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The road to hell is paved with good intentions.
As much as we think that we have free will, the truth is that the systems we live in shape our behavior to a large extent. The advertisements we watch, the culture we grow up in, and the rules we are conditioned by determine what we think is “normal behavior.” There’s no better place to see this in action than Government spending.
Suppose you have credit at a supermarket that expires at the end of the year. What would you do? You would probably go on a shopping binge where you end up buying things you don’t even need. But did you know that the US bureaucracy functions the same way? Most Federal agencies have a “use-it-or-lose-it” system when it comes to funding – any funds that remain unused at the end of the year have to be returned to the treasury. If the agency can’t spend the funds, it might receive even lesser next year. So the default behavior is a mad rush to spend funds at the end of the year.
In a study of 14.6 million Federal procurement contracts by the NBER, it was found that 8.7% of the annual spending happened just in the last week. Spending at the end of the year was almost five times the weekly average! In addition, the quality of the contracts was subpar – IT projects procured in the last week were two to six times more likely to have a lower quality rating than usual. On the other hand, letting agencies roll over the funds to the next year improved both spending levels and quality.
This goes to show that creating a system without thinking through the consequences has unintended side effects that can last for ages. One such system is…
The debt ceiling
The concept of the debt ceiling was introduced in 1917 because it was cumbersome to ask for Congress’ approval on a case-by-case basis. Spending was flexible as long as it was within the nation’s “credit limit”. You know where this is going – Easy credit leads to spending issues. Government spending on absurd and ridiculous projects like $3 million on “a Hamster fight club” and $500k on a self-cleaning toilet is now passing without scrutiny, while the debt ceiling is becoming an increasingly political issue. The ceiling has been modified more than 100 times since 1917, but this time could be different – watch this video to know how accumulated debt affects your money, and what you need to do to protect it.
Is the debt ceiling a pointless system? What would be a better update for the times?
Checklist for home-buyers
First things first, this is NOT a great time to buy a house. Mortgage payments are high, the Fed still hasn’t signaled easier times ahead, and housing sales are worse than ever. Housing prices in the Bay area have fallen 25% in just the last eight months. But if you are still on the lookout for a long-term investment, you might as well do it right. Based on my experience with the housing market since 2008, here are some key pointers to keep in mind while finalizing a house or renting out to new tenants – especially in a down market. Watching this ten-minute video could save you thousands of dollars over the next ten years!
So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
See you next week with another bunch of exciting videos!
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Good advice on real estate; you are a profesional on that; i hope a lot of young people listen and read that. In terms of stupid things that the goverments do with our taxes is incredible like in south america. God help us!... thanks Graham.
Thanks Graham!