The Debt Ceiling Is Raised But The Problem Remains
About a month ago, before Democrats and Republicans had agreed on a framework for raising the debt limit, the Wall Street Journal published an article by Tomas J. Philipson. It covered the potential impact of the failure to reach a deal from multiple angles but also contained several paragraphs that spoke to the root cause of the problem and suggested that we may be in for potentially endless repeats of the same issue that we just averted. See below for the details:
“…Future default crises will no doubt occur if spending growth isn’t curtailed. As Margaret Thatcher observed, sooner or later you run out of other people’s money. Thus, an additional risk of not defaulting in June is that it will simply lead to a more costly future default. It’s unclear that the consequences of an actual default of a smaller debt today with curtailed future spending is worse than default tomorrow with much more debt.
Policy makers face this crisis because the government they created has gotten so big that they are forcing future generations to pay for it. The Democrats’ solution is to expand the government further through more tax hikes, while the Republicans’ choice is to shrink it through spending cuts. Republicans are forced to be modest in their requests. If past trends continue, their suggested cuts for the roughly 25% of the budget that is discretionary will be overtaken by growth in entitlements and defense. Put differently, as federal spending is about 25% of gross domestic product, this amounts to small cuts of a budget share of 6% of GDP to go after a debt-to-GDP ratio of 100%.
If the last few years have taught us anything, it’s that governments around the world undertake many destabilizing activities that are very harmful to their economies. The private sector is left to correct for such government risks the best it can. The risk imposed by default is only the most recent one, and it will be destructive whether or not default actually occurs.”
So, what’s the bottom line? We need more businesses - including the BIG ones that the government and media spend massive amounts of time thwarting and conditioning us to despise – to prosper. The ultimate measure of that prosperity is growth in profits. And, as long as we have free markets, which many of our government representatives seem to be increasingly against, even so-called “windfall profits” are just fine, despite all the attempts to malign as price gougers the CEOs of companies who, from time to time, have an extraordinarily good year from a profits standpoint. If we are to have even a remote chance at offsetting the harm caused by the profligate spending of our public servants, we should cheer rather than jeer when big businesses are doing well.
Thing Two
Updating The Advice On The Apple Card
In a recent posting, we touted the features of the Apple Card cash-back deal that pays up to 3% on purchases and immediately puts your cash-back rewards into a separate Apple demand deposit account (administered by Goldman Sachs) that earns 4.15% interest. We suggested it was a good idea even to transfer money from other, lower interest-rate checking accounts into the Apple account to take advantage of the deal on the interest rate. But we have since learned from reading a follow-up article that, while the cash-back deal is still a good one, you may want to hold off on transferring cash into the Apple demand deposit account. The article we’re referring to had multiple horror stories in it, but we’re sharing the details of just one below that will give you a sense for what can potentially go wrong:
“…Kevin Smyth of Minnesota tried transferring $10,000 from his Apple account to U.S. Bank on May 16. He needed the money to pay for remodeling his basement. Goldman told him to contact U.S. Bank, Smyth said. U.S. Bank told him it saw no sign of an incoming transaction, he said. Smyth said Goldman eventually told him that his account was under a security review. Smyth tweeted at Apple Chief Executive Tim Cook on May 25. “Was your plan to partner with a bank that holds people’s life savings hostage?” he wrote. The following morning, Smyth sold about $12,000 of stock so that he could have cash on hand. Later that day, Goldman told Smyth he would have to transfer the $10,000 to American Express, which is where the money had originally been. Smyth went a step further. He emptied his Apple account, moving all $200,000 back to Amex. The money showed up promptly. He plans to close his account this week.”
So, while we still think it makes sense to get the Apple credit card for the cash-back rewards and the high interest rate you immediately start to earn on them, we’re withdrawing our endorsement for adding your own cash to the deposit account until further notice.
Thing Three
Just A Thought
"In this present crisis, government is not the solution to our problem; government is the problem. From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.” ― Ronald Reagan
