Comments on: The personal-finance metaphor A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: strawman Fri, 22 Jul 2011 20:20:50 +0000 @Curmudgeon – I might not be reading your question right, so apologies if this is off the mark. But to a first approximation, no. American debt is dollar-denominated, so the debt burden isn’t affected by exchange rate fluctuations.

By: strawman Fri, 22 Jul 2011 20:07:07 +0000 Equityval,

As I said, “That’s not to say that government isn’t “limited”. But it’s just not limited in the same way households are limited.” I did not say, “Governments can borrow whatever they want, at whatever rates they want, in perpetuity” which seems to be the point your arguing against.

Yes, Italy is in a bad spot, but the situation isn’t really comparable – the Italian debt-to-GDP ratio is pegging 120%. Sure, they’re running a primary surplus, but when you have debt at that scale you’re always going to be pretty vunerable to interest rate swings. More so when you don’t control your own currency.

But beside that, yes. Italy is an example of a nation that struggles with its debt burden. I’m not quite sure how this relates to my original point, which is that even the simplest comparisons between households and governments still result in false metaphors.

By: hsvkitty Thu, 21 Jul 2011 23:24:00 +0000 Well of course, klhoughton, but it is only sustainable until it isn’t. Maybe the Government should be more transparent and not lie and pretend that the recession is over when nothing has been done about the cause of it or the debt incurred by it.

It is not like the typical middle income earner and the jobless are not aware that the recession is NOT over for them. Trying to live indefinitely on credit and spending with no constraints or budget, with no income coming in, is not good for a homeowner or a government.

By: Equityval Thu, 21 Jul 2011 21:51:15 +0000 Strawman,
That’s what Italy believed until a few weeks ago. Markets are funny things, one day they can wake up and decide that your borrowing isn’t going to provide positive GDP growth any more, and then you are faced with the choice between truly ugly austerity or radical devaluation and all the ills that come with it. Some of us don’t want to play in the minefield, we’d rather stop when we get to the fence. You guys think you know better. 800 years of history says you don’t. Go read This Time is Different.

By: MattF Thu, 21 Jul 2011 20:32:54 +0000 Look– the reality is that with politicians like Bachmann representing one of the two major parties, treasury securities really aren’t all that risk-free. There’s a price to be paid for lunacy, and the market, as ever, will determine what that price is.

By: chappy8 Thu, 21 Jul 2011 20:01:30 +0000 Hmm. Bottom line this. Which is worse? 1/ eskewing liquidity and needlessly driving down a credit rating (or perception of default) or 2/ not fixing longer term spending. I say option 1 is much worse because it can impact the structure of spending that needs to be affected in 2. Anyway, in the battle of which-terrible-analogy-is-less-bad I think the analalgy of not paying immediate debts wins.

By: rmbjspd Thu, 21 Jul 2011 19:42:25 +0000 to be fair, i think that charles grodin could figure this thing out pretty quickly.

By: klhoughton Thu, 21 Jul 2011 18:25:14 +0000 Uh, if governments should be run like households, doesn’t that mean that they should (as households do) take advantage of their Lines of Credit when needed?

When I run out of space on a credit line, I ask for more. If the market is willing to give it to me, I use it until I can pay some of it back. This allows things such as car purchases, mortgages, education expenses, and medical bills to be paid.

At <3.00% for ten years, the market is clearly willing to give credit. USE IT!

By: hsvkitty Thu, 21 Jul 2011 18:22:03 +0000 aquacalc, right on.

Felix,the only reason why the economy didn’t fail yet was the big and markets banks were being propped up atificailly. Dropping more money into Corporations who are hoarding and not hiring is “doing something” but not the right thing. They will hoard and not hire as they have been doing.

The only way a Government should be “giving away” money is to those companies who are expanding and hiring only in America and green companies who show innovation.

Why are too big to fail banks still growing and still having roosigners sign their fraudulent documents? Why are banks allowed to shape financial regulations through lobbying for less regulation, when in reality Glass-Steagall needs to be put back in place? Because failure is rewarded… taxpayers lose.

Why are the AGs and the SEC not on the banks and servicers for ripping off homeowners, HAMP, the IRS and investors? Why are they being given immunity even in the face of continued fraudulence? Because failure is rewarded… taxpayers lose.

Why are the fake wars still continuing? Why is oil still a problem after 1970 and why aren’t there viable fuel alternatives yet? Because failure is rewarded… taxpayers lose.

Why are their loopholes in taxes like GE getting money back while not paying taxes, hiring overseas, and Jeffrey Immelt, the chief executive of General Electric, becoming head of the jobs council when his idea of jobs is to get them as cheaply and efficiently and to pay for as few as possible? Because failure is rewarded. Taxpayers lose.

The debt levels are unsustainable, and the artificial propping from the fed is barely holding up the house of cards.

Perhaps the Government and a household are very similar. They don’t spend within their limits, they spend any surplus, they spend too much on the frivolous rather than the practical and tighten in the wrong order as well, they have no idea how to budget, they are both spending the taxpayers money (nut at least the taxpayer is sopending his own money unwisely) everything is a financial crisis as they are too much in debt and lastly, do often do not fix the problems that made their debt crisis. (see a little of that long list above)

By: Curmudgeon Thu, 21 Jul 2011 17:42:05 +0000 @strawman, that was a good explanation. Are exchange rates another consideration? I remember (a decade ago?) when the Euro was at parity or even below the value of the dollar. Today we seem to accept a range of 1.3:1 or 1.4:1 as an appropriate USD:Euro ratio. That seems to indicate to this feeble mind that we’ve grown poorer relative to the EU (especially assuming that our incomes haven’t kept pace).

I believe that Felix had noted in a post a few weeks ago that we really don’t notice that unless we travel overseas, and perhaps also with the price of oil. But is that also in some way a function of increased spending and debt?