Lazy Man and Money

Should We Worry About the Debt Ceiling?

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Happy 2023, right? New year, same old problems. I’ve written about the debt ceiling in 2011, 2013, and 2018. When the debt ceiling becomes a problem, it becomes a problem for us. As a Public Health Service officer, my wife is a half-military, half-government worker. She’s paid on a military pay scale, deploys, and has a military pension. However, she’s not forced to relocate and applies for jobs. It’s an interesting mix. When furloughs come, she’s forced to work because of the military component, but they don’t pay her because of the government worker component. There’s no plan because this isn’t supposed to happen.

I understand that there was no plan for COVID. However, this happens every three years on average (potentially the 4th time in 12 years), so there should be a plan. I just asked my wife, and no one is talking about it. I’ve read that it may not become a big problem until June, so maybe that’s why.

Let’s rewind and review the situation.

What is the Debt Ceiling?

Note: There are far better experts on this than me, but I’ll give you my understanding. This necessarily becomes political, but that shouldn’t impact the core facts.

Let’s start with a quick clip from The West Wing:



The best way I know how to explain it is with Schoolhouse Rock. The specific short is Tyrannosaurus Debt. Essentially the United States borrowed money to pay for wars, but now it pays out more money for other stuff (roads, libraries, Medicare, Social Security, etc.). It has promised to pay out more than it receives. Any personal finance guru will tell you that spending more than you make is a bad combination.

To make up for the difference, the United States sells bonds. However, it has to pay interest on those bonds, or it will default. Think of what happens if you don’t pay your credit card bill. That’s a disastrous situation because the world will lose trust in the United States government.

In 1917 the government passed a law that caps the amount of debt the United States could have. Once we hit that limit, we can’t pay out money. That’s a problem because all those government programs can’t be funded. That’s when you get a government shutdown. Seniors don’t get Social Security. My wife doesn’t get a paycheck. Many, many other terrible things happen.

It’s important to understand that this number is artificial. If Congress agreed, they could say that the new debt ceiling is 999 trillion dollars, and no one living today would likely ever have to fear a government shutdown. It’s also important to understand that the debt ceiling has nothing to do with the budget and spending. Congress has already agreed and passed the spending/budget – it’s only about the process of paying it.

So What’s the Problem This Time?

Here’s where it gets political.

Republicans say this spending is out of control and must be reeled in. Objectively, almost every reader here is against piling up debt. (No one ever says, “I’m okay with unlimited student debt or credit card debt.”) Ironically, most of the national debt came when Republicans were in office. There were wars and COVID that made this spending reasonable.

The Republican control the House of Representatives, but it has limited power without control of the Senate. They don’t have many tools in their toolbox. One thing they can do is say, “We won’t raise the debt ceiling unless Congress agrees to budget cuts.” It’s not exactly clear to me where Republicans want to cut. I’ve read a few that say “wasteful spending,” but “wasteful” is often subjective. Some say that Social Security and Medicaid should be cut. Not many say that the military should be cut even though the US spends many, many times more on the military than any other nation. (I’m saying this as a military family.)

The Democrats aren’t pleased with the Republicans’ extortion. In their view, the budget was already agreed upon and threatening to ruin the United States’ reputation and risk shutting down the government doesn’t best serve Americans.

This time is different than before. Several Republicans decided they wouldn’t vote for a Speaker of the House unless they got a promise to hold out for budget cuts in exchange for raising the debt ceiling. The Speaker, Kevin McCarthy, agreed because he needed their votes. It appears that the Republicans will unite on the need for budget cuts. The Democrats are united in that they won’t let several Republicans use this thing that everyone agrees is essential as a negotiation tool.

It feels like each side is locked into its position. If this game of political chicken continues and neither swerves, the Americans will pay an enormous economic price. It would likely reverberate throughout the world’s markets.

According to this Washington Post article (potential paywall), the Republicans have considered that shutting down the government will make them look bad. It’s hard to win the votes of senior citizens when you end their healthcare and Social Security. The Republicans seem to have been trying to devise a prioritization plan to pay for some things they consider necessities in case the shutdown does happen.

The problem is that so many things are considered necessities. Republicans see continuing to pay the interest on the debt as one of these significant necessities. It is like making the minimum payment on a credit card so you can still be seen as a reputable borrower. However, much of that debt interest would go to foreign investors, including many in China. Politically, how could Republicans say that they consider paying China more important than services that Americans depend on? It seems like Republicans won’t even put out a prioritization plan because there will always be upset people at the bottom of the list. I’m not sure if there’s even an agreement by Republicans on what that would look like.

It’s wise to have some prioritization plan because, as I wrote at the beginning, this has come up several times, and it is chaos every time. However, an ounce of prevention is worth a pound of cure. It should never get close to a situation where a prioritization plan is necessary.

Final Thoughts on Debt Ceiling

How will it end up? No one knows.

I’m firmly in the Democrat camp on almost every topic. I do agree it is important to balance the budget. That would mean that my goals are aligned with the Republicans here. However, the debt ceiling is too risky to play games with. The time to balance the budget is when the budget is created and approved, not when it comes time to make payments.

If you’ve maxed out your credit card and can’t afford something, reduce your spending at the store – not when it is time to write the check. That will only blow up your credit rating, and you’ll pay double the interest.

Let’s return to that personal finance adage, “spend less than you make.” That’s what so much of personal finances boils down to. In most cases, spending less and making more are equally important. There are instances where spending can’t be cut anymore and when there’s no clear path how to make more money.

I think it’s possible that the United States can do both. I think it’s hard to go through all the spending and make cuts, but I’m sure there’s stuff in there that can be cut. With that in mind, I will say that everywhere my wife has worked, had a budget that is like a public school teacher in a poor school district. In the nearly 25 years she’s been in the workforce, the story has been, “we need half the people to do double the work.” Also, just last week, the FAA shut down all flights in the United States because of a problem with the Notam computer system. Some parts of the system are 30 years old. Think about it, Yahoo! didn’t exist 30 years ago.

Even if we could limit spending, it would be difficult to eliminate the National Debt. According to the Stockholm International Peace Research Institute, we spend more on defense than any other nation (801 billion in 2021). It is one of our largest expenses. If we didn’t spend another dime on defense, it would take nearly 40 years to eliminate our about 32 trillion dollar debt. It would not be a good situation if we didn’t spend a dime on defense, but that illustrates how impossible it would be to eliminate the debt by cutting spending – especially when we need to spend more to keep planes flying.

Alternatively, the United States government could try to make more money. That means raising taxes, which is always unpopular. One idea that has been seen as more popular is having corporations pay more. A few years ago, Republicans cut the corporate tax rate with The Tax Cuts and Jobs Act (TCJA). The average citizen got a break too, but much of it went to corporations. It increased the deficit by $2 trillion (or will by the time it ends in 2025). I don’t feel it was necessary. Corporate profits had been doing very well over the decade before it was passed. Unemployment was also extremely low, and it continues to be extremely low today (despite the spike with the COVID shutdown).

I admit that, personally, the TCJA worked out well for me. As an investor, companies bought back shares of stock, and the markets went up. My retirement accounts grew, and it felt terrific. However, I need to recognize that I can’t have my cake and eat it too. I can’t say, “We should eliminate the National Debt, but I want tax cuts.” The math doesn’t work out.

If you are interested in this stuff, I found a great guide on the US Treasury’s website. If you aren’t interested in this stuff, you are some kind of saint for getting to the end of this article and reading these words.

The U.S. Economy Revisited

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Happy November, everyone!

I hope things are going better for you than for us right now. I tried to publish this yesterday, but our youngest had a temp of 103. He missed Halloween. (We were able to get him plenty of sympathy candy. He didn’t miss Halloween much. “More Candy, Less Work,” he says.) Our old dog had been better and better… until this morning when he simply couldn’t get up like back in August. Hopefully, both are just temporary hiccups, but that may mean that this article is more of a B- effort. Oh, we are also boarding our first blind dog, but his first day has gone awesome.

With that out of the way, let’s cover a light topic today… politics. Of course, I’m being sarcastic. As Linus says in It’s the Great Pumpkin, Charlie Brown, “There are three things I’ve learned never to discuss with people: religion, politics, and the Great Pumpkin.”

Two years ago, I wrote:

I usually don’t write political posts. I don’t think I wrote one in the first eight years of Lazy Man and Money. I’ve probably averaged one every couple of years since. This article is a frank talk about the United States economy, though, and it’s a discussion that is worth having whichever side of the political spectrum you are on.

That’s especially true for this article. It’s two years since I wrote, vote Biden for the economy. I’ve since gotten a few “I told you so!” comments.

Before we dig into the economy, it’s important to note that non-political issues are essential. Going into the last election, I wrote the following about the best candidate that Republicans had running for President, “Those non-financial things are important, but they are outside the scope of this article. That means that I won’t cover caging children, tear-gassing peaceful Americans, bragging about sexually assaulting women, being credibly accused of sexual assault dozens of times, inability to understand second-grade science, aligning with our enemies of Russia and North Korea, nepotism, violation of the emoluments clause, impeachment for trying to get a foreign country to attack Americans, racism, supporting white supremacists, telling members of US Congress to go back to their country, misinformation/disinformation/” alternative facts”, voter suppression, calling our war heroes losers, or trying to end health care for millions and millions of Americans during a pandemic.”

At the time, I had no idea that he’d try to overturn the election and create an insurrection at the United States Capitol Building that killed several people and injured many, many others.

There’s another vote coming up, and that guy isn’t on the ballot. Instead, there are a lot of people who supported that guy on that ballot.

In any case, I wanted to revisit where we stand with the economy.

Inflation

Everyone’s mind is on inflation. I’m no different. I went to the grocery store to get my sick son some Gatorade. I hadn’t been in a non-Aldi grocery store in months. I couldn’t believe the prices. I ended up buying the bare minimum.

I understand that it hurts to pay more. However, I also look for the cause and the solution. Change, for change’s sake, doesn’t make things better. There has to be a well-defined plan. Otherwise, you are just a monkey randomly throwing darts at a dartboard and hoping it works out. I don’t know about you, but I feel life is too short for that [poop].

So what’s the cause of high inflation? We have COVID and the Russia-Ukraine war. No United States political party was going to be able to stop either. That’s why:

Every country has high inflation

Europe just announced record 10.7% inflation. A lot of that is due to the Russia-Ukraine war. Not only has it raised gas prices, but Ukraine hasn’t been able to export grain consistently – and it typically exports a lot of grain. While that’s specific to Europe, much of that reverberates across the pond.

Big Oil has Record Profits

Exxon had its best quarter in 152 years. It had tripled last year’s earnings to $20 billion. I know things were terrible when COVID shut them down. Now Big Oil is back, making big money. Exxon will return $30 billion to shareholders between dividends and stock buyback. Meanwhile, they are spending 30% less than what they were spending before COVID. I’m not saying that companies shouldn’t make money.

I’m picking on Exxon, but Chevron and BP all have extraordinary profits.

It’s important to know that political parties don’t play a role in how Big Oil runs their businesses. We can ask whether they should, but that’s a far greater question about capitalism that I can’t get into here.

There’s some opinion that the Biden administration isn’t investing in oil, but the oil companies have the leases and permits to produce more oil. They don’t have any incentive as long as they book record profits. It takes time to drill and create more supply, and many think a big recession is looming. If that happens, consumer demand could dry up just as Big Oil is ready to release that new supply.

The Federal Reserve Bank was Slow

The Federal Reserve Bank was slow to raise interest rates. They’ve caught up with several big increases, but it would have been better if they had started earlier. The Federal Reserve Bank works independently from political parties.

Too Much Stimulus Money

When people have too much money, there is often more demand than supply. When that happens, prices go up. Both political parties gave money away due to COVID. It might have increased inflation, but it also likely helped the rest of the United States economy. I have more thoughts on that in the next major sections.

Final Inflation Thoughts

A lot is going on, and unfortunately for United States voters, politicians can do very little about inflation.

Jobs, Wages, GDP and The Dollar. (Oh My!)

The economy is a lot more than inflation. The unemployment rate is 3.5% at pre-COVID levels. I see Help Wanted signs everywhere. My 10-year-old son has said he’d love to work at Mcdonald’s for $16/hr. It seems like anyone who wants a job can get one.

Wages are up too… but they aren’t up enough to keep pace with inflation. If prices are up 8% for the year, but your paycheck is only up 5%, you’ve lost 3% of buying power. (I love easy math.) High inflation feels worse because you see it every day of the month, and the wage increase comes only when you get your paycheck. In any case, if inflation was 3% in the past and you didn’t get a raise, which happened to many, many people, it is essentially the same as what we’re seeing now.

Here are the quarterly GDP rates since 2021: +6.3%, +7.0%, +2.7%, +7.0%, -1.6%, -0.6%, +2.6% (Source: this government PDF). That averages out to a 3.34% growth. Some of that growth was coming back from COVID, but it’s still a great number.

Finally, the U.S. Dollar is very strong when compared to other countries. Here are just the last three months, but the U.S. Dollar has been stronger for longer.



When your economy is good, your currency is strong. Everyone in the world wants a piece of the US Dollar. I know that travel is expensive now (thanks to the aforementioned oil prices), but if you find yourself in another country, you should find that your dollar goes far.

The Stock Market

The stock market is down around 20% from its highs. That’s not great if you look at your 401k and compare it to what it used to be.

However, if you look at it another way, almost all the other countries are doing worse. My European stock allocation is doing very poorly. China stocks are a complete debacle. As much as I like to invest in other countries for diversification, investing in the United States would have been the best move.

Final Thoughts

I know only the smallest sliver of my fellow American voters will read this. I also know that most of the overall voters are going to vote based on if they feel like they are better off than they were two years ago.

I would urge them to vote instead based on how they are doing against the competition. Are we (the United States) stronger than we were in November of 2020? No doubt! We’ve got great economic momentum. Do we have a path for further improvement if we have a different parties in control of Congress and the Presidency? I don’t think so. We’ll have deadlock where each party blocks the other – even more than it does now.

What Does a Recession Mean to You?

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There’s been a lot of talk about a recession lately. For the purpose of this article, I’ll use an informal definition of “recession” as a “really bad economy.” After all, there are probably only 10% of Americans that know the real definition of a recession (decline in GDP in two successive quarters, blah, blah, nerdy stuff). If you ask me, I’d say we are in a recession (remember using the “really bad economy” definition) because everyone’s complaining about inflation. Also, the stock market seems to border bear territory depending on which day you look at it.

I have been avoiding writing about these market conditions recently. It wasn’t a conscious decision. It was only a couple of days ago that I realized why I hadn’t been writing about it much.

The recession hits different people in different ways. Some people aren’t largely affected by it. For example, if you have a steady mortgage, don’t drive much, and eat frugal foods inflation may not hit you too much. We check most of those boxes so the market conditions aren’t too bad for us. We aren’t drawing down on our investments, so we don’t have to sell stock at cheap prices. Instead, we continue to buy low. In 20 years, we should be able to sell these shares we are buying today at high prices.

However, there are a lot of people who are on fixed incomes. The rising prices create significant problems in their lives. These people may be drawing down on their investments and selling at the wrong time.

It’s difficult for me to write about it because it is so personal, and in this case, we’re not greatly impacted. That may change in the future. For example, advertising is one of the first things companies cut back on in a recession. Advertising from this website will likely suffer. Travel is another thing that people cut in a recession. When people don’t travel, my dog boarding business suffers. So while I may be impacted, a lot more of our money comes from my wife and her government is secure until she finally decides to retire.

It may be a case of “too little, too late”, but here are a few things that have helped stabilize us even if there is a recession. You may not be able to implement them today, but maybe consider them for the next recession:

  • Multiple Streams of Income
    I mentioned my blogging and dog sitting income above, but I also run the customer support for a small company that has a lot of international clients. The company isn’t recession-proof, but that’s three very diversified businesses.

  • Fixed Mortgage
    We bought our place in 2012. The rental estimate for the house is roughly $3300. That is $300 more than our 15-year mortgage. We could refinance that mortgage to an $800 monthly payment now. If we were in the market to buy the same house today, we would have to put 20% and make payments of $4000. There are some very good reasons to rent, but I’m very happy we have the payments that we do.

  • Paid Off Cars
    We bought new cars in 2012 and 2014 and we intend to drive them into the ground. We’ll have to buy cars again someday, but it’s nice to not have those payments.

  • Solar Panels
    We went solar about 7 years ago and we’re at the point where the panels have paid for themselves. With rising energy costs, we’re only paying for a little extra energy (we use more than we produce), which keeps our bills very low – usually less than $300 for the whole year.

  • Chest Freezer
    I’m sure our second freezer is one of the reasons why we use more electricity than our solar produces, but it allows us to stock up on sales when they happen. This has been very helpful in keeping food costs a little lower during this time of high inflation.

A lot of these boil down to the idea of being fiscally ready for disaster. Not many bloggers remember the dot-com bust of 2000, but it was a very bad time to be a software engineer coming out of school.

I hope that we come out of this financial situation soon and things rebound. I’m optimistic that the threat of recession will cause oil prices to go lower. Global banks are raising their interest rates to fight inflation. If all that goes according to plan, maybe it won’t be too bad.

I’ve rambled enough for one article. I’d like to turn the attention back to you. Please leave me a message and vent about your personal situation in this economy (even if it’s in generics).

What We Can Learn from the Baby Formula Debacle

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Unless you’ve been living under a rock lately, you’ve heard the news about the baby formula shortage. As a father, I thought I’d leave it to the mothers to cover the whole conversation. I’ve seen a lot of very, very bad uninformed opinions from men on social media. However, I did a lot of feedings, and baby formula was critical. I feel like I should be able to avoid those “bad takes.”

If you haven’t heard, the problem is that one of the major factories that makes baby formula was shut down due to possible contamination. There are only a few companies that make baby formula and those companies consolidate their manufacturing in a few facilities. When one company or one factory is shut down there’s a lot less supply.

There’s more to the story than just that. NPR has a great article on the things that have gone wrong.

Money Lessons from the Baby Formula Debacle

One of the most basic lessons in investing is diversification. It’s okay to buy one company if you are a 6-year-old who loves Disney. Aside from that, most people should be low-cost mutual funds or ETFs that hold hundreds or thousands of companies. Many people may be too young to remember the collapse of Enron, but many of the employees had their retirement money in Enron’s stock. Not only did those people lose their job, but they lost a lot of their retirement money.

There’s not enough diversification of companies nowadays. It’s most profitable for baby formula companies to consolidate their operations in one place. It’s fundamental capitalism to pursue the most profit. However, it seems like there’s not enough competition in the baby formula space. Maybe smaller companies can’t get their products space on store shelves? Maybe they don’t have the big advertising budgets? Maybe they don’t have the scale to produce their products at competitive prices?

I think that if capitalism was really working we’d have competing companies jump into the baby formula space to fulfill demand. I’m not sure that other companies can jump into the space quickly. If the problem is temporary then by the time the new companies get up to speed they might be crowded out by the existing factory coming back online (which it already is).

The lack of diversification isn’t limited to baby formula. As the NPR article above mentions the meatpacking company JBS’s ransomware attack stopped 20% of America’s beef and pork industry temporarily. We also saw that a similar ransomware attack on the Colonial Pipeline cause gas prices to go up.

Baby Formula, Politics, and Common Sense

When the problem happened with the suppliers, one of the first places people turned was the government. The popular cry, “HOW CAN THIS HAPPEN IN AMERICA?!?! WHAT IS THE GOVERNMENT DOING ABOUT IT!” It’s a natural reaction.

However, should the government be regulating the baby formula supply chain to make sure there is ample capacity? I think most people don’t want the government to be involved with private businesses. Some may argue that there should be a national stockpile of baby formula. That’s reasonable, but it does expire and the government will need to be continuously buying up whatever the available supply is and then discarding it… unless we also create a program to give free baby formula (before it expires) to people below a certain income level.

The NPR article mentioned another issue – the problem of importing baby formula. High tariffs are making it not worth importing baby formula. There are also labeling laws that make it impossible to import some baby formula. Hopefully, common sense will prevail and these artificial, man-made restrictions can be lifted in times of emergency.

A friend of mine sent me a message about a news story. It was a famously conservative publication, but I don’t think she was aware. The Republican politician in Florida said she had a friend at the Texas border who sent her pictures of pallets of baby formula for potential immigrants at the border. What struck me as interesting was that there was no journalistic integrity. The “news” article was simply that a politician Tweeted something that may or may not be true. No one in Texas was reporting it. No Texas Republicans were in the report. No organization said that they did a fact check. The only thing that made sense to me was that a politician was trying to score some political points by increasing social media outrage.

Final Thoughts

There are a lot of things we take for granted. Perhaps we shouldn’t. On one hand, the supply generally works so well that we expect that it is infallible. It’s a good thing that it is this reliable. On the other hand, when the supply chain does have a problem, it can be an emergency.

I’ve long felt that there wasn’t enough competition among companies. There has been a lot of consolidation over the years. The stories that companies tell us are that they can be more efficient at a larger scale and pass better prices to the consumer. However, I think we are seeing that once the competition is gone, companies can raise prices. Over the long term, the market may correct itself, but sometimes consumers can’t wait for the long term.

I wish we could start to have discussions about this under different circumstances. Once the immediate emergency is over, I’m hoping we can focus on some long-term solutions.

Skimpflation?

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Have you ever heard of Skimpflation? That was a new one to me until a couple of weeks ago.

You might be familiar with SHRINKflation, but that’s different than SKIMPflation. If you aren’t familiar with SHRINKflation, that’s when companies subtly give you less product for your money. Instead of getting a half gallon (64 ounces) of ice cream you were used to buying, it might be 56 ounces or even 48 ounces.

I’ve gotten used to shrinkflation by now. Sometimes, you can catch a deal where they advertise “Now 10% more!” where they give you back some of the product they’ve taken away.

So let’s get back to the new kid on the block – SKIMPflation. SKIMPflation is when companies skimp on a service. I first came across this idea in this NPR article. Ironically, I came across that article while on hold with Southwest Airlines for four hours. See, Southwest has skimped on the customer service representatives.

NPR coined Skimpflation with this description:

The economywide decline in service quality that we’re now seeing is something different, and it doesn’t have a good name. It’s a situation where we’re paying the same or more for services, but they kinda suck compared with what they used to be. We propose a new word to describe this stealth-ninja kind of inflation: skimpflation. It’s when, instead of simply raising prices, companies skimp on the goods and services they provide.

About a week after my problem with Southwest, I found a friend had the problem with Singapore Airlines. Several days later, another friend was having a problem reaching the IRS. I tried not to laugh at that one, because there are so many articles explaining how hard it is to get ahold of anyone there. Their problem was particularly tough. They needed an ID number that the IRS had assigned to them and their tax specialist instructed them to call to get it. It wasn’t your standard question on how to fill a form – the only person with the information was the IRS.

When I discussed this with my friend, I explained that it seems to be going on everywhere. My wife has been reporting that the government’s mantra is “Do more with less” for the last two decades. Stretch… stretch… stretch. I have a theory that when one person quits they only fill that position some fraction of the time (maybe 50%?). That leaves more work for the remaining people, which makes it more likely that someone else will quit from being overworked. Maybe the last 10 years of big stock market gains makes people confident they have the money to retire?

What’s interesting to me is that the NPR article ends with the Federal Reserve and Treasury Department saying that the inflation is likely transitory. NPR said that they were probably right. The article is from six months ago and we know that inflation hasn’t disappeared. We know that the Federal Reserve was wrong. The Federal Reserve is acting to raise interest rates now and they have to balance curbing inflation without sending the economy into a recession.

In the meantime, what do you think? Do you find that services aren’t as good as they used to be? I do, but I also wonder if it’s a trick where nostalgia for the good old days is clouding my judgment.