An easy lesson in economics |

An easy lesson in economics

I used to be the treasurer of a condominium association. It was then that I learned most about economics. We had a monthly assessment that covered several reserve accounts, roofing, painting and paving. The assessment paid for the lighting of the common area, water usage, the landscape maintenance, insurance, taxes and professional fees. It never failed that at our annual meetings some owners would compare our monthly assessment with that of another community and ask why ours was so high. They compared the monthly payments only, not what they covered. I used to say that I can lower your payments, but there would likely be a special assessment in the future when, say, the roofs need replacement. They would ask for more flowers to be planted in the common areas. I would say, “Fine, but your fees will need to be raised.” I said, “You can have anything you want, as long as you are willing to pay for it.” It’s simple, higher fees – more services, less fees – less services.Our national economy is like that. The difference is that the U.S. Congress can authorize borrowing to make up the shortfall between income and spending. It’s like a drug addiction. People get used to receiving the benefits of excessive spending without having to pay for them. It used be called Reaganomics. “Keep my taxes low, or better yet, cut my taxes, while increasing federal spending on benefits, pork projects, etc.” Americans are going to find out that there is no “free lunch.” Some budget items can be reduced. Some cannot. One that can absolutely not be reduced is payment on the current debt. U.S Treasury bonds are noncallable. That means that people who own U.S savings bonds or short-term or long-term bonds earn interest for the life of the bond. Millions of Americans and foreign governments who own these bonds rely on that interest income, which is guaranteed by the full faith and credit of the U.S. government.If a payment is ever missed, interest rates would skyrocket, and inflation would reach new highs. Each year that we have a deficit, the bill gets bigger. A greater portion of the tax money that is collected will go to pay interest on that debt, not to increase our standard of living. Like the old Midas Muffler commercial used to say, “You can pay me now, or pay me later.”

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