Cowboy Wisdom for the Week

Friday, February 14, 2014
by Patrick Dorinson

In 1914 during the early days of silent movies, there was an extremely popular film serial called the “Perils of Pauline”. There were only 20 of them made and they were like the mini-series we see today on cable.

The films chronicled the adventures of the heroine who somehow managed to get into tight situations with all kinds of cutthroats and villains. At the end of each episode Pauline was in some kind of distress but you had to come back to the theater next week to find out what happened to her…and buy another ticket of course.

As I watched the debt limit debate I got to thinking that today our political leaders practice the Perils of Pauline politics. On critical issues they wait until the very last minute and then just like Pauline they pull back from the edge of the cliff to the great relief of the audience-the taxpayers.

Then it starts all over again.

Every few months over the last few years we have either had the threat of a government shutdown or defaulting on the national debt. And one time the threat was real as the government did shut down last October.

On the debt limit, Congress this week voted to increase it yet again.

Democrats would be more than happy to raise the debt limit to a gazillion dollars since they like spending other people’s money.

And the Republicans rail against the debt limit increase because they are desperate to regain their fiscal virtue after losing it in the Bush years.

But as Margaret Thatcher once said, “eventually you run out of other people’s money”. And getting back one’s fiscal virtue is not as easy as it seems.

With the latest debt limit deal it looks like we have come to the end of this series of cliffhangers and 11th hour handwringing at least until after the election.

But when it comes to the public debt neither side is playing it straight with the American people.

Let’s be adults and not kid ourselves.

The Founding Fathers went into debt to fight the war to achieve our independence.

And the United States of America has held public debt since the adoption of the Constitution on March 4, 1789.

Over the decades we have had surpluses and deficits. And only in the period from 1835 to 1836 have we had zero debt.

The debt limit has been raised under Presidents of both parties.

There is no need to keep score over whether it was raised more under Republicans or Democrats even though some shallow commentators think it’s relevant.

It isn’t.

And we as individuals have debts.

If there weren’t mortgages to buy a house how many regular folks could come up with a few hundred thousand to buy one?

Not many I would venture to say and not enough drive the housing industry and the consumer spending that goes with buying that house from furniture to electronics.

And speaking of consumer spending what would happen to the economy if you had to pay cash for a new car or you had to pay off your credit card in full every month?

The problem with the government debt is that servicing it costs more and more as economic growth has slowed and the ratio of GDP to debt now stands at 74% according to the Congressional Budget Office. That is the highest since World War Two.

But that debt was used for a pretty good purpose-defeating Nazi Germany and Imperial Japan and it fell quickly with the post-war economic boom.

And the imbalance in the debt to GDP ratio is growing and in a few years we will be paying even more to service our debt.

We also have exploding entitlement costs which when coupled with the debt service will someday consume the entire Federal budget.

And it will be here quicker than you think.

The problem is not taking on debt whether it is us as individuals or the government. It’s taking on debt you can’t afford and being unable to pay the note when it comes due.

And while an individual might have trouble paying their debts because they are short on cash, the government has no such problem.

The politicians just raise taxes and hand the bill to the people to pay for their profligacy.

 So here is your Cowboy Wisdom for the Week.

“Never take on too much debt. It doubles the weight on your horse and it puts someone else in charge of the reins.”

And some of the folks who are taking charge of the reins ain’t Americans and don’t necessarily have our best interests at heart.