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Student 1 Post

Cash management is very simple in concept.  What makes it so hard in practice?

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Cash management as it pertains to government budgets can be a difficult task to manage for a number of reasons.  The simplest reason would be that a government would essentially need a surplus in their budget to generate revenue to have cash on hand in the first place.  This can be a simple task on paper when the budget is developed in the planning stages but as the cash gets pulled in unexpected directions throughout the fiscal year, the cash on hand will likely dwindle down. 

Another reason is how that cash is handled.  Nice and Fisher state that when possible, cash should be invested to try to generate some for of return on their investment, whether that be from interest or dividends.  This is particularly important for accounts that hold large sums of money such as pension programs or retirement accounts.  Officials that oversee these accounts typically want something that is secure with minimal risk while also generating the highest rate of return to supplement the account or program.  This can lead to bad investing, reducing the amount of cash available.  When looking at smaller local governments, they may be forced to combine cash with other agencies to be able to invest in an investment option that would require a larger sum of money than they have available to invest.  This can be a risky endeavor as was demonstrated by Orange County, CA in the 1990’s.  The County treasurer managed an investment pool of $7.5 billion but invested in markets that were more on the risky side.  As the markets moved in the wrong direction, others that were involved in the pool began withdrawing funds and the investment pool ended up losing $1.7 billion.

The process of accelerating collection (typically via taxes), and controlling disbursement until the funds NEED to be disbursed will allow for cash to be available for short-term investments.  This process will also allow for a greater amount of liquidity in case of unforeseen expenses.  This can be a simple process made difficult if sound investment is not taking place or if revenue is being collected over longer periods of time which can lead to an uncertain budget. 

Nice, D. C., & Fisher, P. (2016). Public budgeting. San Diego, CA: Birkdale.

Student 2 Post

1. Capital budgeting would appear to decrease the federal deficit and perhaps reshape the federal debt picture.  In order to use capital budgeting, the useful life of the item purchased has to be determined.  What is the useful life of an intercontinental ballistic missile?

The current average shelf life of a missile has been extended from 7.9 to 22.6 years according to DefenseTalk. Nonetheless, the 22.6 years is not the useful life of an intercontinental ballistic missile (IBM), nor the number of years this equipment will remain operable, because IBMs are detonated once and that becomes the end of the useful life of it.

Notwithstanding, the useful life of an IBM is the amount of power it confers on the possessor to ward off external aggression, with economic purposes as the end in mind. For instance, the Monroe Doctrine afforded and still affords the United States a reason to maintain hegemony in the western hemisphere to forestall further colonization in the Americas, especially from encroachments during the Napoleonic wars, with the U.S as the sole trading partner in the region.

In February 2018, Secretary of State Rex Tillerson raised the Monroe Doctrine to ward off Chinese trade ambitions in Venezuela and touting the United States as the region’s preferred trade partner. This victory comes with huge economic advantages and the resulting income can be used to defray part of the federal debt and provide funds for further capital budgets.

Maintaining such influence is not by word of mouth but by the possession of IBMs and this is where the useful life of IBMs come into play.

The Cold war was a show of force between the powers and who had the most potent IBM won the day, so are the means of current warfare. Though fired once, and can have a useful life as short as when it is expedient to use, (possibly right from production during wartime), it is in the possession and the strength it gives and the economic benefits that accrue as a result of its possession, that measures the useful life of IBMs.

Sources:

Monroe Doctrine – Wikipedia

US Army researchers extend missile system shelf life | DefenceTalk

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