Promises and Secrets
A website for those not afraid to examine their beliefs, compare them to the real world, and make sure they fit.
Managing Debt
VIEWPOINT
How many of you figure that since you are far in debt, you should go borrow some more to get you out of debt?
FACT
Debt means you owe payment to a creditor
VIEWPOINT
What do you think?
BLUE VIEWPOINT
For those who raised your hand, this is not the column for you.
We realize that this discussion is more complicated than it appears on the surface. However, there are some logical considerations that must be supplied and, if you are unable to get past those, then you should not proceed. For example, let's take jobs.
Decisions at the start
A startup business or existing owner has some initial concerns. I am going to use the generic "he", though it may be either male or female. First, does he have enough work for just himself or does he need employees to help him? If he has more work than he can accomplish alone, he will need to hire. If he does not need employees to accomplish the work he has, he WILL NOT HIRE.
Now, let's say that the government, ever desirous to be helpful to the American economy, comes along to offer stimulus money to "get the economic ball rolling". They do not have the money in the coffers because the economy is slow and the tax revenues have been less than normal. So, they borrow (print) money, that they must eventually pay back.
Now flush with cash they obtained indirectly from the American people, they put out the word that they are sending checks to companies that agree to hire employees. They will agree to send enough money to maintain the payroll for additional employees for six months. After that, the company is on its own. Now the company has a "decision" to make. Should they take some of this money and hire an employee? If they do, will it help them grow their business? Would they hire this person if they did not have the extra money from the government?
A smart business person will make employment decisions based on the need for additional help based on the amount of work in house or immediately pending. If they have no work for employees, but hire anyway, they incur extra book-keeping expenses and are required to pay deductions for payroll, subject to fines if not done properly and in a timely manner. But, swallowing the story that they could be helping someone get a job, they decide to be helpful and hire someone.
Down the road
Six months later, the economy is still not going, and they still do not have the extra work. The stimulus was supposed to get the new employees to spend their money on necessities, thereby stimulating new busines to grow the economy. However, since the work was not there, the new business was merely transferring the tax money to an employee that was not needed. This new employee was likely doing one of two things: saving money in case he could no longer work when the six months was complete or buying a car since he was working and could afford the payments.
The employer's business has not grown to the point where he needs the employee that he must now pay, since the government will no longer send the payroll money. The new employee must be laid off and will likely collect unemployment compensation. This employee now will be unable to pay for the car he bought, ruining his credit if he does not sell it for enough to pay off the debt.
Different ways of doing things
So, where does this go? What would have happened if, at the beginning, the government had decided not to spend the money they don't have on jumpstarting businesses, but instead lowered taxes?
Did the new business owner borrow money to start a business in a poor economy?
How do you handle consolidation loans?
Disagree? Find an error? Contact us at glenjjr@gmail.com and give us your view.
YELLOW VIEWPOINT
Debt - Opposing View
Tell us your side.
