Monthly Archives: August 2011

Debt too high saps economic growth.

Debt. You don’t like it. I don’t like it. No one likes it.

And yet, without it, much of the prosperity and technological progress we rely upon would not be possible. Finance and the power of compound interest has thrust our economy forward faster than any in history. Yet, compound interest is not a tool you want to be used against you. As New York Times columnist Carl Richards notes, “It’s always been one of the most powerful forces in the financial universe.”

Don’t think it matters? Just consider the result of the downgrade of American credit:

Think about that for a minute. If those worst-case-scenario interest rates came to pass and persisted, we’d be approaching a trillion dollars in interest payments per year. That’s what compound interest looks like when it’s working against you.

If that trillion dollar number doesn’t do it for you (that’s 1,000,000,000,000), consider it on a more personal scale.

On a personal scale, you get a taste of it every month if you get careless with credit cards. Take a look at a bill. For every month you carry a balance, there’s a minimum payment required.

Use carefully, it’s a great tool for growth.

Without financing, countries–and businesses and families–are poor and stay poor. Whether it’s a student loan to get through college and get a job that pays better, a business loan to cover the cash flow gap between invoice and payment, or money to build infrastructure and fund the armed forces, finance is a necessary part of growth and getting out of poverty.

Yes, taking on debt creates vulnerabilities for any of these parties; however,  debt managed and controlled brings prosperity.

On the other hand, debt out of control creates financial crises. It stops = growth and harms economies.

When the ratio of debt to income rises to a certain level, a new study shows, financial crises–be it household debt, corporate debt, or a national government’s debt–“become both more likely and more severe.” In other words, too much debt is not a good thing.

Well, duh.

The study, entitled blandly but descriptively “The real effects of debt,” was reported by Stephen G. Cecchetti, M.S. Mohanty, and Fabrizio Zampolli, economists at the Bank for International Settlements, at the “Achieving Maximum Long-Run Growth” Symposium in Jackson Hole last week.

I can only imagine that the report’s findings threw a lot of cold water on the “more stimulus/raise the debt ceiling” crowd (aka “New Keynesian orthodoxy” believers, according to the economists), including Fed Chairman Ben Bernanke, fresh back from scolding Republicans for their reticence to raise the debt ceiling.

Why? Because, at least in part, the finding vindicates Republican fears about the malignant effect debt can have, and is having, on the national economy.

From the Introduction:

Our result for public debt has the immediate implication that highly indebted governments should aim not only at stabilising their debt but also at reducing it to sufficiently low levels that do not retard growth. Prudence dictates that governments should also aim to keep their debt well below the estimated thresholds so that even extraordinary events are unlikely to push their debt to levels that become damaging to growth.

Emphasis my own.

Which leads to the question: at what levels does begin to hurt and retard growth? The empirical results of the study, based on review of debt levels in 18 OECD countries from 1980 to 2010, show that:

  • Households can handle a threshold of about 85% of debt to income.
  • For corporations (non-financial), the number is about 90%.
  • Governments can borrow between 80 and 100% of GDP.

But that’s just in the short-term. Looking at advanced economies–in other words, Western Europe and the United States, Japan, and Australia– the problem is

compounded by unfavorable demographics. The ageing of populations and the rise in dependency ratios have also the potential to slow growth, making it more difficult to escape the negative debt dynamics that are now looming.

In other words, in our economy more of our population is getting old and few children are being born, which means that Social Security, Medicare, and Medicaid all have fewer  people paying for them and more and more people drawing on them.

If I’ve learned nothing from leaving the bachelor world for the role of a family man, buying too many Happy Meals for the kids may make me feel good, but it’s more expensive than a BBQ at home, and its less healthy, too. And when costs are going up faster than my income, that’s not the time to go out and get more debt.

What is our current federal debt ratio to GDP, then? Check out the chart below, and how it compares over our history. Note that, prior to recent history, the level of debt is only comparable to times when we have been at war.

World wide war.

In the meantime, we’ve become addicted to the Happy Meals as a national economy. While Social Security, Medicaid, and Medicare were all begun with the laudable, and often successful, goal of caring for the poor, sick, and elderly, they have expanded to bloat our national budget to a place where our ability to help those needy groups will someday become questionable.

And I do emphasis will. It is inevitable that if we continue on our current track we will be unable to aid those in need. The time for reform was last year, and the longer we delay, the more difficult it will be. We’re not getting any younger as a nation, and we’re not getting any richer either.

The debt is just too damn high.

[via CNBC, New York Times, and BIS]

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Darth Cheney, unleashed.

Dick Cheney’s memoir, “In My Time,” is out today. As Daniel Henninger at the WSJ says

No one should have expected that Dick Cheney’s memoir would be anything but frank. Make that brutally frank. Such as this characterization of Secretary of State Condoleezza Rice’s description to President George W. Bush of her proposed nuclear-weapons agreement with North Korea. It’s on page 487:

“Looking for a way to explain this situation, Rice said, ‘Mr. President, this is just the way diplomacy works sometimes. You don’t always get a written agreement.’ The statement was utterly misleading, totally divorced from what the secretary was doing, which was urging the president, in the absence of an agreement, to pretend to have one. . . . “

Would anyone expect anything less from the man the Left compared to Darth Vader?

Also, from Henninger’s piece, and perhaps the most telling about Cheney’s character as a public servant:

After two event-filled terms as George W. Bush’s No. 2, I asked Mr. Cheney to sum it up. Characteristically, the answer had nothing to do with anyone’s approval rating:

“I think we did a pretty good job after 9/11 for those seven and a half years. I think the record reflects that. I think the president gets a lot of credit for that. Partly it’s a question of political leadership. It’s important to have people at the helm who are prepared to be unpopular, to take the criticism and the hits that go with implementing policies.”

 

In any case, will you read it?

[WSJ]

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Rick Perry? Jim Carrey? Separated at Birth?

You gotta admit it. This pose…

looks remarkably a lot like this pose…


Bohemian Brewery & Grill: Sprechen ze Good Food?

If it were to be judged solely on the service, then Bohemian Brewery & Grill would earn a “Two Thumbs Up” and a Gold Star, too. Add food to the equation, and I doubt the score would change.

Within seconds of walking into the Bohemian for the first time, I was greeted with a smile, taken to a seat, and informed, quite pleasantly, that nothing I ate today had been bottled, canned or packaged. It was all fresh.

“The only way you get better German food,” he said, “is if you buy a plane ticket.” Presumably, that ticket would need to land in Berlin.

After eating, I had to agree. The food was great.

I ordered a brat sandwich with a side of potato pancakes (no, don’t ask me how potato pancakes qualify as a “side dish.” I shared them, effectively halving my calorie intake for the meal to about the average for three normal people…and I am normal people). The sandwich was a sliced brat drowning in swiss cheese and sweet tasting sauerkraut on parmesan bread.

It was a delicious combination and a cornucopia of flavor. I’ve eaten a few brats in my day. This one had more than a hint of fennel and when the contrast of the slightly salty parmesan bread was added to the equation, made for a delicious, if messy, meal.

Accompanying the sandwich were garlic fries. When I say “garlic,” I mean that the fries were literally flavored with fresh garlic. It was delicious, only adding to the palate of diverse flavors coming out of this meal. The only complaint I have was that as good as the fries were on the outset, and as hot as they were, as time passed they became soggy. Not too unexpected, but still, there it is.

The potato pancakes were passably good. Crisp and fried on the outside and just thick enough to leave a soft mushy texture on the inside.

I’ll let you do the math on the calorie content of the meal. Regardless, it was enjoyable, and worthy of at least skipping a couple meals to compensate.

Service: 9/10
Atmosphere: 7/10 (because the t.v.s were large and everywhere…distracting)
Food: 7/10
Parking: 7/10
Eat-ability Quotient (an average of scores):  7.5/10

Check out my other restaurant reviews here. If you have a restaurant you’d like me to try out, please contact me by sending an email to SLCWeekendReviews@gmail.com.

Bohemian Brewery & Grill on Urbanspoon

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