The Edmond Sun

Business

October 11, 2013

THE ASTUTE INVESTOR: Monkeying around with the debt ceiling

EDMOND — As we watch the political circus going on in Congress, perhaps Mark Twain was right when he said that “politicians and diapers must be changed often, and for the same reason.” This would all be quite humorous if it were not so serious.

Speaking of monkeys, what’s more fun than a barrel of monkeys? Nothing.  At least those were the words of the Milton Bradley Company and their game called “Barrel of Monkeys.” Perhaps you played it when you were a child. The rules were pretty simple, written on the bottom of a plastic barrel. “Dump monkeys onto table. Pick up one monkey by an arm. Hook other arm through a second monkey’s arm. Continue making a chain. Your turn is over when a monkey is dropped.”

What could be better than assembling a long chain of tangled monkeys, each reliant on those on either side of it, with just the one person holding onto a single monkey’s arm at the top end of the chain, responsible for all those monkeys dangling from his fingers?

Of course, with great power comes great responsibility; and that lone hand at the top of the chain of monkeys has to be careful. Any slight mistake and the monkeys will tumble, and that is the end of your turn. You don’t get to go again because you screwed it up and the monkeys came crashing down.

So what does this have to do with Congress and the debt ceiling?  Everything. They are the ones holding on to all of us monkeys as they have us all dangling arm in arm hoping they can somehow find a steady hand. Of course, they have been playing this game for years and it looked like they might be picking up monkeys for a long time to come. The chain of monkeys hanging from their hand has become so long that they have no real idea where it ends. Until now.

I have been saying for a long time that these days nothing matters to anybody until it matters to everybody. Most people never believed that our leaders actually would start shutting down the government to prove a point or hold the public hostage for political ideology.

The proof of this is seen in the fact that as soon as it looked like they might actually do it — shut down the government and default on our debt obligations — markets began to crumble. All of a sudden, boom! That’s all it took. The monkeys began to shiver, shake and screech. Of course, everyone also thinks this is a repeat of 2011 where markets dropped during the debt ceiling debates and then exploded to the upside once an agreement was reached. Let’s hope so.

Let’s step back for a moment and consider what the debt ceiling is. The debt total is simply the cumulative amount of spending that exceeded the amount taken in. The ceiling is an arbitrary number agreed upon by Congress as a benchmark the treasury cannot exceed. You might find it interesting to note that most countries don’t have a debt ceiling. Be that as it may, it is our law and we have to deal with it.

A statutorily imposed debt ceiling has been in effect since 1917 when the U.S. Congress passed the Second Liberty Bond Act. Before 1917 there was no debt ceiling in force, but there were parliamentary procedural limitations on the level of possible debt that could be held by government.

U.S. government indebtedness has been the norm in United States financial history, as well as most Western European and North American countries, for the past 200 years. The U.S. has been in debt every year except for 1835.  Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly report on the amount of the debt ($75,463,476.52 on Jan. 1, 1791).

Every president since Herbert Hoover has added to the national debt expressed in absolute dollars. The debt ceiling has been raised 74 times since March 1962, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and three times under Barack Obama.

The debt ceiling is not the problem. The problem is the annual budget deficits. It is important to remember that the amount of debt we have increases only if we spend more than we take in. Of course, that has been going on for a long time with annual budget deficits. We have had more than $1 trillion in budget deficits each year for the past five years and this year will likely “only” be about $500 billion. But that is like saying we are going over the cliff less rapidly. The amount of debt is still going up.

Where the debate should be concentrated is on balancing the budget.  Unless we start spending less than we take in, the debt will increase and we will continually bump up against any ceiling established. Some believe that freezing the debt ceiling will force Congress’ hand. But the current debt is from money already spent or promised. Are we really willing to tell the world that we won’t honor our obligations? The consequences of that, both intended and unintended, can be catastrophic. Those who suggest that it doesn’t matter are playing with fire and are going to get us all burned.

The truth is there is nothing significant about the debt ceiling number. What is important is finding meaningful ways to reduce annual budget deficits and at least keep the debt from getting worse. There are serious dangers in this debt limit brinkmanship. It’s time for Congress to stop monkeying around, stop the political games, stop holding our citizens hostage over ideology and get something done. Thanks for reading.

NICK MASSEY is a financial adviser and President of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com. Securities offered through Securities Service Network Inc., member FINRA/SIPC.

1
Text Only
Business
  • Smartphone kill switches are coming

    Smartphones need kill switches. It's a relatively easy solution to the pricey (and irritating) problem of smartphone theft. But who would have thought that the big carriers would team up with Apple, Google, Microsoft, Nokia, Samsung and lots of other manufacturers to voluntarily begin adding the technology by July 2015? The cooperative spirit! It makes so much sense!

    April 19, 2014

  • Biggest student loan profits come from grad students

    This week, the Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years.

    April 19, 2014

  • Kaiser joins Thunder ownership group

    Tulsa businessman George B. Kaiser has been approved by the NBA Board of Governors as a new partner in The Professional Basketball Club LLC, which owns the Oklahoma City Thunder. Thunder Chairman and CEO Clayton I. Bennett made the announcement Friday. Kaiser is purchasing the ownership interest of Tom L. Ward.
    “We are honored to welcome George Kaiser as a member of the ownership group of the Oklahoma City Thunder,” Bennett said. “George is a well-respected and important Oklahoma business leader, as well as one of the state and nation’s top philanthropists. His commitment to successful business and community leadership is in true alignment with that of the Thunder.
    “I also appreciate the commitment and leadership provided by Tom Ward as a member of our ownership group from the beginning,” Bennett added.

    April 18, 2014

  • Food Bank’s Leadership Council applications now available

    The Regional Food Bank of Oklahoma invites young professionals to submit applications for the nonprofit’s first-ever Leadership Council. The Leadership Council connects young professionals interested in getting involved in their community and state through engagement with the Regional Food Bank of Oklahoma. These dedicated individuals, aged 24 to 35, will volunteer their time and creativity to raise awareness about the issue of hunger and increase the visibility of the Regional Food Bank and its mission of “Fighting Hunger … Feeding Hope” in Oklahoma.

    April 18, 2014

  • Logan County Health Department observes Administrative Professionals Week

    The Logan County Health Department is recognizing the work of its seven administrative professionals during Administrative Professionals Week, April 20-26.

    April 18, 2014

  • Tractor Supply Company launches spring 2014 Paper Clover campaign

    Tractor Supply Company, in partnership with National 4-H Council, recently announced the launch of its spring 2014 Paper Clover Campaign.
    Tractor Supply Company, the largest retail farm and ranch supply store chain in the United States, raised more than $3.2 million for 4-H programs across the country through the Paper Clover Campaigns during the past four years.

    April 18, 2014

  • U.S Cellular offers device trade-in program, app recommendations

    In honor of Earth Day (April 22), U.S. Cellular encourages people to recycle their old electronic devices and is providing incentives to do so. Customers can get up to $250 when they trade in qualified smartphones — including Apple® iPhones — at U.S. Cellular retail locations through the company’s Trade-in Program.

    April 18, 2014

  • Sun Life Financial accepting grant applications

    The U.S. Business Group of Sun Life Financial Inc. recently announced its Request For Applications for Sun Life Rising Star Awards grants from Tulsa/Oklahoma City Area nonprofit organizations that promote the academic achievement of under-served youth. Applications are available now at sunliferisingstar.com. The deadline for submissions is June 9.

    April 18, 2014

  • Ribbon Cutting - Qdoba (3-26-14).jpg Qdoba Mexican Grill celebrates grand opening on Covell

    Qdoba Mexican Grill recently had a ribbon cutting to celebrate the grand opening of its newest location at 1300 W. Covell Road. The franchise joins nine others in the Oklahoma City and Lawton areas and boasts a wide variety of menu items including gumbos, burritos, tacos, quesadillas and five types of salsa as well as options for children. Each restaurant prepares ingredients fresh daily and is available to cater small or large parties with three types of hot bars: Naked Burrito, Taco and Nacho. “We also offer rewards cards, easy to register from a smart phone or computer,” reports owner/operator David Smith. For more information, call 405-285-0355 or visit www.qdoba.com.Caption header 24 Frtgr Bold Cd

    April 18, 2014 1 Photo

  • Family, friends remember beloved ‘T-shirt man’

    If you have lived in the Oklahoma City metro area during the past 40 years, chances are you’ve worn one of Tony Newcomb’s T-shirts.
    This week, family members and friends have been remembering the “T-shirt man” who died April 15 after a long struggle with Parkinson’s disease. He was 72.

    April 18, 2014

Stocks