Same Rant, Different Angle

Imagine that you know someone who has a 6 figure income. Let's say their total earnings was $150,000 in 2008. Not a bad living for sure. In fact, they should be living pretty well with that income. But let me add a few more facts and see if the picture changes.

Now consider that between home mortgage, car loans, credit cards and other personal loans, this person has a total debt of $750,000. In 2008, they spent $70,000 more than they earned. Not single dollar of principal was retired, but $25,000 was paid in interest during the year. The financial picture is not quite as good now, is it?

To finish the picture, this person has a declining income this year, but has increased their spending dramatically. They have applied for a loan to borrow another $500,000, which would bring their total debt to $1,250,000 on an income of less tan $150,000 per year.

How would you characterize this person? Irresponsible and foolish? Do they have an income or a spending problem? Could you think of any justification for this behavior?

You may have guessed that my fictitious person is really our federal government with income and debt made proportional to a typical family. The conclusion you and I reached about this person hold true for our elected representatives. They are irresponsible and foolish, and no excuse can be made for their behaviour. The United States does not have an income problem, we have a spending problem. We want everything, regardless of whether we can afford it.

The Cash for Clunkers program is the best recent example of our problem. We cannot afford these programs even though they are well-intentioned. Did you know the program has given over 50% of the dollars to foreign car manufacturers?

Many believe that those who have taken advantage of the program were in the new car market anyway. All that was done was to incent these buyers to buy now. When the program concludes, car sales will plummet to new lows.

Any idea what taking 750,000 cars out of the used car market will do to used car prices? Supply and demand principals indicate that reducing supply will increase demand and cost. Those of us who might have wanted to save money by purchasing a used car may pay an unexpected premium.

And then there is my favorite rant:

Let's say that you wanted to buy a new car and made a deal with the dealership. After trade in, you needed to pay an additional $20,000. But the finance company was only willing to loan you $15,500 dollars. Would you then ask your children to take out a loan for the difference of $4,500? I would guess that the answer is an enphatic no! So why are so many people doing just that?