Friday, February 22, 2013

What's wrong with the sequester?

Print Friendly and PDF With all the budget stories that have been out in the news media recently, I have tried to focus on the issue as simply as possible: income vs outgo.  The US government has, in simplest terms, been letting the outgo vastly exceed its income, borrowing what it needs to balance its budget. In essence that achieves the goal of postponing actual payment of its costs, and adding interest on top of it.

Just imagine the typical homeowner deciding that they can only pay a portion of their weekly grocery bill, and borrow to pay the balance.  The next week he would have a debt, so that the new weekly costs would include the new groceries, interest on what was borrowed, and hopefully at least a tad of a payment on the debt that had been incurred.  Should income that week have risen, that option might be survivable. Otherwise, the new homeowner will have to borrow more to pay the shortfall, increasing the debt, and thereby be in need of more money to cover larger debt costs, plus the next week's grocery bill. 

When would this process end? Only when one of three things occurred: the homeowner finds a way to earn more money, enough to pay off the debt and cover the grocery costs. An alternative is to cut the grocery costs back to a level that can be covered in light of limited income and the need to pay off the debt. A third alternative involves a combination of increased income along with a cut in grocery spending.

That's it. No other options, at least of the legal sort.

In essence, that's what federal sequestration would do: cut the government's costs while hopefully adding some extra income. It has to happen. If it doesn't, the US follows the homeowner into financial death.

Now imagine the homeowner making a conscious decision that at a certain date, if he cannot figure out what to cut or how to get money, he will be forced to cut 10% of everything and do something to get a raise or a new job or a second job. No questions. Has to.

That's where we are at. Our homeowner (Congress) could not come up with a plan to meet its needs, so now a sequester plan will kick in: cut spending, increase revenues.

Seeing how our Congress comes to its decisions (or, should I say, how it doesn't come to its decisions), at least sequester will be a step getting back on sounder financial ground.

As a last word, I will add that I, as a homeowner, spend a lot of time dealing with how I will spend the money I do have coming in. I don't spend much time at all dealing with how to spend money I haven't got. (Car loans and mortgages are exceptions, of course. Their payments are, however, a solid part of my "grocery bill.")

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