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One man’s debt is another’s asset
by Ira Hansen
Oct 17, 2009 | 657 views | 0 0 comments | 11 11 recommendations | email to a friend | print
What exactly is a debt? The government is in the hole about $2 trillion in the first year of President Barack Obama’s administration and big businesses are “shifting” their “bad debt” into taxpayer financed “debt banks,” and all this is supposedly good for the economy.

Debt, of course, implies borrowed money. “Debtors” have “creditors,” borrowers have lenders and the relationship seems clear enough. Since most of us are “debtors,” owing lots of dough to car companies, mortgage institutions or credit card banks, getting out of debt is always seen as a good thing.

But there are two sides to that coin. One man’s debt is another man’s asset. The money Ira borrowed and now owes is for the other, an asset, his future, a return on his money. If I walk away from my debt and don’t pay my bills, the other guy is hurt. Writing off “bad debt” is simply writing off the money owed to someone else. When GM declared bankruptcy, a lot of mainly smaller investors, owed obligations by GM, got burned.

That GM’s stock and all the others being bailed out by the taxpayers have gone up after walking away from the money they owe to others is a crime. Yes, if I did not pay what I owed to others and kept the money for myself, no question, my portfolio would look much better. But proportionately, someone else’s would go down.

The government’s total debt is so beyond ordinary man’s ability to comprehend it’s not tangible. Whether I write a million or billion or trillion, it all registers the same.

But some do, notably the Chinese communists, who have been buying bonds and notes. They buy them, expecting to be paid back with interest. Thus, if they give, say, $100, they expect to receive in return, say, $110 bucks.

Since they are buying in the hundreds of billions range, they pay very close attention to our ability to repay. The fact that our government people have been over there kissing up shows just how nervous and shaky the situation is. If, like any logical leader, there is doubt about the borrower’s ability to repay, the money tap shuts off.

Sort of. Like a bank that loans to large users of credit, sometimes they have to continue to throw money into the storm, hoping to ride it out. If the Chinese shut off the credit to their largest market, it will hurt them, maybe worse than it hurts us. When to stop sending good money after bad is the decision of decisions. Paying off debt for everyone but the government involves getting money through honest means. Going to my copy machine and printing 100 bills sounds great but for those on the receiving end, counterfeit bills are as valuable as Monopoly money. Yet the government, to help pay off the debts, has been “serving the debt” using that exact process, and handing the Chinese inflated, printing press dollars in exchange has, understandably, got them a bit jumpy.

Personally, staying out of debt, an old-fashioned value rather out of practice for the last couple of decades, now shows its ancient wisdom. Sadly, with inflation likely to soon be roaring along, saving money, another oldie but goodie, will lose its current temporary popularity. Why save money at, say, 5 percent that is devaluing in that same window by 8 percent? Turning shrinking purchasing power dollars into tangible goods – in other words, buying products – makes more sense.

Shakespeare’s ancient advice in Hamlet applies to nations as well as individuals: “Neither a borrower, nor a lender be; for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.”

Ira Hansen is a lifelong resident of Sparks and owner of Ira Hansen and Sons Plumbing.
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