Macon, Georgia's Bond Rating Is Increased! Whoopdy Doo.

A recent article (Nov. 09) notified us that Moody’s Investors Service has raised its bond rating of our dear city of Macon . It seems to me, from comments I have read, that the many people are tickled pink about this and look at a favorable bond rating as a positive thing. I challenge that way of thinking for several reasons.

To understand what a bond rating is, we must first understand what a bond is. According to Princeton University , a bond is a “certificate of debt” that is issued by a government or corporation in order to raise money. The issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal.

A bond rating is, an evaluation by a rating company (Moody’s) of the probability that a particular bond issuer (Macon) will default.

A bond rating is equivalent to a credit score, which most people are more familiar with. In today’s world it seems we, as a society, have been taught to run our lives based on our credit score. Not so long ago people and cities would save for goods or services they wanted to buy. In recent decades however, we have been conditioned to use debt as a tool to get what we want immediately. Like children on the cereal isle whining and pitching a temper tantrum, “I want it and I want it now!”, we run to lenders, instead of acting like adults and devising a plan to save and pay for those things.

Financial expert and best-selling author, Dave Ramsey, says a credit score is an “I love debt score”. Fair Issac, the inventor of the credit score, called FICO, backs that statement up with their FICO rating algorithm. Their website, MyFico.com, states that your credit score is calculated based on your rating in five general categories:

Payment (of DEBT) history - 35%
Amounts (of DEBT) owed - 30%
Length of credit (DEBT) history - 15%
New credit (DEBT) - 10%
Types of credit (DEBT) used - 10%

I added the word debt in the above for emphasis, because that is what it is. The word debt should always be substituted for credit because it forces you to think about what it is with your heart instead of just your head. You can not have a credit score without paying on debt, being in debt or having been in debt. A credit score is an “I love debt” score and the scary thing is that it is normal.

The whole topic of debt, whether it is for a municipality, company or individual could be argued endlessly one way or the other. But in a world where so many people and cities have too much month left at the end of the money, I do not want to be normal. I want to be weird. I want out of the land of payments. I want to build wealth, spend with a plan and be in a position to give. Debt takes those options away and at the same time, increases risk. This is true whether you are operating a budget for your family or your city.

So, a great bond rating does what? It allows, even encourages, our city to go into debt to get what we want and get it now. I suggest, we cut cost, spend with a plan and save for future purchases. I suggest we don’t worry about our rating, because it only serves a purpose if we intend on worshiping at the alter of debt. Fancy pants, academics and folks with lots of letters after their names like to argue that it is not always mathematically logical to use the “one payment plan” I am suggesting. They fail to do a sophisticated financial analysis that factors in risk (beta) along with taxes and inflation. I argue that if we used logic, people and cities would never find themselves being foreclosed on, filing bankruptcy, having property repossessed or not being able to make payroll. We need to have an “emergency fund”, pay for what we buy when we buy it and save for future purchases.