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Another Debt-Limit Fight is on the Horizon: Another Chance for the US to Make the Right Decision

In mid-October, Treasury Secretary Lew estimates the United States Federal Government will have reached its’ borrowing limit. He’s asking for Congress to deal with this problem. The President is asking for a single vote to approve the debt limit increase without any strings attached.

In the last five years, I’ve turned around two very different businesses. In both cases, these businesses were losing money and needed to be made profitable. In both cases, I didn’t seek additional borrowing capacity because you can’t borrow your way to prosperity and borrowing only leads to more servitude to the lenders. Yet this is precisely what our government is doing. They are borrowing money at an astounding rate – nearly $85B every month. They have been doing this since Obama introduced his first budget and got it passed on a party-line vote in both houses.

We are poorly stewarding our children and grandchildren’s wealth. We are spending it on ourselves. We want all these services from the government, but we don’t want to pay for them. What we are doing is immoral. The Republicans are right to tie real spending cuts to the raising of the debt limit. The President is wrong to ask for increased debt without any concern about the mounting debt we are amassing. Defunding ObamaCare is not an issue that Republicans should be willing to trade a government shutdown over, but the debt ceiling limit is, IMHO. Debt can literally kill any household, organization, business and even a country. Our debt, it seems to me, represents an increasing national security problem. If we use up all our credit to pay for social programs, we won’t have the ability to borrow during times of war to pay for the spike in spending a war costs. Indeed, we have seen this to be true in the last 10 years as our ability to borrow to finance two wars did not curtail our social spending. At some point, investors will no longer believe the dollar (via Treasury notes) is worth investing in or they will question the government’s ability to pay back its’ debt and curtail their lending. Consider this extended quote from White House Burning (emphasis mine):

“Although the United States survived the War of 1812, the accompanying fiscal crisis proved the importance of government borrowing and of the infrastructure necessary to raise large sums quickly. By the end of the war, the national debt stood at more than $ 120 million, a record in nominal terms but probably only about 15 percent of GDP. But, as Hamilton had realized, some amount of debt could be consistent with both political stability and economic prosperity.

A given debt level is “sustainable” if lenders think that the government will be able to make required principal and interest payments in the future. In this context, it is the scale of the debt relative to the size of the economy that matters, because a larger economy means a bigger tax base from which government revenues can be drawn. If the economy grows faster than the debt increases— because growth is high, interest rates are low, or the budget is in surplus— then lenders will have confidence in the government’s ability to pay and will buy bonds when it needs to borrow. Maintaining that confidence is crucial to preserving the government’s ability to borrow money in a crisis, of which war is the classic example.

Confidence in government debt can also provide economic benefits. Both families and companies want to park their savings in a risk-free, interest-bearing asset, of which government debt— at least that issued by certain countries, such as the United States— is the best example. A liquid market for government bonds can also benefit the financial system by providing a risk-free instrument to use as collateral for financial transactions. The ability to issue debt, however, depends on more than just having a large and sound economy. Lenders will believe they are likely to be repaid only if the government has the ability to generate revenues from that economy. The public finance system ultimately rests on the ability to levy and collect sufficient taxes to service the debt. This was a crucial lesson of the War of 1812. As Treasury Secretary Dallas said near the end of the war, the government’s fundamental problem was the “inadequacy of our system of taxation to form a foundation of public credit, and the absence from our system of the means which are the best adapted to anticipate, collect, and distribute the public revenue.”

The ideas that a government should always pay its debts and that good credit is crucial to national power may seem uncontroversial. But one person’s interest payments are another person’s taxes, so making those payments requires the political will and the popular legitimacy to raise and collect taxes. This was the fundamental source of Great Britain’s power in the eighteenth century (until the Industrial Revolution made it also Europe’s economic powerhouse), and Hamilton consciously attempted to mold the United States in the British model.

Jefferson, Madison, and Gallatin also believed that debts should be paid, but it was not until the War of 1812 that their party became reconciled to the need for new taxes to finance emergency borrowing. And after the war, in 1816, a Republican Congress chartered the Second Bank of the United States, following the blueprint drawn by Hamilton. Fiscal prudence and restrained government were certainly part of the American system of public finance established in the late eighteenth and early nineteenth centuries. By today’s standards, even Hamilton would probably qualify as a fiscal conservative; the idea that the budget should ordinarily be balanced (barring a national emergency, of which war was the only known example) was virtually unquestioned. (State governments, by contrast, often over-borrowed and occasionally defaulted in the early nineteenth century; over time, they have generally imposed constraints on themselves to prevent taking on too much debt.) But the ability to raise taxes when necessary to service and pay down the debt— and, eventually, the government’s consistent track record at doing so— was what made it possible to maintain the country’s good credit even amid adversity. When it came to public finance, the United States successfully emulated the model of Great Britain, not that of pre-Revolutionary France.”

(Johnson, Simon; v (2012-04-03). White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You (Kindle Locations 607-625). Knopf Doubleday Publishing Group. Kindle Edition.)

Asking for a blank check in the form of a debt ceiling increase with no strings attached demonstrates a significant lack of accountability or planning on how the debt will be repaid. A bank would never give a company a loan without knowing that it could be paid back and how the business will create profits to make its’ payments. We should not endorse more debt without commensurate real spending cuts. If we continue down the path we’re on, we’ll eventually run out of credit and then we’ll learn pretty quick on how little we can live.

Bill English, CEO
Mindsharp.

Do You Want to Be Powerful?

The most striking Christmas card I have received in years came several years ago with the headline: HISTORY IS CROWDED WITH MEN WHO WOULD BE GODS. Underneath were the images of 9 powerful historical figures: Alexander the Great, Tutankhamen, Julius Caesar, Maharishi Yogi, Adolph Hitler, Vladimir Lenin, Napoleon Bonaparte, Gautama Buddha, and Mao Tse Tung. Even those who flunked world history would recognize some of those names. Inside the message read, BUT ONLY ONE GOD WHO WOULD BE MAN. Underneath was the reproduction of a Dutch painting depicting the infant Jesus in the manger with Mary and Joseph looking on. Amazing but true is the fact that many would be god, but only one God would be man.

Men and women around the world work hard to attain attributes of the Godhead – authority, power, security, position, status and so forth. Power is an organizing principle for many: we interpret political, economic, religious and other systems through the prism of power. We pass laws to limit the actions of the powerful. We decry when the powerful oppress the weak. We seek justice – we seek retribution – we seek ways to right the wrongs that power imbalances create.

So in reading Proverbs 24.5 today, I was struck with this verse: “A wise man has great power and a man of knowledge increases strength”.

Well, now.

Is there a power that isn’t derived from money or position? Is there a power that is available to all, regardless of station in life? Apparently so. Again and again, wisdom and knowledge are held up to be the pinnacle of success in the book of Proverbs. Solomon even goes so far as to say that it is better to be poor and get wisdom – to seek wisdom and knowledge more than gold or silver. In Proverbs 8, we learn that wisdom helped form the foundation of the world and that wisdom has been present before the beginning of time. In one sense, wisdom is the personification of Jesus Christ. In other sense, it is the ability to apply all that the Bible has to say about my situation to my decision and conform my decision to the instruction from the Word of God.

But either way, anyone can have wisdom. And by getting wisdom, you will have power. But what you will find is this: If you start out seeking power, you may acquire some for a period of time. But like wealth, power is fleeting. But if you seek wisdom and knowledge as defined in the Scriptures, not only will you find them, you’ll also find an inner strength and power that you never knew existed. But your joy in finding wisdom and knowledge will be so much more great, that whatever power you might attain will not matter that much to you. And when you need to exercise it, you’ll do so in a Godly way.

A wise man has great power. But the end-goal is not the acquisition of power, but the pursuit of wisdom and knowledge and one’s submission to God.

Bill English, CEO
Mindsharp

Big Government and Big Business in Bed Again

I have never particularly liked a strong relationship between big government and big business.  For example, the six largest banks were able to get Congress to socialize their losses and have us taxpayers bail them out while being able to keep their profits and pay enormously large salaries to themselves.  The opportunity for self-indulgence and (what amounts to) oppression of less-powerful interests, groups and people is obvious (IMHO), as illustrated by Washington’s bailout of the large banks a few years ago while allowing hundreds of smaller banks to go out of business.

Today, we learn that another strong relationship exists between the NSA and the large tech firms.  Both have their own interests in this deal and those interests are not good for the little guy.  Color me paranoid.  I don’t trust stuff like this.  Neither should you.

Bill English, CEO
Mindsharp

Special Treatment for Your Best Customers is a Two-Edged Sword

This WSJ article on how United Airlines treats their best customers is interesting in the sense that it gives us insight into a secret service that only a few are privileged to and how it can sour relations with those who don’t get the same treatment they once received. I’ve found that loyalty programs, if fairly administered where everyone knows the rules, can be a good way to increase customer loyalty. But when there are programs like this where customers are treated differently with some getting the special perks and others not, it can backfire and lead to lost customers. Anytime you give something away, you risk having to take it away too. It’s the latter that customers don’t like, especially when the rhyme and reason for taking it away leaves questions about fairness in the mind of the consumer.

Bill English, CEO
Mindsharp

Where is Your Heart?

In reading Proverbs 21 today, the Lord impressed on me two verses which work together to help give us clear instruction that we need today.

The first is verse 2: “All a man’s ways seem right to him, but the Lord weighs the heart.” We make our plans, we make our decisions, we live our life and in the midst of all this, the Lord is weighing our motives and what is in our hearts. He looks not only at what we do, but why we do it. He considers our intent – what is in our heart. The second is verse 20: “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.” I have to admit that I have been a foolish man in the past, devouring all that I had. I didn’t save. I didn’t store up for the future.

There are a couple of undercurrents that connect these two verses. First, a foolish man will devour all that he has for selfish reasons. American encourages this selfishness and celebrates it, frankly. Just watch some of the shows on cable TV – lives of the rich and famous, mega yachts, doomsday preppers and so forth – what is common in all of them is a complete consumption of one’s wealth to achieve something that cannot be sustained except by a very few. Many of the very wealthy in decades past are now broke. They spent all they had on themselves. Or, perhaps, they engaged in philanthropy and giving – but the giving was done “before men” rather than “before God”. But even if they consumed all they had through giving to charities and the like, God still considers their heart and their motives.

It cannot be denied that American marketing encourages us to spent all our wealth in exchange for supposed happiness. Americans are NOT encouraged to save. Why do we do this? Why do we consume all that we have? I suspect, in one form or another, it is to tranquilize our boredom. Look at the malls of America – they are filled with people looking to buy one more thing – one more toy to give them a lift. The vast majority of Americans have everything they need. But satisfying our wants is impossible because our desires are insatiable. We believe that we won’t be happy and satisfied without getting that new this or that. In verse 20, the underlying current is that those who spend all they have on themselves will not be happy. Those who are wise “store up” the best for later, which leads to both contentment and margin.

The lessons for all of us today is simple:

  1. Regardless of your income level, live on less than you make.
  2. Learn that you won’t find sustained happiness in spending all that we have on our own pleasures.
  3. Want what you have and be content with it.

Bill English, CEO
Mindsharp

Politically Connected Do Better

This Rasmussen Report indicates that which all small business owners understand intuitively: the government will save you if you’re “to big to fail” or if you give a boat load of money to candidates, but they will ignore you if you’re small or if you don’t contribute. It’s the harsh realities of our political system.

Bill English, CEO
Mindsharp

Workforce in America Continues to Shrink

The updated labor force statistics were released today. What they show is a continued shrinking pool of people who are either working or who are looking for work. In the last 10 years, the percentage of people working or actively looking for work in the United States has fallen from 66.4% to 63.4%. In the last 30 days, 37,000 people have left the workforce, which equates to a 1/10th percentage point drop. We still have 12,506,000 people who are looking for work but can’t find any.

Consider that of this 63.4%, 7.4% are unemployed, so our actual employment rate for our population is only 58.7%. This means, that for every 100 Americans today, only 59 are working and paying taxes. The other 41 are not working and are, presumably, receiving benefits from the government. Those who are working also receive benefits, but they are also contributing to the system via their taxes.

If we factor in part-time work (which the government defines as less than 35 hours/week), the picture becomes more clear. In July of 2012, there were 16,863,000 people working part-time but who wanted to work full-time. In July of this year, that number is 18,779,000 or an increase of 11.3%. These are people who are counted as “working” for purposes of calculating the unemployment rate, but who are not earning a full salary – which means they are not fully contributing to the tax base we need to cover our expenses.

There are 88,310,000 people who are not in the workforce. Of this group, only 6,558,000 want a job and can’t find one right now. Of the roughly 6 million who want a job, fully half have not looked for a job in the last 4 weeks, indicating a growing discouragement among those unemployed.

I don’t think its’ rocket science to state that we need to reverse these trends. We can’t continue to spend more and tax more from a shrinking taxpayer base. I could pontificate on what I think would solve these problems, but what I think is largely irrelevant to those that run this country. They are consumed by their own ambitions and pretensions. My point in this post is simply to state the obvious: these trends must be reversed or we will *ALL* be in a boatload of stuff that we *ALL* don’t want.

Bill English

I Just Noticed This Today…

I’m starting my writing now for my series on David’s Kingship in 2 Samuel for the Sunday School class I teach at church.  I’ll be teaching starting in September.  Last year, I taught on the leadership lessons that David had to learn from the time he was anointed King to the time he actually became King.  This year, we’ll look at how he governed as King.

The record of David’s kingship is paralleled between 2 Samuel and 1 Chronicles, with one book emphasizing more the theological aspects of his kingship and the other emphasizing more the chronological aspects of his kingship.  But I noticed something today that I’ve not seen before.

At the end of 1 Chronicles 10, the writer tells us that “Saul died because he was unfaithful to the Lord; he did not keep the word of the Lord and even consulted a medium for guidance…” I noticed that this is recorded in 1 Chronicles 10.13.  Then it occured to me – this sounds like the opposite of 1 Cornithians 10.13, where Paul tells us: “No temptation has siezed you except what is common to man.  And God is faithful…..”

Do you notice how these two verses represent the opposite of each other?  Saul was unfaithful, did not consult the Lord, did not inquire of the Lord when he was tempted.  So, when we are tempted, let’s look to the Lord to escape that temptation and avoid sin.  1 Chronicles 10.13. 1 Corinthians 10.13.  One is a word picture of what happens when we don’t follow the instructions in the other text.

I know the world does not find “sin” to be a serious issue at all.  Most just laugh it off. Many confuse it with mistakes or short-comings. Our world does not revere God.  But those who are disciples of Jesus Christ do take sin seriously.  And they understand that sin separates us from the Lord.  All men have sinned.  I would not be lying if I said that, like Paul, I am the chief of sinners.  There isn’t any sin that I’ve not commited in one form or another.  Yet, the Lord has forgiven me because he already paid the debt – paid the penalty on my behalf by allowing Himself to be executed by God.  He willingly did this because He loves me.  It’s really an incredible deal: In exchange for my life, I get the Life of Christ in me and I’m freed from my guilt of the sins I’ve committed against God.

And the truth is that He loves you too.  His death was for you too.  His resurrection demonstrated His total power and victory over sin. And He offers his payment on your behalf to you for free – all you need to do is to admit you’re a sinner and accept His forgiveness.  Then, you need to make Him the Lord of your life and follow Him. I said His salvation is free – and it is. Yet, it will cost you everything you have.

Don’t be like Saul – who was unfaithful to the Lord.  Instead, look to the Lord to provide an escape for you today from sin. And if you’ve never accepted the Lord, please do so now while you can.  You don’t know how many more times the Lord will give you this opportunity.

Bill English

Small Business Should Look to R&D Tax Credits

When you stop to include a “process” as a “reasonable” development cost to running your business, it seems to me that most small businesses could benefit from looking at this legal way to reduce income taxes. The article says that only one in twenty small businesses take advantage of this tax law – perhaps it’s a good time for small business to consider taking some additional expenses. There is nothing wrong with leveraging legal ways of reducing what you pay to Caesar. Good stewardship would include paying all the taxes you owe, but not a penny more.

Bill English, CEO
Mindsharp

Morgan Stanely has over $270 million in litigation reserves

Would someone please explain to me how companies like this – who build up reserves for anticipated ligitation – can then compete with companies in other nations who don’t have to contend with such a litigious environment?

Bill English, CEO
Mindsharp