From Pastor Bill | Winter 2021

I wrote about the Founding Fathers in the last issue. There is a quote attributed to G. Washington that fire is a “powerful servant, but a fearful master.” That quote can easily be applied to debt: debt is a powerful servant, but a fearful master. Many financial advisors recommend never having any debt. That does not seem very practical to me. Maybe, I’ve just always been poor. It seems to me that some debt, properly managed would increase the prosperity of both the individual and the nation. The country’s first Treasury Secretary, Alexander Hamilton, agreed. 

I heard one financial advisor tell a caller that they should find a car “for sale by owner” to avoid debt. Evidently it has been awhile since he tried to buy one. The “buy here, pay here” lots snap those up as soon as they come out forcing low income people to buy from them. That puts a floor under the price of starter cars and requires poor people to pay exorbitant interest rates. This effectively makes them a captive car buyer for a long time. 

Debt can be useful for the purchase of cars, homes, major appliances, major home improvements or repairs and the like. Debt for those things does not harm your finances like debt for eating out or for clothing. How much debt you can safely carry depends on your income and your assets. If you have $2000 in cash then $800 in debts is a burden, but when you have $20,000 in assets, then that $800 is not a burden. Why would you use debt at all when you have $20,000? Where is the $20,000? Is it in a CD? Why would you break the CD to buy a Washing Machine? The other reason to use debt is that money is hard to save. It is harder to save the $20,000 than it is to make 0% interest payments to the appliance store for a year on that Washer. Debt can make sense a lot of the time. Used wisely, in balance with your income, debt can greatly enhance your life. 

Over the years I am struck by how many people do not have a working budget. A budget is a simple plan of what you are going to do with your income. Many people handle their money emotionally. Then after they have spent their money they can’t pay their bills. Why not rather have a simple plan to pay your bills? How about a plan to spend what is left over? Without a budget, debt can be financially deadly. For people who are going to hold and pay debts, you must know how much money you have available to make your payments. 

Accounting has a simple formula for how much debt can be safely held, current assets must be twice current debts. In like manner, the rule of thumb for mortgage debt and/or rent payments was 25% of monthly disposable income. If you make $2000 a month after taxes and deductions, then you could make $500 a month in rent or mortgage payments. The rule of thumb for all debt payments every month was no more than 36% of your income. This seems quaint right now, but it matters. Most people have finances that are grossly out of balance. It is much more important to work out your money than it is to work out at the gym. 

What about the United States? Our debt is over the GDP, or total production of our country. The Congress is working on a bill to build roads, bridges, utility lines and broadband. It is filled with pork barrel projects with no apparent value. They want to follow this with $3.5 Trillion in direct transfer payments to individuals. These are “entitlements” that will grow quickly and bankrupt our country. They are using what is known as modern monetary theory, which says you can print all the money you want. If this weren’t bad enough, they Federal Reserve, who manages our currency, is buying all of this new debt, effectively monetizing it. The definition of inflation is printing more money, which they are doing with abandon. This has never worked in any nation, at any time in history. It always ends in a crash. Always. 

We have already delayed all of the new military weapons that we were supposed to build from the Trump Administration. Direct transfer payments to people are already stopping us from rebuilding our military. Our military is focused right now on Critical Race Theory. China’s military is focused intensely on killing Americans. We are more interested in forcing “white” soldiers to admit that they have privilege, than on meeting the existential threat posed by Communist China. This is prophecy playing out. As Christians, right now is the time to turn to Jesus Christ and petition Him for help. 

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