Apr152019

Going Broke by Borrowing

 

by Lou Binninger

Those that run late paying bills are in financial trouble. However, debt-laden families can reduce their spending and look for new ways to earn money to meet their obligations in a timely fashion.

If families have incurred credit card debt (overspent) and cannot pay-off the card each month or have borrowed money for cars or projects, they are paying interest and therefore a premium to make purchases prior to being able to afford them. Some call this practice living above our means.

Since 2015, GOBankingRates has asked Americans how much they have in savings. Each year, the survey results have shown that a majority of adults don’t even have $1,000 in a savings account and are thus living paycheck to paycheck.

That’s bad news and bad thinking. If workers become unemployed for just a short time it will mean disaster.

My parents had one loan, a loan to purchase a home through the GI Bill following World War II. They were blue collar workers. No consumer debt was incurred.

 Cars were purchased with cash. They feared debt. If they didn’t have the money, nothing was purchased. Maybe the trauma of the Great Depression and WWII kept a rein on their wants.

My father extended some credit to customers at his business. He kept track on 3X5 cards. Watching him “do the books” and occasionally hearing a weary comment about unpaid receivables was a life lesson.

Wasting money, overspending and paying thousands of dollars in interest reduces wealth. Many owe far more than they earn and have in assets. Owing more than you are worth is considered being bankrupt.

For the wealthiest nation in the world, many families and government being in horrible financial shape is a tragedy. Often, through a change of course an individual or family can right the financial ship.

However, government does not have the will to change its ways. Government does not produce goods but takes money from the citizens via taxes, hundreds of them, to operate. And, a massive bureaucracy has an interest in keeping the status quo.

If enough taxes cannot be raised to satisfy the spending whims of politicians then borrowing funds to burden later generations is the strategy. Presuming that the future will be financially brighter is foolish and will lead to bankruptcy and ruin.

Borrowing makes a mismanaged government appear affordable. If borrowing was forbidden spending would come under much greater scrutiny. Nothing sharpens the mind as having to face the full cost of one’s choices with limited resources.

Borrowing creates a gross injustice burdening those too young to vote and the unborn. As environmentalists rightly argue that we should leave the earth in better shape than we found it, we are leaving a toxic financial future for our children.

Governments like Yuba County hide the fact that they are broke, being consistently unable to meet financial obligations with cash flow. In fact, it wasn’t until 2012 that the unfunded debt owed for employee pensions was mandated by state accounting standards (GASB #68) to be included in the books. Prior to 2012, millions in debt was hidden from the taxpayers per the politicians and union leadership.

Appeal Democrat writer Chris Kaufman noted on March 28, 2019 that Yuba County was to borrow $9 million from the Yuba County Water Agency to fund road repairs. Not a whimper was heard from citizens who feel impotent when it comes to stopping short-sighted politicians from plundering the county coffers.

This $9 million isn’t one of these short-term 12-month loans to pay down runaway pension debt. It has a 10-year payback with more than $1.1 million in interest according to Kaufman. So, if the $9 million for roads is wisely spent then taxpayers paid $10.1 million for $9 million in road work. Taxpayers lose $1.1 million of their hard-earned money as a penalty for bad management.

This is lousy stewardship no matter whether county supervisors created a sweet interest rate at the water agency or not. Taking 10-years to pay for a road is crazy, but crazy has become the norm for government. What will the condition of the repaired roads be in 10-years when the payments are complete? Do we borrow once again?

In 10-years the current supervisors and bureaucrats will be gone while leaving the debt burden for a future generation. Borrowing leads to more mismanagement, poor spending scrutiny and an expanding government bureaucracy.

 

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