Wednesday, October 2, 2013

Borrower Blames Others - Default Near

Let's make one thing clear; what places a debtor at risk of default is excessive and irresponsible borrowing. After borrowing runs out of control, almost anything can trigger a default. Do you think that Japan, Korea, Singapore or China are at risk of defaulting?
They would first have to borrow more than the cash they hold for this to be the case. But this isn't so, no matter how crazy their political infighting may get. It is a case of living within one's means.
Picture of Obama speaking with Boehner
Obama blames Boehner
Picture a college student who just received her first credit card. She then charges everything under the sky as if the card held some sort of free money. Without sufficient income for even the minimum payment, she asks her parents for help. She is at risk of default. They then take the credit card away. Next, she blames them for not being able to pay the card. Does this make sense? So what if the parents approved the credit card? Being ultimately responsible for their daughter, should they allow more spending or should they remove the card? The answer is clear: remove the card. Yes, the student will be embarrassed. I guess that she will learn the lesson. Alternatively, she can just get a job. Likewise, the US government can get a j.... Wait! The US government can't earn any money. It must either borrow it or confiscate it through taxation. Since borrowing is at the heart of the problem, then the only viable way to save face is to charge taxes to all citizens. But then again, maybe the best thing is to just spend less. That is better than taxing everyone, including the poor.
We can try to blame anyone for a US default, but the problem is rather at the spending side.

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