Hypothetical 65 year old American Male:
- Height: 5’10”
- Weight: 285 pounds – 120 # overweight
- Health: Marginal, with chronic pain and increasingly
difficult daily existence
Ask our hypothetical male if he wants to lose 100 # of unnecessary fat,
improve his physical health, live 10 years longer, increase stamina, reduce
chronic pain, and drive a golf ball 50 yards longer off the tee.
Reason: He is addicted to his food choices, alcohol
consumption, smoking, other activities, thinking and emotions which created
ill health, chronic pain, and 120 pounds of excess weight. Different actions
and choices are needed, but most people prefer not to modify their habits and
behavior.
The Process: Change the quantity and type of food he
eats, reduce alcohol consumption, add strength training and flexibility
exercises, modify habits, quit smoking, and radically adjust his lifestyle.
Most people will not make the effort.
The actions, thinking and emotions that created the problems will
not fix those problems. Drastic change is needed or his health and quality of
life will deteriorate.
Most people (nations, families, cultures, central bankers,
governments etc.) will not change their lifestyle and habits. They will
continue doing what created current physical pain and financial ill health.
FINANCIAL EXAMPLE:
Suppose the hypothetical American family has $200,000 in credit card and
mortgage debt. Income is approximately $40,000 per year. Assume annual credit
card and mortgage interest rates average 8%. The interest only on the debt is
nearly half the annual income, before many taxes and living expenses.
Reducing the principal balance with minimum payments consumes most remaining
income – for a very long time, assuming this family could somehow survive
without increasing their debt.
This is a problem.
The numbers do not work unless the family can (magically)
increase their debt each year – use a new credit card until maxed out, and
then do the same with another credit card. Unfortunately, the minimum
payments will soon consume the entire annual income and crowd out the
family’s ability to pay for necessary living expenses. The credit card issuing
banks may think “deadbeat” and refuse to expand credit limits or issue new
cards.
This is a problem.
Compare to The U.S. National Debt and Government Finances:
Multiply the debt and income for our hypothetical family by 100,000,000 to
appreciate our national debt dilemma. Total official debt is $20 trillion. (Unfunded
liabilities are much higher and are not considered in this simple example.)
Annual income is about $4 trillion. But the rules are different at the
national level:
- Interest rates are held low. Instead of 8%, the
government currently pays only 2 – 3% on the $20 trillion in debt.
Eventually risk (currency plus default) might be appropriately
priced and interest rates could rise.
- Debt increases every year. In effect the national credit
card has no credit limit and congress spends more every year. To quote a
former Vice-President, “Deficits don’t matter.” (But they do!)
- Expenses will increase rapidly due to the demographics
of retiring baby-boomers, huge Medicare and health costs, and war, lots
of expensive wars.
Since 1913 the national debt has doubled approximately every 8 – 9 years.
Assume it doubles every 8 years from 2017.
Year Debt
2017 $20 trillion
2025 $40 trillion
2033 $80 trillion
2041 $160 trillion
2049 $320 trillion
This is a problem! It will become a crisis!
THE THINKING AND ACTIONS THAT CREATED THE CRISIS WILL NOT FIX THE
CRISIS!
If the national debt exceeds $300 trillion in the year 2050, what will a
family of four spend for food in a week? Consumer Price Inflation will grow
into an ugly monster!!!
Like the example of the hypothetical American male in ill health, the same
thinking and actions will lead to ever-increasing unpayable debt, a weaker
economy, excessive interest payments, and massive consumer price inflation,
perhaps hyper-inflation. A solution requires NEW thinking and
DIFFERENT actions.
New thinking and different financial actions should be initiated
by our Congress and Administration. Have we seen any positive changes or new
and helpful ideas in the last three decades regarding deficits, excessive
government spending, and ever-increasing debt?
The consequences of western financial actions and thinking will be
increasingly unpleasant for everyone but the financial and political elite.
More of the same will be increasingly less viable for the rest of us.
New thinking and different actions are needed!
