ECONOMY'S BROKE, TIME TO FIX IT. ONE SMALL IDEA:
Guns don't kill, people do. Just like credit - and the ever-present availability of it until now - didn't do anyone wrong, we did wrong by abusing it. Just like bad drinking habits, we as consumers and as a nation, didn't know when to say when; and we must take responsibility for our fiscal behavior. But there is something to say for (gulp) regulation. Make guns too available and easy to acquire and that's not a good thing. Lowering the legal drinking age is likely not going to yield positive results either. Extension of revolving credit seems to have no boundaries though, and that has had dire results for households nationwide. Encouraging people to spend money they don't have and to save less to pay for it over time is bad financial policy. This has to change, but how do we change it?
Exactly how we got here is answered by your daily trip to the mailbox. Let me test my clairvoyant skills as to what was in your box today: postcard from auto dealership, bill, credit card solicitation, bill, valpak, bill, credit card solicitation, another credit card solicitation, etc. Okay, so you get the point. I don't know about you but there are usually at least two credit card solicitations daily in my mailbox. Just how many could I apply for and how many would approve me? A few? All of 'em?? I wonder just how many a person could be approved for until the credit companies would finally shut off the valve?
Credit card companies and banks that issue cards have a for-profit goal in mind when issuing all those solicitations. They don't regulate each other and don't know about each other's solicitations. Exactly how much credit a person can be extended is a mystery, but one thing is for sure - everyone and anyone with nearly any credit rating can obtain some credit. So how do you limit instances of over-extention leading to potential abuse? Here's one idea:
What if every person was designated a credit threshold based on their capacity to pay first and foremost. This threshold would be, say, a percentage of your annual income. In other words, the metric would be the ratio of revolving credit to income. Lets consider a revolving credit threshold of 15%. If you make $50,000 per year, your persoal revolving credit threshold would be $7,500. Considering that a $7,500 credit balance would carry monthly payments in the neighborhood of $250-$400 depending on the rate & terms, this would seem to make sense; given that same person will also likely have rent/mortgage, car payment, utilities, etc. Certainly this is a very hypothetical scenario, but one that lends thought to the idea. Remember we are talking about revolving debt which is only credit cards or unsecured debt; NOT auto loans, student loans, mortgages, etc; although those items could be considered for the same treatment...
If you advocate a flat income tax or flat sales tax, which seemingly most conservatives and/or republicans seem to support, then why not a flat revolving credit threshold for everyone? Is it a perfect scenario? Probably not. But would it prevent the over-extension of credit to those without the true capacity to repay? Most of the time, yes. And over-extension of credit (and the abuse of it) for the past several years has proven to have been a silent epidemic - one that went unnoticed and without consequence - until now.
Thursday, November 13, 2008
Tuesday, November 04, 2008
THE TIMES, THEY ARE A-CHANGIN'...
Obama-rama swept the nation and we have a new President. So republicans & conservatives of the world, unite and embrace the impending "change". I like change, personally. Those new state quarters are really fun to collect and the new nickel looks sharp. Oh yeah, wrong kind of change. Well, the change (I shudder to say this) PRESIDENT OBAMA (painful) promises to bring is less tangible and perhaps of less real value than the jar full of change I have sitting on my desk. I trust in that change much more than I do Obama's.
I said it in an earlier post and I'll say it again - the scale and scope of change Obama is promising will quietly never happen. Change rhetoric is used in every election. Didn't W promise positive change? Lots of things went wrong in his presidency and he was faced with some unusual challenges and circumstances; but the net effect is we are not better off than in 2000 or 2004. And why not? Sure, Iraq is a problem. The economy is a problem. The deficit and debt are a problem. Did Bush mastermind these problems? Was this his intended result? Of course not. Stuff happens while you're President. Some of it you can control and some you can't. Just the nature of that job. Bush made mistakes he could have avoided and encountered stumbling blocks he could not. For all the change he promises, Obama better HOPE (there's that word again) and pray (if he does that sort of thing) that he doesn't encounter the kinds of gut-wrenching issues and challenges that President Bush has these past 8 years.
Then there's Congress. In order for all this "change" to happen, folks in the house and senate will have to bite on it. And one of three things happens when President Obama takes office:
1) He is hailed as the Augustus of our age and rules triumphantly with the unyielding support of the legislature thereby resulting in sweeping change. Perhaps a democratic congress will anoint him as such. If this happens, change is more likely; but I think it's long odds...
OR
2) He is afforded no more or less carte blanche than Mr. Bush and has to fight hard for his ideals to become bills and may have to engage in some good 'ol Washington dirty back-scratching to get some of them passed (likely), making him no better a president than the others - including W.
OR
3) He is given the cold shoulder from veteran politicos in congress. These guys have big egos after all. I can hear their thoughts now: "Who does this freshman senator think he is marching all the way to the 'house and demanding I fall into sync with all his rhetoric??" Resistance will happen despite what is, right now anyway, overwhelming support from Capitol Hill; (also likely).
So Pres Obama's "change" agenda will come to a screeching halt his first year or so in office simply because of the way the Washington machine works. I do believe some changes will indeed happen over the next 4 years: The US will become more isolationist than we have since FDR. Obama will embrace global economic policy and ignore the faltering domestic economy. His answers will always come by and through embracing globality in every sense - economics, immigration, etc. He may cut the deficit and reduce the debt but only if the broader economy naturally and cyclically improves (as it did in the Clinton era). By the way, what can the President directly do to influence the economy? Fiscal policy, i.e. taxation. He can raise or lower taxes, that's it. Obama will choose to raise them during tough economic times. Good fiscal policy there, right out of Hoover's playbook. That didn't turn out so well for Hoover, or anyone for that matter.
In summary, I fear that Obama has oversold himself. He is an idealist in every sense of the word. Hope. Change. Ideals work in universities, think tanks, and Silicon Valley start ups where ideals can be tossed about and may or may not become reality with little or no consequence. Pitching lofty ideals of sweeping changes to the American public is a dangerous game most politicians play, but Obama is playing to reckless abandon with his hollow rhetoric. He is inspiring, charismatic, and a natural leader. He is quite frankly, Presidential. But so was Kennedy. And while Kennedy is revered in history, it is not because of what he did; but rather who he was and how he died. Obama is revered for the idea of him - a person that promises change, and we, the public, are voting with the belief and HOPE that he can actually deliver. Will he deliver? We have the next 4 years to find out. My bet is that we all will be at least just a little disappointed...
Obama-rama swept the nation and we have a new President. So republicans & conservatives of the world, unite and embrace the impending "change". I like change, personally. Those new state quarters are really fun to collect and the new nickel looks sharp. Oh yeah, wrong kind of change. Well, the change (I shudder to say this) PRESIDENT OBAMA (painful) promises to bring is less tangible and perhaps of less real value than the jar full of change I have sitting on my desk. I trust in that change much more than I do Obama's.
I said it in an earlier post and I'll say it again - the scale and scope of change Obama is promising will quietly never happen. Change rhetoric is used in every election. Didn't W promise positive change? Lots of things went wrong in his presidency and he was faced with some unusual challenges and circumstances; but the net effect is we are not better off than in 2000 or 2004. And why not? Sure, Iraq is a problem. The economy is a problem. The deficit and debt are a problem. Did Bush mastermind these problems? Was this his intended result? Of course not. Stuff happens while you're President. Some of it you can control and some you can't. Just the nature of that job. Bush made mistakes he could have avoided and encountered stumbling blocks he could not. For all the change he promises, Obama better HOPE (there's that word again) and pray (if he does that sort of thing) that he doesn't encounter the kinds of gut-wrenching issues and challenges that President Bush has these past 8 years.
Then there's Congress. In order for all this "change" to happen, folks in the house and senate will have to bite on it. And one of three things happens when President Obama takes office:
1) He is hailed as the Augustus of our age and rules triumphantly with the unyielding support of the legislature thereby resulting in sweeping change. Perhaps a democratic congress will anoint him as such. If this happens, change is more likely; but I think it's long odds...
OR
2) He is afforded no more or less carte blanche than Mr. Bush and has to fight hard for his ideals to become bills and may have to engage in some good 'ol Washington dirty back-scratching to get some of them passed (likely), making him no better a president than the others - including W.
OR
3) He is given the cold shoulder from veteran politicos in congress. These guys have big egos after all. I can hear their thoughts now: "Who does this freshman senator think he is marching all the way to the 'house and demanding I fall into sync with all his rhetoric??" Resistance will happen despite what is, right now anyway, overwhelming support from Capitol Hill; (also likely).
So Pres Obama's "change" agenda will come to a screeching halt his first year or so in office simply because of the way the Washington machine works. I do believe some changes will indeed happen over the next 4 years: The US will become more isolationist than we have since FDR. Obama will embrace global economic policy and ignore the faltering domestic economy. His answers will always come by and through embracing globality in every sense - economics, immigration, etc. He may cut the deficit and reduce the debt but only if the broader economy naturally and cyclically improves (as it did in the Clinton era). By the way, what can the President directly do to influence the economy? Fiscal policy, i.e. taxation. He can raise or lower taxes, that's it. Obama will choose to raise them during tough economic times. Good fiscal policy there, right out of Hoover's playbook. That didn't turn out so well for Hoover, or anyone for that matter.
In summary, I fear that Obama has oversold himself. He is an idealist in every sense of the word. Hope. Change. Ideals work in universities, think tanks, and Silicon Valley start ups where ideals can be tossed about and may or may not become reality with little or no consequence. Pitching lofty ideals of sweeping changes to the American public is a dangerous game most politicians play, but Obama is playing to reckless abandon with his hollow rhetoric. He is inspiring, charismatic, and a natural leader. He is quite frankly, Presidential. But so was Kennedy. And while Kennedy is revered in history, it is not because of what he did; but rather who he was and how he died. Obama is revered for the idea of him - a person that promises change, and we, the public, are voting with the belief and HOPE that he can actually deliver. Will he deliver? We have the next 4 years to find out. My bet is that we all will be at least just a little disappointed...
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