As the White House and Congress debate the value of multi-trillion dollar national debt for funding the economic stimulus and the federal budget while removing "toxic assets" from bank books to ignite fresh lending, there's a school of thought about a personal finance that merits our consideration as guiding principles for national finance.
I'm speaking specifically about the idea that we should avoid unsecured debt.
In personal finance, secured debt refers to any financial obligation backed by tangible property like a house or a car or precious gems. Unsecured debt refers to any financial obligation not backed by anything tangible, as with credit cards or student loans.
The theory is that secured debt prompts personal responsibility. Failing to make a car payment or mortgage payment could mean losing your car or your home, so you will do everything you can possibly do to make those payments in full and on time.
The theory is that unsecured debt prompts recklessness. Failing to make a credit card payment or student loan payment may increase your debt and damage your credit rating, which seems to many like remote and distant consequences, so there is scant pressure to make payments in full and on time.
On a national scale, the U.S. national debt is unsecured by anything tangible. President Franklin D. Roosevelt in 1933 and President Richard Nixon in 1971 effectively ended the gold standard backing U.S. currency. Since then, our money supply and national debts are backed by nothing more than an insubstantial promise, "the good faith and credit of the United States Government."
Consequently, when China and other investors commit billions and trillions of their capital to buy U.S. Treasury bonds and other investment instruments to support the operations of the U.S. Government, they are taking a tremendous risk by making these unsecured loans.
If the U.S. Government ever defaults on our national debts, our creditors will have no recourse. They cannot foreclose on the federal government and take possession of the Washington Monument or the Lincoln Memorial. If you buy a Treasury bond, you have no security beyond faith in your government.
Because the U.S. in now trillions of dollars in debt, unsecured debt, I'm profoundly concerned about the temptation for Congress and the White House to engage in reckless spending.
Please appreciate that my concern is nonpartisan. I'm definitely not siding with the reactionary Republicans or Blue Dog Democrats now hampering national recovery with ideological posturing that does not jibe with economic realities today.
In fact, I generally support proposals by the Obama administration to increase funding for education, green energy and other national priorities for long-term economic recovery. Further, I favor ending the Bush tax cuts for those making more than $250,000 a year while cutting taxes for the middle class.
However, as I said, I'm concerned that the stimulus and related spending for recovery is being financed by unsecured debt. I believe we need some skin in the game. At minimum, I think our national leaders should have some personal financial stake to make sure their debting is responsible.
For example, what if each member of the House and Senate must put up one quarter of their annual salary to help secure the expansion of national debts we will incur under the proposed Obama budget. Such pledges for tens of thousands of dollars would be token commitments compared to the billions and trillions involved, yet it certainly would help keep our legislators accountable, and it certainly would build confidence in our nation's economic recovery plans.
Additionally, if somehow I was granted the power to command our government with a snap of my fingers, I would require every member of Congress and every member of the Obama administration to read a simple 300-page book by Jerrold Mundis, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.
Now in its 27th printing, revised and updated, Mundis' book offer basic principles and techniques for individuals to turn around their personal spending and debting habits to enjoy lasting abundance. His book is based on the tenets of the Debtors Anonymous program for chronic debtors and under-earners. I'm suggesting these same methods could be profitably applied on a national basis.
As one example, Mundis recommends developing a monthly "spending plan" based on keeping accurate records of expenditures in previous months. Categories in the spending plan may include food, rent or mortgage, utilities, car maintenance, clothing, entertainment, charities, etc. Amounts are allocated to each category based on previous baseline spending in each category.
Spending records are kept daily during the month. When all the funds allocated for that category have been spent, such as for rental movies, then there is no more spending in that area until the next month. You can move unused funds from area to another, such as from clothing to food, but you cannot incur any debt beyond the spending plan. You cannot use a credit card to cover shortfalls.
The core principle is that we must live within our means. If I lack enough money to fully fund my spending plan, says Mundis, I need to either increase my income or reduce my spending. I must not debt. In fact, he encourages readers to cut up their credit cards and use debit cards instead.
Can you imagine what your life would be like if you became debt free? Can you imagine what our nation would be like if the U.S Government became debt free?
So, when I hear all this talk about the U.S. Government wanting to guarantee purchases of the banks' toxic assets, offering bargain deals that will potentially screw American taxpayers and put our nation further into debt, I think of Mundus and wonder if the direction being taken by both Democrats and Republicans may may be off course.
Rather than trying to get the economy moving again by re-initiating the cycle of unsecured debt that drove us into this mess, what if we resolve to shift gears as a nation find other ways to stimulate the economy beside debting?
What if we break our addiction to debt and learn to live within our means?
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Comments
i like the idea of holding the government accountable for its actions by using its pay as a security deposit on debt acrued. I also strongly agree that the spend now, pay later method is what has been taking our country down, leading to higher taxes to keep up with the interest being paid and lacking of well needed programs such as education. There are definitely better ways out of the "crisis" than to spend, spend, spend. And when the crisis is gone, we should pay back our dues first, then drop taxes to a comfortable level when we are debt free. The icing on the cake would be to prevent our government from ever spending beyond our budget ever again after this mess.
The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side.
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debt management plan
Spending within your means is of course a wise idea if you are spending your own money. No one in government is spending their own money so really ..... why bother holding down spending. Remember that the people in government are not randomly selected. They are in government jobs because spending other people's money appeals to them.
My solution is to reduce the government to national defense at the nation's borders. That is about it. No public education, no public roads, no wars half-way around the world. Who would you rather build cars for you and supply you with groceries and iPods and clothing ? Well, I would rather have the same people supply education , roads, police protection, health care , etc.
Gus
So your Idea "Commerse" is to spend it by using a credit card? U know nothing!
Why don't we just abolish the Federal Reserve and have congress coin our nation's money... like the Constitution recommends. Much of the United States debt is a product of the interest paid on loaning money from the Federal Reserve. This would allow our money to be backed by something and be interest free which would reduce the national debt. 100% of our Federal Income Tax (which is also unconstitutional but is another story) is spent to reduce the national debt. The problem is as our debt increases (mainly interest on loans from the Federal Reserve)our taxes (income tax mainly) will never cover the cost of the interest. What we are left with is a black whole of debt that is unexcapable.
all you adults are messed up you don't even have to worry about this stuff becuz its the people in high school that are gonna have to fix the goverments mistakes and pay ur debts in the long run and the only reason there is no bad language is becuz his sight blocks it. So feel lucky.
Actually, that is not entirely true. For one, this generation of students will not be able to make drastic changes to the economy because we simply are not old enough yet. And, I'm almost positive that you specifically will add no benefit to our economy or our nation.
If every American could just donate a few dollars our economy could get a little more out of debt. If we cut down on some spending and increase exports by creating more jobs, and pulling the troops out now eventually, we can get out of debt. Then our only concern would be staying out of debt. I am a high school student and I am worried for the future if nothing changes for the better. It's already horrible that people my age have to go through this debt when we did nothing to cause it. I just do not want to not be able to provide for a future family I may have. We need to change how we act now so my generation won't have to suffer
the government also needs to learn what to spend money on. instead of spending 1-20 mil dollars on making a new walking bridge or speeding cameras, why not try improving the school systems?
No offence guys but giveing our government money will not help us get out of debt we are $12,995,394,279,449 in debt my calculatons are that everyone in America would have to give the government 20% of their income every year for 10 years or more.Plus our government is depending on $4.09 billion every day from our debt money.everyone in america would be broke with helping the government get that kind of money.
Oh yeah I also forgot to say in my last post that we would get no nothing for giving then that mony we would need to then pay out more money to get the same kinds of return nucesitys we need and we already pay the government 30% of our income so we'd all be flat out broke
with draw from wars and take even a very small percentage of the wars cost would greatly help our schooling. now im still in school i am a sophomore, and i think it would be extremely beneficial if schools would start teaching more about personal finance and set financial goals than learning about history. people new to be educated about the way credit cards and all sources of debt work.
I thinks a very bad but If every American could just donate a few dollars our economy could get a little more out of debt.I am a high school student and I am worried for the future if nothing changes for the better. I just do not want to not be able to provide for a future family I may have.
Debt Free Seattle
The amount of debt the US has accumulated is crazy, mostly due to wars and cost to do war. Peace is the answer, but the war machine will beg to differ. More than half the budget goes to the military, way too much. Will that number change? Probably not. Burn all the empty houses so that insurance will cover costs to rebuild. But seriously, people have to think out side the box.Gas tax might help a bit, but the debt is so large, Obama has inherited an impossible task. The filthy rich are the only ones able to help and even they are woefully pathetic.
No more $40 million one-day parties for the president. That 40 mil could help out the whole Mississippi Gulf Coast's school system (dozens of schools!!!) They sometimes have to turn the A.C. off in the summer to save money. No more invading other coutries to loot their oil to make a few people rich; Cough cough, Cheney Bush. Downsize the dam military. I heard a screw once cost a million dollars in Kuwait.
Why should we have to shell out money to pay for the governments debt they are the ones that caused it they should fix it.
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qeeer
arrrrrrrrrrrrrrrrrrrrrrrrrrrrrgh iraq is awesome
I think you are right.Moorcroft Debt Recovery
I think this generation of students will not be able to make drastic changes to the economy because we simply are not old enough yet. And, I'm almost positive that you specifically will add no benefit to our economy or our nation.Moorcroft Debt Recovery
I suppose my comments will have no weight behind them, as I am not an American citizen, nor am I familiar with how a debt like this would accrue.
I have read several blogs like this, and of course whenever an article is printed in regards to the same, I read it.
I think that the first priority would be to pull the War funding and put it towards the debt. Rather than not funding the wars anymore, and spending it on something else. Just start putting it back in to the debt pool. I also agree with the comment you made when you mentioned they should all read financial/debt free educational books. It would greatly benefit your country.
It seems (from my distant view through the internet) that the lower and middle class seem to think "woe is me, I didn't make this mess they can get out of it alone", when in reality everyone whouls be stepping up and accepting this debt as their own and doing their part to help get out of it. Turning off lights, filling up your tires or better yet, getting rid of your vehicles (public transportation?).
There seem to be a lot of people who still think that what they do has no impact, when in reality nothings going to happen unless it is a collective effort by the U.S. citizens. Hasn't it been made clear by now, 6 years of insane debt accumulation, that the government can not do this alone and it will take a little determination from the working class?
Part 2:
I also feel like the U.S. government should really be putting a lot more funding into greener energy. Start putting up wind mills and solar pannel fields outside of major cities. Start using renewable energy that costs nothing to use. And only some overhead to get everything in place.
When President Obama was voted President everyone was excited, thumbs upping going greena nd getting out of debt. And now, years later after he's accumulated more debt for America everyone is mad at him and ready to kick him out and bring in a fresh president to clean up the mess. When in reality there isn't a hope in hell that one president will ever be able to clean up the mess that has been made. It takes a collective effort from the United States of America. Step up, save your country, and be proud. (not the fake pride you boast about to your kids and co-workers)...
ok this debt problem is far worse than any of the people on this page relize. Even if the goverment was to take 100% of are wages and turn in all the gold that this country which is 8500 tons which eqauls only 350 BILLION DOLLARS we could not even pay back the total us debt. We are actualy in debt 167 trillion dollars at the present moment (1/22/11) not the 14 trillion that the goverment leads every one to believe. We all so pay almost 4 trillion in intrest a year on are debt. ok here is break down
14 trillion National debt
3.5 trillion federal spending a YEAR
1.5 is the federal deficit per YEAR!!!
US total GDP is 14 trillion a YEAR
are gross debt to GDP IS 95 PERCENT!!!
Are total us debt is 55 TRILLION dollars and then you add 112 TRILLION dollars for unfunded liabilities such as SSI which is 14 trillion dollars and perscription drug liabilities which is 19 trillion dollars and then the big one is MEDICARE liabilities which is 77 Trillion dollars so this is where I get 112 Trillion dollars from
we as a country need to reform all of the liabilities and get rid of the Federal Reserve which we pay 6% intrest on any money that they print for us. Congress has the right to make are own money that we would not pay intrest on it and develop the tech for new energy this will keeps us on the same track as the most intovative country in modern history.
GIGGITY GIGGITY GOO!
By George-I believe Gus has got it right! Slam the door shut on all of the foreign aid give-a-ways, bribes to foreign dictators, drill for our own oil, force our manufactorers to make things at home, force Americans to stay at home, spend and bank at home, vacation at home, cut off immigration and citizenship to foreigners, stop hiring foreigners to do our work, return to the draft, layoff half of government workers and de-cerify government unions, abolish the Supreme court and federal district courts, decertify all un-american organizations such as the NAACP, ACLU etc, require English only, public office for American born only, get out of the U.N. and get the U.N. out of America. No income tax for part time workers and seniors working to suppliment their income. Make states downsize their governments. Put all public workers and office holders on one civil service system and set reasonable hourly rates of income. Cut out all but the five major holidays with pay. Stop the pork barrel spending immediately. A special prison in Alaska for public officials, congressmen, judges etc who violate the law and especially harsh punishment for corrupt officials. Overhaul the judicial system and no more endless appeals. Return to biblical principles in the court system (eye for an eye concept) and etc. There's a lot more but this is the general concept.
i think we should take over mexicao and start and new economy by creating enviromentla jobs. There is so much space in mexico that america can use it to test out new energy effecient ways and ideas. there are alot of colleges here that dont get big press over the new discoveries about energy and new fuel sources. Because there are so many companies making billions off what we have been using for decades , it would be impossible to convert everyone from gas running cars ect.
Ofcourse it would cost alot of money since it would mean war against the drug cartel in mexico but that could be funded by taxing the 12million and more illegal immigrant a certain ammount instead of wasting millions just to deport them over and over. They always keep trying to come back.
i think we should take over mexicao and start and new economy by creating enviromentla jobs. There is so much space in mexico that america can use it to test out new energy effecient ways and ideas. there are alot of colleges here that dont get big press over the new discoveries about energy and new fuel sources. Because there are so many companies making billions off what we have been using for decades , it would be impossible to convert everyone from gas running cars ect.
Ofcourse it would cost alot of money since it would mean war against the drug cartel in mexico but that could be funded by taxing the 12million and more illegal immigrant a certain ammount instead of wasting millions just to deport them over and over. They always keep trying to come back.
I have not read the book but I did figure out how to get out of debt almost the exact wording is what I have started about 2 months ago and plan to be debt free in April 2012. Total free of debt. I know this plan will work I have already seen my credit score go up from 706 to 733.
As Americans proud Americans we should take over our nation we the people are at fault because we are allowing the same people we voted into the government to mess this up. I only say it's our fault and instead of writing blogs about our concerns about our nations dept we the American people the people from the united states of america home of the free home of the brave should go to our government and have this fixed. This is our nation and a great one at that that is why people from around world want to come here for once let's do something instead of complaining actions speak louder than words. Don't you get tired of reading whos going to help how are we going to get out of dept what's going on im afraid well the answer is us we can prevent this for our children their children for our future. Think about it the answer is us, us the American people me you we that live in this great nation the united states of America. Think about it.................
first and foremost why cant the higher powers see outside of the box? what can america produce that other countries cant what is a renewable source that can make constand money? what can we do to help americans ? can we tax trades to other countries things like cigerettes>? why must we be limited to inside of the box thinking just printing money is killing our dollar! does any higher america potitical party analize the foriegn stock markets? come on now we are relying on these people to get us out of the stuggle! i wish i could have a meeting with the higher powers and develope a truth plan we all know that its not going to happen over night we have to look a the big picture atleast be able to come up with something that will cut the interested and 10% of the debt a year. within 11 years we are back ontop hell even 5% in 20 years. i mean a business (america which is a business not just a country) pray on its own poor and middle class to make the rich richer. thats what china is doing to us come on america wake the hell up and get your head out of your asses. develope something that is a renewable product to sell to china that they dont have to cut the defecit. if anyone the has political ties wants to contact me email me nortyman21484@yahoo.com
One reasonable consideration to address the issue of a deflated dollar and the inevitable prospect of fiat currency is to simply issue game tokens in lieu of currency. Game tokens provide fun and recreation and can at least be redeemed for some cool prizes that could be used in a trade/barter scenario if international trading becomes prohibitive.
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