More debt is never the solution to debt problem - East Valley Tribune: Columnists

More debt is never the solution to debt problem

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Floyd and Mary Beth Brown are syndicated columnists and speakers. Floyd is also president of the Western Center for Journalism.

Posted: Wednesday, December 1, 2010 10:45 am | Updated: 7:43 am, Fri Dec 3, 2010.

During this Christmas season of cheer and good tidings, a universal message is going forth. They are all united from Barack Obama to Martha Stewart to Wall Street Banks, the Federal Reserve and even your local mall agrees: Please borrow to spend more this Christmas.

Americans since 2008 have been tightening their belts, and they have paid down over $150 billion in consumer debt. This is a remarkable feat and a testimony to the diligence, hard work and frugality of the American citizen. In contrast to the people, we are embarrassed that our government is encouraging irresponsible and spendthrift behavior.

Little wonder the finances of the U.S. government and the Federal Reserve are in a shambles. When times are tight, overspending and excessive debt is never the answer. Americans intuitively understand this and they are making tough choices to avoid bankruptcy.

Obama would be smart to follow their example. But governments never really tighten the budget. We all learned years ago the idiocy of government accounting when they proclaimed they were making “budget cuts” when spending and borrowing was going up every year. This would be akin to us saying “we want a Porsche, so we will cut the budget and get a Corvette,” when our salary could only cover payments on a Toyota Corolla.

This upside down idea was in the news again recently with the bailout of Ireland. Ireland had a housing bust, and this put their banks on the brink of insolvency. The Irish government, emulating the Americans, bailed out the banks. Problem is the government doesn’t have the money to both backstop the bankers and pay their bills. The solution devised by the “wise men” in the European Union: lend more money to the already nearly bankrupt Irish government.

Now everyone in Ireland will be paying the lenders for the rest of their lives to keep the Irish government afloat. Conditions on these new loans included budget cuts and tax increases. If Ireland had told the bankers to seek a solution in bankruptcy court, instead of at the Treasury Department, the average Irish citizen wouldn’t be getting poorer at the hands of the EU.

Same is true in the United States; we have a history of 200 years of bankruptcy law that should have been utilized in the financial crisis ahead of the government treasury. But the powerful bankers paid the powerful lobbyists to twist the arm of the U.S. Congress to pass TARP to protect them.

GM declared bankruptcy, but because the government stepped in the “new GM” didn’t have to make as many tough choices as they would have without the bailout. In the case of GM, the powerful United Auto Workers Union twisted Obama’s arm to borrow money to bail them out.

More debt is never the solution for a firm, individual or government that has over-feasted on debt. If you cannot restructure privately, the government should never be paying the bills of politically connected constituencies, and then turn around and raise taxes on all of us.

This Christmas, remember the season isn’t about the products the government wants you to buy, it is about friendship, people, experiences and our Savior.

The Browns are bestselling authors and columnists, and can be reached at Floyd is also president of the Western Center for Journalism.

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