Can We Rely on Government Finances?

What is the one thing people overlook when thinking about pensions or government benefits – including areas such as healthcare, education and law and order? Can my government afford it?

The world is changing and things we often take for granted are being fiercely debate by politicians everywhere. Changing demographics aside we live in a world where governments simply can not afford to spend like they have in the past. Take Japan as an example – the birth rate is so low that very soon the population will begin to decrease. The consequence is an aged population with fewer working and, as a result, a lower tax take. Lower taxes equals less money for the Japanese government to spend. Logic dictates a reduction in spending. While a slightly simplistic take, the same could be said for most developed nations on the planet.

So what gives? The reality is we can no longer rely on governments to be there for us – particularly for those of use still young and a ways off retirement. Generous pensions are a thing of the past and most developed countries face huge pension deficits we no real plan of dealing with it. Take the UK as an example – billions of pounds are paid each year to those with public sector pensions. If you take a closer look at the numbers you soon realise the bulk of the money comes from the yearly tax take, not the individual contributions each member makes. As the number of retirees increases so does the burden on the remaining taxpayers (not to mentioning people living longer as well as taxpayer obligations elsewhere). It may come down to a choice between a generous pension or free healthcare – just look at current NHS spending cuts. If the private sector is any indication then a storm is brewing.

People need to take a more active role in their retirement planning and if the first step is simply recognising that the blind faith in a government just being able to spend is dangerous. The pension issue always seems to bubble under the surface, usually overshadowed by big, short term money issues. The problem with pensions is the obligation never goes away, it just keeps getting larger and larger. Estimates in the US put the combined public sector pension deficit at between USD$1 trillion and USD$3 trillion – this is just deficit the actually liability (the amount required to pay everyone) is magnitudes above this. Something simply must give!

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How Did the Federal Government Finance Itself Before the Federal Reserve?

After the end of the “first” and “second” Bank of the United States, the Federal government had no bank from which it could draw credit. This period began in 1836, after the charter of the “second” bank was not renewed.

In 1836, President Andrew Jackson wanted the United States to spend within its means and to not use credit from a bank. However, the bank interests were determined to revive the relationship between the U. S. Treasury and its dependence on credit. So, they waited for the next President to hear their proposals.

President Martin Van Buren rejected suggestions for a new bank, proposing instead the creation of a sub-Treasury system whereby the Treasury would require payment in gold and silver and collect its revenues directly, rather than through financial intermediaries. Van Buren hoped to advance the cause of hard money by completely separating the federal government from the banks.

The Independent Treasury Act of 1846 separated the Treasury from the banking system. The act instructed the Treasury Department “to keep safely, without loaning, using, depositing in banks” all the money it collected. All transactions with the Treasury were to be settled in either money or Treasury notes.

For the next 67 years, the United States financed itself using the Independent Treasury system. Prices were stable, the Federal government was small, and the standard of living improved dramatically during this period. The only disruption to the system occurred during the Civil War. However, it was quickly restored once the war ended. The United States government financed itself, without banks, for more than half-a-century!

In late December, 1913, the United States Congress passed the Federal Reserve Act. It spelled the end of the United States Treasury’s indepndence from banks. While the Independent Treasury Act was not officially repealed until 1920, it was effectively over once the Federal Reserve System became established.

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Government Financed Small Business Loans

Government small business loans, which the government uses to assist deserving small businesses, have a set of provisions and conditions to be met by businesses prior to their approval. If the terms and conditions continue to be observed by the businesses, the government provides lenders the guarantee. There are particular conditions imposed on government financed small business loans.

Alternative Loans for Businesses

The task of looking for capital to start us a new business or expand an existing one is indeed, quite difficult and can take a whole lot of time and often provides stress and frustration. But, being similar to all worthwhile tasks, some bit of strategy as well as doing the groundwork beforehand is critically important for making the business a success. Getting a loan is much like engaging in a business partnership where almost all, if not all, of the prospective partners would like to be assured that you have studied your possibilities and have a clear idea of your needs right before you engage them for your business loans.

Excellent means for getting loans for your small business

A regular cash flow is required to run any business. However, it can be quite a challenge to find the source for it. The most appropriate solution to this conundrum is a small business loan; however, getting this particular type of loan requires a lot of preparations. Right before the loans can be approved, the lending institutions as well as banks examine in detail the risk factors against the borrower. Your loan request will most likely be refused if you are not prepared to meet the requirements of the lenders.

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