Musical Chairs

Perhaps you’ve been following the Greek debt crises.

Greece has been teetering on the edge of bankruptcy for the last three years. A few weeks ago the Greeks elected new politicians in a reaction against austerity measures they previously accepted as a part of a deal to borrow more money from the European Union.

The European Union was initially reluctant to offer a bailout, but now they are all in, and Greece, like a petulant child, has shown its appreciation by deciding after it took the money that it doesn’t want to take its medicine.

Greece’s profligacy is not the EU’s fault, but it is now their problem.

We face a similar problem in the USA. Greece’s public debt was 152% of their Gross Domestic Product in 2011. Their 2011 government expenses were approximately 120% of their revenues. American public debt was nearly 100% of Gross Domestic Product and expenses were 150% of revenues in 2011.

How can the government keep spending more than it brings in and not go under?  By selling treasury bonds, which is in essence borrowing money from others and agreeing to pay them back with interest.

As the government borrows more money the public debt piles up. This is a dangerous game based on a presumption the economy will continue to grow and there will be money in the future to pay for the spending we are doing today. The Great Recession has reminded people this presumption is just that.

Debt is like a game of musical chairs.  When the music stops someone will be left without a chair. In economics, the persons, companies and nations with the most relative debt are the ones left without a chair, and make no mistake about it, the music always stops eventually.

For individuals the music stops when they lose a job, incur unexpected medical or other costs or become the victim of a bad economy.

You don’t have to play musical chairs. In fact, the Bible instructs Christians not to do so stating, “Owe nothing to anyone except to love one another.” (Rom. 13:8). Get out of debt and you will not have to worry about being without a chair when the music stops.  GS