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David Walker is one of the few (former) government participants that has at least some understanding of the magnitude of the crisis with which America is faced. He is on the right track but, in my opinion, much too late. We WILL elect Mr. Obama or Mr. Romney as our CEO. Unfortunately, neither of them even begins to have the leadership (inspirational) qualities needed to instill or elicit the discipline needed by Americans or their Congress to stop the Fed from indulging in more $$ from the Tooth Fairy (the Printing Press). Remember, every $ dollar printed is a dollar stolen from “We the People” and future generations (now standing at $15 Trillion to 65 Trillion – and increasing daily).
For that reason alone, America as we knew it, no longer actually exists BECAUSE THIS DEBT CAN NEVER BE REPAID from annual tax revenues of (currently) only $2.3 Trillion offset by current spending of $3.6 Trillion. To stop this fiscal madness would literally take an immediate and effective Revolution by the American people to dismantle and stop the uncontrolled spending/printing machine (Government) we have created. There are no signs this will happen any time soon.
Sadly, the current generation of Americans were bred and raised on and are addicted to instant gratification, “entitlements”, short term thinking, zero financial planning and little personal responsibility. Today, people generally prefer the easy fix (print or borrow money) – and maintain an “I don’t give a damn” attitude about the greater price they will surely pay later: a SEVERE and LONG TERM decline in the American STANDARD OF LIVING due to the coming of inevitably High Inflation, High Interest Rates, Further Home Price Declines, Further Declines in Stock and Bond Values, Tight Credit Markets, More Bank and Corporate Failures, More Unemployment, and a general Decline in REAL Income – just to name a few reasons.
Because the consequences will be severe, we will continue our addict mentality: we will prefer to perpetuate the fantasy world in which we live. We will want to keep the party going just a little longer. Take a drag of the hallucinatory drug (print and borrow) just one more time. Try to get away with it just a little longer. Believe in the Tooth Fairy for one more night. Unfortunately, this mentality applies to too many people, including those in their early 20s looking for a job to the likes of a Mr. Bernanke, Chairman of the Federal Reserve Board, looking to maintain their high level position. This is why Mr. Walker’s book and speeches will fall on deaf ears.
My challenge is for anyone to show me, with hard evidence, where in this post I am wrong. God knows, I want to be wrong.
We’re certainly living in interesting times and I don’t believe the current challenges we’re facing are going to be fixed in one term but rather over a 20-40 year period. The key will be to teach the most basic values and principles. Create a condition for the Entrepreneur to rise up and create a surge in the economy. It won’t happen by crippling the lifeblood of the economy. This will require many of the baby boomers to be willing to take some time to share wisdom and experience with the Millannials as well as the Millennials having the desire to want to learn and lead. It’s a tough task but I believe the right leaders with courage, desire, and determination will find a way to get together and collaborate a solution.
With me being in the insurance and finance business, my apparently well-to-do neighbor, Joe, asked me to review the financial condition of his family and business. He was looking for assurances that his extended family is on the right track to,
(a) enable every family member to live out their life in the comfortable style to which they are already accustomed,
(b) ensure a substantial legacy to the young ones, and
(c) pass on an opportunity for a similarly idyllic life to their as yet unborn generations.
I thought, these were wonderful, worthy, realistic goals until his auditor/CPA handed me the books (he had NO personal or business budget or plan). Here is what I found:
INCOME: $230,000/yr. – from a floundering but promising family business needing substantial capital infusion for stability and growth.
EXPENSES: $360,000/yr. – to pay interest on debt, manage the business, partially fund their lifestyle, but excludes capital infusion to the business.
NET WORTH: ($1,500,000) – negative net worth, no savings, no life or health insurance, no equity in house, car or belongings, continually increasing short term debt resulting from insufficient income/excessive expenses. Apparently, Joe has a rich but shady uncle who can always lend Joe money when he needs it.
OTHER LIABILITIES: ($5,000,000) – for future obligations, including funding the healthcare and retirement of their many elderly family members.
After some deep analysis, my exceptional, double digit horse IQ enabled me to make three clever observations:
1. This family is effectively BROKE,
2. they will leave ZERO legacy (except maybe a lesson in fiscal responsibility), and
3. their unborn heirs will have to pretty much find their own way in a hostile, tough world – AFTER they pay off $6.5 million of inherited debt – MORE if they don’t IMMEDIATELY prepare a fiscal plan, decrease their spending, increase their income by focusing on their business, stop their borrowing, curtail their lifestyle, AND teach their younger members how to think, plan, work hard and live within their means WHILE THEY RELIGIOUSLY PAY OFF THAT $6.5 MILLION of debt.
Joe dismissed my concerns with a smirk, the smug look gamblers have when they hold an ace up their sleeve. He said, “Peter, you are SOOO old school! Our loans are MADE to be rolled over – there is no need to pay them off. Besides, EVERYBODY KNOWS, they could be easily paid off from our future increased business income.” I was speechless.
With that, I walked home. On the way, the calculator in my smart phone told me, a $6.5 million loan will actually pay off in 100 years with payments totaling $360,000 per year including interest at 5.5% (unless rates rise over the years). I wondered, is that what Joe had in mind? But, but, but – his income would have to increase THREEFOLD just to break even!
Then it occurred me: the U.S.A. is facing the IDENTICALLY critical problems as Joe’s family, but for exactly SEVEN ZEROS missing from each number. Even Joe’s attitude to debt matches…
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