The quickest way out of a recession is to boost consumer spending. Big government believers advocate increased government spending as a way to “prime the pump.”
Citizens and government both have three sources of spending money: income, savings and debt.
The United States and most of its citizens have spent their savings, maxed out their credit cards, and are looking at stagnant or falling income. 12.9% of Oregonians have no income.
Let’s talk sustainability, as in financial sustainability.
There’s only one way to be financially sustainable whether you are a government, corporation or individual: Spend less than you make and save or invest a portion of your income for the future. If you make more money, you plunk the extra income into savings, not a new luxury good. If you make less money you cut spending. Pretty simple to say, not always so simple to do.
The prosperity of the 00s was largely fueled by mortgage refinancing and home equity lines of credit. People converted their home equity, once considered a sacred asset, never to be touched, into RVs, vacations and plastic surgery. Once that equity was spent (or vaporized – 20% of homeowners now owe more than their home is worth) consumer spending fell.
The silver lining here may be that since so many people are up against the wall financially, and so many more are realizing just how precarious their debt financed existence is, we’ll have a renewed appreciation for thrift and personal savings that will translate to government.
Eventually we have to pay back everything we’ve borrowed. Every year hundreds of billions of dollars go to interest payments on the debt and hundreds of billions more (close to two trillion this year) of new debt (the budget deficit) is created. It’s akin to running up your credit card. Eventually you hit your limit and your creditors cut you off.
Eventually no one is going to want to buy United States debt. We can choose the date we stop borrowing money or it can be chosen for us. If the Chinese were to stop buying our debt we’d go into an economic tailspin that would make the great depression look like the 1980s.
I am not suggesting we hoard money in mattresses, live on rice and beans and do all our shopping at flea markets and garage sales, only that we, as individuals and as a nation, live within our means.
What a novel concept.
It’s not the fun solution, it’s not the sexy solution, but it is the sustainable solution — the only one.