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Tuesday, July 26, 2011

Recent Issues of Annoyance

#1 Issue of Annoyance...
The U.S. government isn't going to default if the debt ceiling isn't raised by August 2. Using the word "default" is misleading and amounts to nothing more than fear mongering. In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract. Uncle Sam brings in plenty of cash flow to pay interest and principle on the debt (along with entitlement payments to Seniors) so therefore we will avoid a technical default.

I hate it when politicians use scary words like "default" to strike fear in the hearts of citizens. It reminds me of Bush scaring us with WMDs and we all know how that turned out. If we don't raise the debt ceiling there is a good chance the U.S. will lose its AAA rating and interest rates will increase, but not "skyrocket" (again...fear mongering). AA rated governments still pay low interest rates. Additionally, I hold out hope that Washington can fix the federal government's spending problems and earn back our AAA rating within 24-48 months however, doing so will require an ideological change about the federal government's role in American society.

#2 Issue of Annoyance...
The assumption that the U.S. government deserves a AAA credit rating. In my opinion an entity that has trillions upon trillions in unfunded liabilities, has not passed a budget for over two years, has not shown it can balance it's budget during the next 10 years, and relies on its struggling economy and struggling citizens to service >$14.5 trillion in federal debt and an additional $3 trillion of state and local government debt...anyway, I don't think the U.S. government deserves a AAA credit rating. It appears some of the credit rating committees are beginning to think this as well, even if our elected officials raise the debt limit.

#3 Issue of Annoyance...
People who think we need to raise taxes to fix the deficit problem. I already pay enough in taxes! Jesus between the feds and state, plus sales tax, I spend 38-40% of my income on taxes! Here is a clear analysis by Daniel Mitchell of Cato that shows spending, not taxes, is the real problem with our nagging deficits. The economy isn't going to grow, and jobs aren't going to be created, if the government keeps taking 38-40% of our income and spending it on low return (low at best...I'd argue that most government spending produces negative IRRs) "investments".

What annoys you?

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