So here's the takeaway lesson: don't worry about borrowing; worry about stupid and pointless spending. It's very easy to prove that the smart money doesn't think that the US has a borrowing problem, by looking at the credit rating of US Treasury securities. Up until now, that has been viewed as the safest possible investment, and ironically if our credit rating drops it will be *because* we aren't willing to borrow money to meet our current expenses, the way any well-run business would.
Of course, there is a psychological link between easy borrowing and stupid spending, but the problem is still stupid spending. Credit is buying money, and credit card interest is stupid spending because the interest rates are high.
note 1 : "profit" and "positive cash flow" are different things altogether, but as individuals our wealth is usually so insignificant that we can conflate them as a first approximation because we aren't that far, in financial terms, from living hand-to-mouth. The situation for a largish business is different. Companies might well borrow money and pay dividends in the same quarter, and it would raise no eyebrows.
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