Sequestration: Yea or Nay?

[GIThruster]

Here's the consequences of the sequestration to the US Navy:

http://video.foxnews.com/v/219098784800 ... 3226511001

About a 1% cut. Obviously, this entails no dire consequences. To listen to the doom-saying of politicians protecting their share of the pie, you'd think we won't have an active navy if the sequestration goes through. That's obviously bullshit and the Secretary of the Navy is likewise full of shit. Look at the way he stammers and fails to explain his forecast when the actual numbers are put before him.

This is just civil servants being civil servants. The rule of the civil servant is protect your funding. But in an age where the debt of our nation poses a more serious threat than Iran, or North Korea, or any other world trouble zone, I just can't sympathize. This seems to me adequate support for the argument that we need the sequestration because we can't get politicians to act responsibly.

Not that I want to see the navy lose a single penny, but if a 1% cut is what is required to get our financial house in order, I say the navy can start making real plans for real cuts and stop boring us with the doom-saying bullshit.

[Skipjack]

Article about the effects of the sequestration on commercial crew:
http://innerspace.net/2013/02/26/spacex ... cial-crew/

[ladajo]

The issue with the navy is two fold. One is sequestration cuts, the other is the Continuing Resolution.
The navy is in a position where OM&N is taking a big hit due to the way the legislations are worded.
The navy is looking to be around $9 billion short. The two primary ways to make it up are from maintenance accounts, and operating costs. Ships at sea burn fuel & parts. Ships in port do not burn fuel or parts. Deferring maintenance is another bug chunk of change. Unfortunately doing this will coimpund the downstream affects of the already undermaintained & over utilized hulls. The force is already beaten down, this is not going to help. Personnel costs can not be impacted on the active duty side, so they are looking to cut 20% from the civilian side with essentially 4 day work weeks for them.
The force is going to suffer for this.
It will still function, but there will be issues up front and longer term. Especially if the drama plays forward.
It is truly a wicked problem.
Look that up if you don't know what I mean.

[GIThruster]

I know what you mean. Any/all cuts are painful. But 1% cuts are not catastrophic. They are in fact what everyone in government needs to expect for us to get our house in order. Everyone needs to be doing this. Pretending that cutting billions won't hurt would be wrong, but pretending we can continually manage this level of debt is much more wrong.

If the Secretary of the Navy doesn't have a plan for managing the cuts that leaves our fighting forces effective, then we need a new Secretary of the Navy--not this kind of bullshit he's peddling.

[ladajo]

Please do not get lost in the fact he was confronted with Federal Budget numbers, not navy numbers.
DoD is going to take a hit. It is a fact. $9 Billion for the navy in OM&N is huge.
His point is that if you want to make cuts, then say, "make the cuts, decide how". Not, "make these cuts here. You have no choice how".

[Teahive]

See the problems now?

Now translate this concept to earnings on business loans and other mechanisms where repetitive percentaged based functions (compounding) are applied.

I don't really see the problem. But it is necessary that the company actually grows revenue sufficiently YoY to be able to afford these raises. If the company grows at the same rate, it simply means that the employees' relative share of the pie stays the same. Whether that actually represents the value contributions of each employee depends on the specific work done.

Compounding on loans is simply the equivalent of repeatedly lending an amount over a shorter period. If you are lending amount X for, say, two years, it's like lending X for one year, then lending X plus interest received for another year.

[GIThruster]

His point is that if you want to make cuts, then say, "make the cuts, decide how". Not, "make these cuts here. You have no choice how".

I wasn't aware this is what sequestration requires. Are you sure we have a congressional mandate about how to do the cuts? I find that odd in the extreme.

He was asked for details about what would happen if there's a sequestration, and he answered with lots of details. Are you saying that the super-comittee decided on all these details? That would be shocking to me. I had presumed (albeit casually) that the details of the cuts were left to the Navy and the Secretary was painting this picture of gloom and doom in order to press his case and protect his funding.

Are you saying, that the super-comittee actually specified what groups would sail, get maintenance, be battle ready, etc.? I find that hard to believe. I think rather the secretary is passing the buck and claiming his hands are tied when they're not.

[Maui]

Consider the question; Why do companies give percentage based raises on an annual basis?

Because of inflation.

And a 10 year cummulative in the pocket $$$ earned increase for each worker position with an annual 3%:
Entry: $36,156
Manager: $72,312
Executive: $180,780

See the problems now?

No, because factoring in inflation, they are making the exact same as they were 10 years ago.

I suppose your point may be why the government targets a low inflation level rather than zero inflation. Personally, I question what difference this really makes. If anything, I think it offers some benefits:

Some inflation adds to the opportunity cost of sitting on money. If you knew $10 would be worth the same in ten years, you'd be less likely to invest it in something that can earn you a return, therefore shrinking the money supply and making it harder to get $ for a new business, a car, etc.

Also, it wouldn't be an easy thing for most businesses to go around telling it's less productive workers to take a pay cut every year. In fact, in many cases contracts are involved that don't allow pay to be reduced. Inflation offers a mechanism to do this-- not handing out a yearly raise is effectively cutting someone's pay as long as there is inflation.

Now translate this concept to earnings on business loans and other mechanisms where repetitive percentaged based functions (compounding) are applied.

Again, I don't really understand your point. What is the alternative here? Compounding is what happens naturally when you pay a percentage of the loan principle on a regular basis. To avoid compounding you have to remove time from the equation. But if the total interest you pay on a loan is the same regardless of how long you borrow the money for, what incentive is there to pay it back? And what incentive is there for someone to loan it to you?

I still feel like you are arguing with mathematics here...

[Maui]

But right now you can make interest payments until the moon turns blue and not pay any on principle (think credit card) and if you keep borrowing you can eventually end up unable to pay down the principle amount and everything goes to the lender in interest payments.. Good for the lender, bad for the borrower and a unstable economic decision when the borrower defaults.

So instead it would be better if there was no such thing as a credit card or a credit line? Because I don't know how they could exist without compound interest.

I think it's best (when possible) to allow the market to do what it does best. The potential for poor decisions on the use of certain products by some consumers shouldn't be an excuse to make the product off limits to everyone. I'm all for regulating the financial industry to make sure that don't take risks that jeopardize the economy as a whole (Glass–Steagall!), but to outlaw the concept of changing someone interest? Seems ridiculously heavy-handed. (this coming from a liberal!)

[Maui]

+1 to GIThruster. Not a word he's said in this thread I disagree with.

[KitemanSA]

Consider the question; Why do companies give percentage based raises on an annual basis?

Because of inflation.

And a 10 year cummulative in the pocket $$$ earned increase for each worker position with an annual 3%:
Entry: $36,156
Manager: $72,312
Executive: $180,780

See the problems now?

No, because factoring in inflation, they are making the exact same as they were 10 years ago.

Forget inflation. Even without it they are making the exact same ratio that they were before. Nothing has changed. Ladajo, you are being silly here, and it isn't even April first.

[paperburn1]

But right now you can make interest payments until the moon turns blue and not pay any on principle (think credit card) and if you keep borrowing you can eventually end up unable to pay down the principle amount and everything goes to the lender in interest payments.. Good for the lender, bad for the borrower and a unstable economic decision when the borrower defaults.

So instead it would be better if there was no such thing as a credit card or a credit line? Because I don't know how they could exist without compound interest.

I think it's best (when possible) to allow the market to do what it does best. The potential for poor decisions on the use of certain products by some consumers shouldn't be an excuse to make the product off limits to everyone. I'm all for regulating the financial industry to make sure that don't take risks that jeopardize the economy as a whole (Glass–Steagall!), but to outlaw the concept of changing someone interest? Seems ridiculously heavy-handed. (this coming from a liberal!)

You asked for “how do you finance without compound interest,” I showed you how it is done. This method does not do away with credit cards and makes financial institutions aware of Raising limits is not a good thing for the company’s bottom line. A self-regulating system. I make no claims of it being better or worse I was just informing you how it can be done.

[paperburn1]

without being Mean and not directed at any one person, I am truly amazed at how many people do not understand basic economics any more. They all claim to understand but cannot see the ramifications of an expanding credit economy. I am not sure what has change in our educational system to cause this to happen. (!Warning old man on soap box!) When I was going to high school they taught us the difference between simple and compounding interest. How to make a household budget. Savings strategies and purchase decision trees. Todays youth(under 50) seem not to be able to comprehend the credit sinkhole. For that matter most people seemed amazed when I give them the total of my purchase with tax before they ring it up the register. And have this deer in the headlights look when ask to multiply 15 times 7 in their head. I am not the sharpest knife in the drawer so it baffles me how people can not have these basic skills and survive unless they are doing it on a day to day basis with no fallback plan.

[ladajo]

If the company grows at the same rate, it simply means that the employees' relative share of the pie stays the same.

For one thing, companies do not grow at the same rate. Another thing to consider is the choice between reinvestment in company infrastructure and development, or widening the earnings gap. Why not give flat raises, pay more attention to contribution bonus programs based on profit/efficiency, and take the rest of the net take and grow the business (as well as return on investment to investors)?

[Maui]

Okay, well apologize if I misconstrued that people's intent here was to compare simple vs compound interest... I guess I read ladajo's original comments as a complaint about how inflation compounds over time (the same was compound interest on a loan does).

I suppose you are correct that credit cards and credit lines could work by billing you for the interest without adding it back on the principle... but I hardly think it unfair of a creditor to charge you interest on interest you haven't paid. In the end, it's all money you owe them.