Thompson & McCarty, P.C. CPA

I have had many people ask me what I think on the issue of the $700 Billion U.S. Federal Government bail out.  My answer was and is that this is a bad idea and the “plan” stinks.  As my heading implies I think the $700 billion is just the beginning and we are already hearing that more is needed.   If $700 billion isn't enough perhaps we should should give $200 trillion or whatever other absurd number the politicians can come up with.  

No, we should let the market correct and let those that took bad risk suffer the consequence.  The problem is that much of the problem was the result of the same government mandating that banks make loans to people knowing they lacked the ability to pay the loans off.  Now the same politicians that caused the problem are attempting to correct it.  Both sides of their activities are bad and only serve to make our problems worse.  Cutting your wrist to stop your finger from bleeding is a bad idea.  Financially, taking on more debt to solve one's debt issue is also a bad idea.

Financial stability is a very basic issue and the higher dollar values that our national economy involves does not change the basic financial principals that govern one's personal budget.  Those that try to convince you otherwise want you to believe that the concepts are too difficult to understand by the ordinary person.  The are not.  The basic principals that govern a responsible personal budget are: 1. One can not spend more than one earns.  2.  The bigger the difference between what one earns and what one spends the more stable the budget.  My grandparents who lived through the great depression understood this concept well.  I once thought I was smarter than them but now I understand how truly wise they were.  Some where through history we simply lost the lessons learned during the toughest times of our short history.  It probably reflects on the politically correct education system that we have today.  The truth has to be subverted to fit the self esteem needs of the student.  But that is another story.

As most of my clients know by now I am a big proponent of the Dave Ramsey view of things.  Dave's basic premise is that one needs to be free of debt.  In order to be free of debt one has to spend less than one earns.  In order to pay off debt one may have to take drastic steps to pay off debt that has been stupidly accumulated over time.  Dave love to say "Living like no other today, so I can live like no other tomorrow".  It really is that simple.

So here is what I expect to happen.  The government is about to buy up the bad paper that has caused the financial collapse of some of our banking system.  The price of real estate will be artificially propped up and this new money we print will put pressure on prices to rise.  Credit will be a little easier to get but not as easy as it has been.  The taxpayer can expect a larger burden of taxes in order to fund not only this $700 check but the coming bill that will probably be more than twice this amount.  The government will simply print the paper and our prices and taxes will go up so our buying power will deteriorate.  The only good that will come of this is that we will have empirical evidence that capitalism rules over socialism.  Yes I understand that we already more than enough evidence to support this but apparently we need yet another reminder.  My biggest concern is that those that need another reminder will still not get it.