The Harsh Reality of the 2016 Election; “The Credit Card Is “Maxed Out”
We hear a lot of campaign rhetoric about walls being built along the Southern US border, free college tuition, new expenditures on infrastructure, and beefing up the military.
The sad reality is that we have financial problems in this country. The first is a $20-trillion dollar national debt. To get an idea of how large this debt is, please note a graphic from 4 years ago as follows:
What we face is like a private household that finds that it now has a huge credit card debt. In such a situation one cannot start grandiose new spending projects. One can see one positive aspect here. There is no more money for new “boots on the ground wars.”
The second dimension of this problem is the geometrical increase in entitlement spending for Social Security, Medicare, disability payments, etc. In a recent speech Dr. Robert M. Pearl, CEO of The Permanente Medical Group in Oakland, warned that if we do not reign in healthcare spending in some 20 or so years medical costs will devour the whole US gross domestic product. (What we as a nation produce in goods and services in one year.)
The third dimension to this Federal financial program is all the guarantees that the US government has provided for pensions, bank accounts, retirement funds, etc. In accounting such things are called “contingent liabilities.” Learned economists make guesses as to how large this amount is but no one is sure.
I must give a lot of credit to Congressman Mark Sanford of South Carolina. He is a Republican and a conservative. My wife and I are moderates and Democrats. Mark is a professional who has devoted his congressional career to making people aware of the giant problem that we are facing. I told Mark, with great admiration, that I compare him to Sir Winston Churchill in the 1930’s warning the world about the dangers of Nazis and Hitler.
Elena and I faced a huge debt crisis in 2009. Our credit card debt had ballooned to over $130,000. Our house that was once worth $845,000 was down in value to $395,000. We had a staggering $745,000 debt on the house. We were “underwater” some $350,000. Many people walked away from their houses and declared bankruptcy.
My wife is from Argentina where bankruptcy laws are harsh and one does not walk away from their debts. We hired a brilliant negotiator named Alan Sherman. It was a 5-year battle in negotiations and in court but we settled with all the credit card companies, banks, etc. We are now free of credit card debt and have a house with positive equity.
Our debt of a few hundred thousand dollars was nothing compared to a national debt of $20 trillion dollars. Some Tea Party members in the U.S. Congress likened the whole national debt matter to a family that finds that it is spending too much. One would default on the debt and cut spending.
Some very sharp economists looked at this simplistic suggestion. They ran some serious computer simulations and the results are frightening. The minute the nation al debt is defaulted on, the following could happen:
1) All the commercial banks in the US would freeze up. One would not be able to draw out cash or use debit and credit cards. If one did not have cash and gold in the house, even purchasing the necessities of life like food, medicine, utilities, gasoline, etc. would not be possible.
2) The US dollar would crash in value.
3) Stock and bond markets would crash as a panic spread.
4) Great Depression II would follow. It would be far worse than Great Depression I.