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!
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GE Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 - 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking. His articles are published on Deviant Investor as well as other popular sites.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
