Archive for February, 2014

DEFICIT v. DEBT

February 16, 2014

A few nights ago, I had C-SPAN on for background while I was concentrating on something else. The discussion on the floor of the House was about raising the debt ceiling. I got tennis neck from whipping my head around when I heard one of the House members, a Democrat, (I apologize, I did not get his name) say that raising the debt ceiling will not add to the deficit.

Of course raising the debt ceiling won’t have a negative affect on the deficit. That statement definitely got my attention. The inverse is true, but not the statement he made.

I didn’t know if it was a legitimate mistake or if he really thought he was making a remarkable point. If the former is true, he needs to take Econ. 101 before he makes an idiot of himself again. If the latter was his intent, it should offend every person who does understand the relationship between debt and deficit. He obviously believes the rest of us should wear pointy little hats with DUNCE written across the front.

Just as my senses returned, another representative was given the opportunity to speak. I’ll be damned if he didn’t repeat the very same drivel. I then realized this was a talking point written and distributed by someone thinking he or she had all the intelligence and the rest of us had none.

Many people who are not familiar with the terms may have the two terms muddled. Certainly, statements like the one above will do that to an ordinary mind. The differences are simple, however.

Deficit is the negative difference between income and expenditures. E.g. Your income is $100 and you spend $110. Debt, on the other hand, is the result of overspending your income or the accumulation of deficit spending. E.g. If you pay the $100 you have and defer payment on the $10, you have a debt of $10. If you do that two months in a row, you have a debt of $20 plus interest on the first $10.

Another example: You have a credit card with a $10,000 spending limit. Your charges to date are $9,500. That is your debt. The interest on the debt is 18%. If you make the minimum payment required each month, you pay only the interest on the debt and 1% of the principal (aka the amount owing, balance, debt). Your payment this month is $237.50. Of that payment, the interest is $142.50 and the debt reduction is $95.

Now you want to buy a 60” H.D. flat screen TV. The cost of that toy is $2,500. You don’t have the cash to pay for it and you don’t have enough credit left to buy it so you call Bank of America and ask for a credit increase (you want your debt ceiling raised). Because your history shows that you regularly make the minimum required payment, BofA grants your request and you can make that purchase.

With that purchase, you just increased your deficit spending and your debt by $2,500 because you could not afford it.

CONGRATULATIONS AMERICA! The duly elected idiots in Congress granted themselves a $512 billion debt ceiling raise last week so they can continue to spend beyond your means. This move will allow the president a few more multi-million dollar vacations at your expense before he leaves office and more distribution of your wealth to Democratic donors and voters. It may mean a small raise in your taxes, but that’s okay because you are a wealthy, greedy and productive member of society. You need to share with those people who have less because the “government” doesn’t provide them with enough.

Advertisements

MAGICAL MYSTERY TOUR

February 13, 2014

The Magical Mystery Tour continues to fascinate me. Unemployment numbers continue to drop while the unemployment and Welfare roles continue to expand. According to Bureau of Labor Statistics, the numbers recently took another downturn (positive measure) to 6.6% from 6.7%. Unemployment also fell just before the 2012 election. That happenstance along with the video that sparked the Benghazi massacre helped the president’s re-election campaign. It was like the Beatles Magical Mystery Tour. If you choose to believe, “They’re coming to take you away…”

Being an inquisitive guy, I have to look into things like this. I can’t simply accept what others want me to believe. With the unemployment numbers in particular, there is cause for skepticism. Let’s look at how this may have happened.

In this example I’ll use a population of 1,000 able bodied potential workers. Let’s say that 934of them enjoy full-time employment and a regular paycheck. That is 93.4% employment. Conversely, that is 6.6% unemployment. Right now, however, the number of unemployed is considerably higher.

Conveniently, the BLS drops the potential workers who are now beat down and discouraged by the fact that they cannot get a job in their field or any other. Many of those same people have applied for jobs that are well below their skill, knowledge, education or ability levels. Engineers can’t get work in manufacturing, sales, retail or burger flipping because employers don’t like turnover. They are afraid that an engineer will jump ship as soon as a job comes along in his or her field and constantly training new employees is unproductive.

Out-of-work pilots, engineers, sales managers, production supervisors and the like eventually tire of hearing “I cannot hire you because you’re overqualified for the position”. Most will downplay their education and former positions to accommodate the needs of a potential employer. When they still cannot find a job they abandon the fight, accept unemployment insurance and / or Welfare for subsistence and adjust their lifestyle to accommodate the lack of income.

Because these potential employees gave up the fight, the BLS no longer counts them. They are still unemployed, just not counted. The BLS buries the actual figure so deep that I cannot find it. You know that your neighbor two houses down is in foreclosure because he or she has been out of work for the past nine months, thirteen months or two years. You know that your uncle Fred cannot find work and moved in with his kids. You know your own kids have given up the fight and are still living with you, or living with you again.

You also know that your buddy Jack now works two part-time jobs attempting to make ends meet. Part-time, full-time, the BLS doesn’t account for that. To the BLS, a job is a job and two fifteen hour jobs equals two jobs for the purpose of their statistics. Two jobs at fifteen hours each rather than one at forty hours brings the total number of man-hours worked down by 25%. That doesn’t count either. So, for our project let us use what I believe are realistic comparative numbers.

Using the 1,000 eligible workers, let’s say that the Bureau of Labor Statistics no longer counts 250. That 250, plus the 66 unemployed, that they do count is 316 people who are not working. That is an honest 31.6% (316/1000=.316) unemployment rate. That is almost 1/3 of potential American workers who are idle, either by choice or circumstance. It doesn’t bode well for a robust economy.

Drop a tab and take the Magical Mystery Tour of government manipulation statistics.