Recently, the DOW experienced a rise of 108 points. Various headlines attempt to explain this surge, but today, we need to focus on a pressing concern: debt.
Individuals and nations are increasingly overwhelmed by debt. Spending more than you earn is a primary factor, as is the tendency to earn less than you spend. One potential solution to alleviate debt is boosting income—which for government entities typically translates to raising taxes.
However, history demonstrates a consistent pattern: as income rises, spending tends to increase as well, often at an even faster rate. Regardless of earnings, both individuals and nations seem to find ways to overspend.
While generating more income might seem like a viable answer to debt, it often just exacerbates the issue. Ultimately, the true solution lies in spending less than what you earn.
Yet, few people are inclined to cut back on their spending. Achieving this requires discipline, prudence, and sacrifice—qualities that many prefer to avoid in favor of the convenience of credit cards. Continue reading
As reported by Standard & Poor’s Ratings Service, California’s credit rating is currently at a “crossroads.” With the new fiscal year just a week away, the absence of a budget raises significant concerns. “If a budget is not adopted in time for the state to issue its revenue anticipation notes (RANs) before its cash runs low,” S&P cautioned, “the state’s basic operating liquidity can become inadequate.”
If you aren’t familiar with the political dynamics surrounding California’s budget, this may sound alarmingly severe. However, in this land of fruits and nuts, such crises are commonplace. During the budget crisis of 2009, the state even issued IOUs to government employees for several weeks to ensure payments to bondholders. Believe it or not, it really happened.
Surprisingly, the public seemed largely indifferent, except for those affected by the IOUs. Life carried on as usual. The sun continued to rise over the San Jacinto Mountains and set over San Pedro Bay. Monthly bills still arrived, and despite our aches from long working days, we shared laughs with friends, strolled with our spouses, and tucked our young son in at night with a kiss.
Reflecting on this, we realize there’s little we would have changed, even had Sacramento faced complete financial collapse. Continue reading
“Jove does not give all men their heart’s desire.” – Homer, The Iliad
The Measures Are Killing Us
Last week, after a few rounds of ouzo, the Greeks took to the streets of Athens. While attempting to surround Parliament, they faced riot police armed with clubs and tear gas, leading to violent clashes.
A substantial bailout is urgently needed to prevent Greece from defaulting on its debt. However, any bailout will come with strict austerity measures requiring substantial reform. Protesters have expressed their frustration, demanding assistance while resisting the associated costs. Reuters reported the scene:
“Around 5,000 protesters from the Communist group PAME marched into Athens’ central Syntagma square [on Saturday] — where demonstrations turned violent earlier this week — chanting ‘the measures are killing us!’”
Costas, a 22-year-old student camping in the square since the start of the month, declared, “We are not planning to leave unless they take back the measures.” Continue reading
Building wealth is a daunting task. On one hand, you must pay taxes on your earnings; on the other, inflation continually erodes your savings. With these two forces at play, one might wonder why even try?
Taxes and inflation are intricately linked, both stemming from government policies. Taxes are enforced and often unpopular, whereas inflation operates more subtly yet destructively.
Milton Friedman once stated, “Inflation is always and everywhere a monetary phenomenon.” Essentially, he implied that inflation results from an increase in the money supply in relation to the supply and demand for goods and services. Rising prices are not inflation; they are merely a symptom of an inflated monetary base.
The government drives inflation through the expansion of the money supply, allowing it to finance costs that would otherwise require direct taxation.
As John Maynard Keynes observed, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” Continue reading
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