Debt, Debt, Debt, Debt

Debt is one of the primary underpinnings of the economic turbulence we are now experiencing.  In the last 50 years debt has gone from something occasional to something universal, embraced and now endemic. Borrow against the future to pay for today.  Debt, debt, debt, debt is like the drip, drip, drip, drip of a faucet that slowing fills up a sink and overflows.  The four debts referred to here are personal, corporate, city and state and federal.  All of them feel as though they are beginning to come home to roost and the outlook, if not faced and dealt with, will come together with dire consequences.

Personal or consumer debt is a relatively recent phenomenon.  Diners Club launched the first widely used credit card in 1950.  Before that, consumers paid cash or made a down payment and had a short term low interest payment.  The idea of the Diners Club card and then seven years later the American Express card was to allow people who entertain or travel to not have to carry large amounts of cash.  It was expected that bills would be paid in full every month.    Up until this point, consumers bought goods when they had the money to pay for them.  Now of course people buy things with cards as they often don’t have money to pay for them.  Immediate gratification in a materialistic society that bombards consumers with literally hundreds and thousands of advertising messages a day.

Companies have long used credit and debt to build enterprises as most businesses need to invest in advance of revenues.  This led to the creation of rating agencies to rate debt for investors.  Companies that had a track record of prompt debt repayment or had strong balance sheets received top ratings and lower ratings went to those that didn’t or as is now often the case, had already taken on too much debt. 

In the second half of the 20th century cities and states undertook all kinds of infrastructure projects and issued bonds to pay for them.  This led to an ever increasing reliance on debt markets to fund build and expand, usually driven by local boosterism and political promises made.  Once the drinking from the debt trough became accepted, ever more debt was taken on.  There are many states that require balanced budgets.  In order to balance the budgets, states often borrowed from accessible places such as state pension plans.  For example the state of Illinois must, by law have balanced budgets, but as of this writing they have only balanced budgets by taking on debt that now totals $50 billion.  Somehow this is to be paid in the future by current and new residents.  Keep the people happy today and forget about tomorrow.

The most disturbing debt, in term of long term consequences is the federal debt.  The federal government states that the national debt is only a bit over $9 trillion.  When you add in the obligations for social security, Medicaid, Medicare and veterans benefits the total increases to over $55 trillion.  To put this in even more perspective, it took the time from the presidency of George Washington to the presidency of Ronald Reagan to accumulate $1 trillion of national debt.  The inability of the federal government to control spending, combined with tax cuts, combined with compounding interest has, in the last 27 years added $4 trillion to the national debt. But our public debt does not include all of the promises that we owe our seniors, including our veterans.  If you include these commitments, our national debt totaled $20 trillion in 2000.  In the eight years since then this debt has grown by $34 trillion. Every living American’s share is now more than $180,000. By the way there is no “lock box” for social security.  There is nothing invested for social security.  Payments come from incoming tax receipts.  As many regular readers know, I have worked with the Institute for Truth in Accounting to launch the web site www.truthin2008.org which provides a wealth of information about this time bomb.  Educate yourself, for as Thomas Jefferson said: “An informed citizenry is the bulwark of a democracy”.  For more quotes related to the national debt, click here.

The national debt is one of the key issues America must face within the next decade if it truly wants to remain a great nation.  In this election year, the two questions to ask any candidate are: How do you plan to pay down the national debt? And then: Where will the money come from to fund the programs you are advocating?  I promise that you will not get a straight answer on either question.  This is the other inconvenient truth; the one that most politicians want to avoid.  By any measure of acceptable accounting, the Federal Government of the U.S. is bankrupt.   It doesn’t take a futurist to understand the consequences of not facing up to a bankruptcy.

7 Responses to “Debt, Debt, Debt, Debt”

  1. Mando Rousti Says:

    This is truly scary. What is even more scary is the general lack of awareness that people have about these facts. We live in a bubble, that like the debt bubble, is starting to reach its bursting point. Things will get uglier before they get better, in my view. Yes, we are a bankrupt nation, not just in a financial sense, but also from a morality standpoint. The pervading societal attitude of people is similar to that of its nation and representatives as a whole – falsely optimistic and self-centered. “To remain a great nation” you say – I would say “to become a great nation”, because at the moment, and for some time now, we have been far from that.

  2. Dale E Petrishe Says:

    And what is more frightening, is who ‘holds’ that debt! Who is going to get the American citizens to understand that the Chinese now hold the economic stablity of our Country in their hands! We are spending the dollars they are loaning us to sustain an unstainable way of life. No bombs, no invasion – all they have to do is unload their dollars. Can any stateman get elected running of a platform of ‘having what we can afford vs what you want’?

  3. Jon Says:

    People need to take personal responsibility and stop spending more then they earn. I often hear the stories of people in massive debt, yet they claim they have every right to own a giant gas guzzling money sucking full-size pickup, take trips to Las Vegas, have the nicest cell phone, buy the newest ipod, and eat out at California Pizza Kitchen or the Cheesecake Factory every week.

    Then they start saying they might declare bankruptcy to get out of the hole THEY DUG FOR THEMSELVES.

  4. Darryl Says:

    I can clearly remember my grandfather (born 1900) saying that if you don’t have the cash for it, don’t buy it. He practiced that his entire life and was able to run a 500-acre farming operation that way.

    Hand-in-hand with debt is the abysmal savings rate in this country. It is with savings that we do find a way out of the debt cycle. By building up a cash reserve first, you can alleviate going to the credit cards in times of need and you empower yourself to live a pay-as-you-go lifestyle.

  5. Ben Says:

    Debt exists primarily as a function of distribution of wealth. As most of us are not wealthy there will always be debtors.

  6. Future Forecasts: Debt, Housing and the Stock Market | Evolution Shift - Futurist Blog Says:

    [...] in a subsequent detailed column on debt, I followed this up [...]

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