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Friday, March 8, 2013

Money, money, money... All the Government ever talks about is money!


You’re a hustler. Everyday you wake up and it’s ‘Rise and Grind’. Hopefully, your business consists of more than just a Facebook page, 100 likes, and a few pictures of your wholesale products now for individual sale. There is nothing wrong with having your business start up on Facebook. I am aware of humble beginnings. But as of late, I am a bit worried about all my Facebook entrepreneur friends. It is quite possible that your business will flourish. Playboy was started with a $600 loan and a few investors. But while you are busy running your company and soliciting ‘likes’ on Facebook, I think it would be a good idea for you to think about your finances at a grand scale. Although many of us think we are ‘getting it’. We are probably only getting it for ‘right now’. Just ask MC Hammer. How did he blow millions of dollars? Bad money management? Not being informed? Not educating himself? Money has a tendency to be here today, gone tomorrow. With the economic crisis our country is facing, barely recovering from the last recession, it is time to start making better INFORMED financial decisions. Whether you are starting a business, trying to start up a savings account, trying to figure out how to invest a few hundred, or thinking about retirement… we all can benefit from a little financial guidance. 


Right now America is going through a self-inflicted hardship… And if you are a real contending hustler… you should be perfectly aware of the economic situation we are currently facing. Financial decisions that the government makes impacts us. And it may not be an overnight change, but it eventually creeps in. How many business owners or home owners lost everything due to the recession  It wasn't necessarily predictable but we knew the government was having financial problems for quite sometime. And in order to know what's going to happen with your money, it's good to watch the government and the big boys on Wall Street so that you can be prepared and save up for a hard hitting rainy days.

 It’s hard to keep up with all the political jargon - financial cliff, sequestration, debt ceiling, and etc., but to be aware is to be prepared. I was not sure what all these terms meant, but I have a tendency to Google things when I am curious… and I wanted to make this a one stop shop for all my uninformed readers.

The DEBIT Ceiling

What we consider the ‘debt ceiling’ is the maximum amount of money the United States can borrow. However, the debt ceiling is raised whenever the government comes close to the limit. The debt ceiling was created under the Second Liberty Bond Act of 1917, putting a "ceiling" on the amount of bonds the United States can issue. By hitting the limit and missing an interest payment to bondholders, the United States would be in default, lowering its credit rating and increasing the cost of its debt (Investopedia 2013). Sounds like a self inflicted wound. For one, it is not required nor is it necessary to have a debt ceiling. And since 1944 the debt ceiling has been raised 94 times. So why does Congress have a debt ceiling in place when it seems to cause more harm than good? Most democratic countries do not have a debt ceiling in place. 

So what is the purpose of the debt ceiling when they can just raise it whenever needed? Think about your monthly budget. You have it in place to know how much you would like to spend at a given time. You can spend more than what you placed in your budget, but you will be more aware of the consequences. I assume this is the greatest purpose of the ‘debt ceiling’. It engages the President and Congress in conversation. With the debt ceiling, it allows the citizens of the US to know how progress is going. But then again, being informed is simply that… being informed. And it seems like we are constantly being informed of an increase in debt that US citizens have no control over.


Although the fiscal cliff was averted, it’s is important to know what it was and what occurred. The end of 2012 marked when the Budget Control Act of 2011 would come into effect which ended temporary payroll tax cuts, tax breaks for businesses, and marked the beginning of taxes related to President Obama’s health care law. With the Budget Control Act coming into effect and tax breaks coming to an end, there was also a ‘fiscal cliff deal’ that was implemented on January 1. The most important details about the deal includes the payroll tax which has increased to 6.2% for individuals making an income of $113,700 or more, and there was an raise in investment tax, increasing from 15% to 23.8% for individuals in the highest tax bracket and a 3.8% surtax on investment income for individuals earning more than $200K and couples making more than $250K. The deal will raises taxes on 77.1% of U.S. households. However, they did extend the Bush-era tax cuts.


Sequestration is the term used to describe the governments forced budget cuts. The sequester was suppose to start at the beginning of the governments financial year (also known as fiscal year), which was September 1, 2012. However, it was pushed back to allow Congress to focus on the fiscal cliff. They gave themselves until March 1st 2013 to come up with a budget that would reduce the governments spending by 1.2 trillion dollars over a nine year period. And if they couldn't come up with a plan, which they haven’t, the sequester would automatically cut funding from government agencies across the board (leaving only a few pots of money safe, i.e. social security, military personnel, and Medicaid).

Many news reports are not recognizing the fact that the governments fiscal year is half way complete and that the $85 million budget cut for 2013 is not impacting an entire 12 months of spending, but will be pulled from the remaining six months left of the Fiscal Year 2013 which ends October 31. Many government employees working for the DoD will be furloughed a day a week, causing their salary to increase my 20%.

The government is the heart of the United States economy. Government spending is reduced, causing civilian employees and other government workers to have a reduction in salary. This then trickles down to contractors. Once their pay is cut that equals less spending at retail stores and restaurants. No one knows exactly how this will impact the economy, but from my point of view, it doesn't look good.


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