When any of us do financial planning, a part of the discussion may include the topic of borrowing. Do we spend only as much as we have or do we borrow from others so that we can spend more. For personal budgeting borrowing is, in my opinion, a bad idea. Exceptions perhaps for a house or maybe education, which can be a worthwhile investment. Otherwise it most often leads to trouble.
It gets trickier with business finance as borrowing can allow for investment that will pay back many times the cost of borrowing – if all goes well.
Governments, from small villages to school systems to our federal government, face the exact same question. Spend as much as the revenue they take in, or borrow so that they can spend more. If the additional spending will be an investment that will increase revenue in future years then borrowing might be a good idea. Borrowing money to build a much needed new high school when it’s known that future revenue will pay it back may be good as well.
Otherwise, the big question of how the borrowed money will be paid back rears its ugly head. Is borrowing money to make welfare payments a good choice? Where will the revenue come from to pay that money back?
The second big question is who to borrow from. Most of us borrow from relatively reputable financial institutions – our local bank, mortgage company, or for large businesses, someone like Morgan Stanley.
What would you think if your friend wanted a new car and chose to borrow the money from the local pimp who makes the money he lends to others by enslaving women and forcing them to work in sweatshops or as prostitutes?
When our federal government spends more than it takes in, that’s what they are doing. A large chunk of the money they are borrowing to cover their overspending is coming from China and other countries who have the money to lend us because they’ve enslaved their own citizens and ignored environmental issues like pollution.
As politicians huddle in Washington to hammer out a budget these are two of the tough issues they have to address.