I just threw up...

I just threw up in my mouth a little bit…

In the past several months, I have paid acute attention to the competition for the Republican Presidential nominee. Much of the rhetoric has centered around the need for reduced government regulation, reduced government spending, and paying off our national debt. Of course, this is the same platform that every presidential nominee, regardless of party, has been trumpeting since the early 1970s. What’s ironic about this message that is being preached right now with vigor and passion is the fact that no president of the past 40 years has reduced regulations, deficits, or debts in the time he has been in office.

As evidence, I offer a quote from a politician: “The full consequences of a default – or even the serious prospect of default – by the U.S. are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar. The current debt level is unsustainable and puts us on a trajectory for financial collapse and ruin”. That was said in 1983 by Ronald Reagan, almost 30 years ago. At the time, the U.S. debt level was a paltry $900 billion. Today, out debt level is approximately $15 trillion, more than 16 times the level of debt when Reagan made his dire forecast. So why don’t presidents and politicians, when elected, reduce debt/deficits/government in the name of financial prosperity? And what does this mean for all of us?


Let’s answer that question by looking at some sobering statistics:
1) Each U.S. citizen owes $49,000 as his part of the national debt.
2) Each U.S. taxpayer owes $136,000 as his part of the national debt.
3) The U.S. government spent $3.6 trillion in 2011, and brought in just $2.3 trillion. For those scoring at home, that means our govt just put $1.3 trillion on our credit card.
4) About 70% of the spending is for Social Security, Medicaid, and Defense. And of course, nobody wants to reduce these at all.
5) $51,000 is the amount of personal debt (mortgages, vehicles, CC, etc…) we carry per citizen.
6) $12,000 is the amount of interest we owe per citizen each year as a result of govt spending.

If these numbers aren’t enough to make you pull your hair out, or throw your spaghetti dinner plate against the wall, then you may need to consult a local physician for pulse irregularity. In other words, $15 trillion of our dollars have been spent without our consent, knowledge, or approval by men and women who do not have the training, knowledge, or ability to manage money. Let’s think about this from an individual’s, or families’, perspective.

Let’s say a family of four has $50,000 in credit card debt. Let’s also say that this family cannot make the interest payments on its credit card debt and still afford rent, groceries, transportation, etc…. Most financial planners will tell this family that there are 3, and only 3, ways to improve its financial situation. First, it can stop spending. Second, it can earn more income. Third, and the preferred method, it can combine the first two. If this family of four stops spending and earns more income, it will eventually position itself for financial success at some point in the future. So does the U.S. government follow this sage financial advice? No, instead it continues to spend without reducing any debt and continues to borrow thinking that the mistakes of the past can be covered up with new, fresh borrowings to be repaid at a later time. And the reason that it does this is because the President is only elected for four years at a time. What does he care about reducing the debt when he won’t be here for very much longer? A man won’t make a 50 year decision if his life span is just 4 years.

So now the climax: what’s in it for you? Why should you care? What does this mean for you, your family, and the ones you care about? First, debt is expensive. The more you borrow, the more expensive it is to borrow. This cripples economic growth and will adversely impact your ability to find gainful employment and find financing for a small business idea that you have. Second, what happens when the U.S. can’t make its credit card payments any more? The same thing that happens to you and me. Your credit becomes no good and you can’t buy anything of value: homes, vehicles, education, etc…. Except the government default is much more sinister. Its money is no longer any good and the money in your bank account cannot buy what it used to. Fun times. Third, the government has to print money to pay its debts. So you may think, well problem solved then. Except inflation is perhaps the most imposing enemy to our money. It increases the cost of everything you purchase from gas to groceries to durable goods. You probably like $3 gas right now. Will you like it at $8/gallon? Bread sure tastes good at $1 a loaf. How good will it taste at $5 a loaf? These are the challenges we face as a generation if we don’t rein in our government.

We should all remember that they work for us, not the other way around. Demand that your local representative stop spending your money. Demand that they pay off your credit card bill. Demand accountability or fire them. You are the boss of the American president, the U.S. Senate, and the U.S. House. We’ve forgotten this principle over the past 50 years and you see the financial result. Let’s not forget any more.

Sabin