March 3, 2009
Are you sick of this yet? Even if you’re unaffected by the recession of late, it’s likely you’re sick of the news, commentary, posturing, and problems. I know I am.
Yet I can’t seem to let it go. As a culture, I think, we all tend to look for some as-of-yet undefined, great, “The End,” somewhere ahead – a cataclysmic final page to the story of the individual, nation, or world. It’s built into our upbringing as Americans. And, just as I did during the first few days after September 11, 2001; I find myself wondering, “Is this it? This time?” And though I find myself feeling more worried over time instead of less, I still feel confident in answering, “Nope.”
Similarly, I’ve been asking myself over the past few months “Is it over yet? Is this it? Is now the time when things start turning around?” Agian, I feel some level of confidence in answering, “Nope.” What I want to do is tell you why I think that way.
The problems we face today, I feel, are caused by two problems with the great American economy. They are specifically that we embrace debt, and that certain parts of the American Lifestyle grow in expense faster than the average earnings of the average American. This second problem simply feeds the first, as we buy on credit so we can have the things we can’t truly afford. We do this again and again for things as basic as insurance coverage to cars, homes, groceries, and any number of other things. Eventually our flow of income is completely diverted to other sources and bills start going unpaid. The once profitable flow of cash and income turns back upon itself in a crushing wave of debt.
Because Debt and payment plans in general are such a basic part of the American Lifestyle it’s become an investable and insurable asset in the economy. But when this debt wave began to crest and break, those companies who invested heavily in debt instruments found themselves suddenly worthless. (An example, I recently read that insurance giant The Hartford has a stock value now less than the actual value of it’s vast cash reserves. Wild.)
It’s been a rough ride so far. I’ve worked with several young families who one week had plans to begin their retirement investment program, or insurance program; and the next week they call to say they’ve lost their jobs and will be moving home with mom and dad. (Mom and dad are usually in pretty dire situations, too.)
The big problem is that there are certain parts of the average American’s budget which grow bigger and bigger each year or each generation. These monsters eventually consume the rest of the budget and force the individual into insolvency. These are especially: The cost of Health Care, which inflates at about 7% per year (or doubles in cost every 10 years if you want to think of it that way) and which increases as a person ages; the cost of housing, which, on average, inflates at about 5% per year; and the cost of an advanced education, which costs, on average, 7% more each year.
Most people only gain about 3% per year on their income. Do you see the problem here?
With the help of the recent government plans and bailouts, etc, there could be an end to the current financial crisis very soon. Things could get better. But it could get much much worse. Here’s how:
The U.S. Government is just like an individual in some ways. The Government also has a budget, has ongoing financial obligations, and carries a huge amount of debt. In recent times, that ebb and flow of income and payments has remained essentially in balance – though there are always those who disagree.
However, by the end of the next decade, a massive swell is moving down the pipe. For most of us, we’re hoping that if we ignore it it will go away. It wont. It’s the cost of social security, medicaid and medicare. In about ten more years the monster of health care doubling yet again plus the huge amount of retirees combine to completely devour the federal budget as it is today.
There are only two outcomes: the federal aid programs continue, thus necessitating a vast tax increase; or the federal aid programs are diminished, thus requiring each individual to care for his or her own families’ needs.
It is most likely, in my opinion, that the government will write itself a credit line, trying to swallow up this problem in a long stream of gulps rather than all at once. More credit means a much larger debt payment in the budget. More payments means more taxes and cut programs.
Now imagine for yourself – your health care costs have more than doubled as you are now 10 years more unhealthy and health care costs have inflated at 7%. Your children’s education now costs twice as much as it does today. And your tax bill has just increased.
Add to those the car payment, house payment, utilities, and other living expenses. Will you have enough to even get by?
Now imagine if this begins to happen today. More debts go unpaid. More banks become insolvent and start to call in the debts they’re owed by the average cardholder. The cycle continues and industry after industry fails.
In reality, these things have been going on bit by bit for a long time and will continue long after we’re through the current crisis. It is unlikely that the ’08-’09 recession will suddenly be driven into a second great depression. If things get worse it will probably be gradual and will take place after the recovery from our current recession. Putting off problems is our national pastime today just as it has been for the past century or so.
(It’s no wonder, then, that the youth of today have to take on more and more debt to get through college. Nor, then, should it be a surprise that people are choosing to live with their parents for decades longer than they did a generation ago, or that the last thing a person does before leaving this world is to devour all their estate on paying for the high cost of long term care and other medical needs. But I get off subject.)
The answer to this impending crisis, both individually and in a worldwide sense, is to avoid debt. If, as a society, we weren’t clamoring for bigger and better homes than our parents and their parents had, and if banks hadn’t been willing to give it to us, treating debt like an unfailing and perfect resource, it would not have come to this.
Avoid debt as much as you can. Save up for yourself. Only those who aren’t already stretched to their budgetary limits will survive if this next wave comes crashing down.
November 19, 2008
It’s taken me a while to write anything. The thrice cursed ease of facebook and twitter has lured me away from writing anything substantial in months. I apologize to the 3 people out there who occasionally check this site for updates.
The big news is that our second son, Benjamin, has arrived. He’s healthy and now 3 weeks old. Already he seems large in stature! (every morning we feed him four dozen eggs to help him get large, you know.)
It’s an interesting time in life. I expected to be more successful than I am, more prepared, more grown-up, perhaps? I’m not sure. Somewhere along the line we became the grown ups in the family without noticing it.
Life is good. I intend to write more in the future, but when, I don’t know.
August 26, 2008
We brought mini-nilla wafers to church as snacks for Johnathan. During the last part of the meeting he got cranky and I thought “Ah. This boy needs food things.” I delivered 2 cookies to him. He sat on the floor.
He was wearing sandals. Johnathan decided that mini-nilla wafers go best under toes. I tried to put one in his mouth, but he told me that I was completely wrong with that idea and proceeded to jam both cookies into his right shoe, under his toes. Then he ran away.
Later I got the soggy stinky cookies out. He was sad. I guess he was just saving them for later.
December 7, 2007
The electronics curse struck twice today.
First: I arrived home to my wife saying “Your computer is broken.” I walked into the back room and turned on the laptop which responded with a terrifying grinding noise that sounded something like “Oh crap! My power fan is totally broken! This sucks!” Vaguely. New power source needed.
We later went to the movie theater to watch golden compass. Exactly one hour into it the lamp in the projector burned out. Luckily new passes were forthcoming and we can go back in a few days – whenever we can next get a babysitter… hmm.
The upside is that classes are done for the semester and I can get back to work doing work for a change.
November 22, 2007
The main problem, I think, is my impatience.
I’d much rather sit down and have a novel appear on the screen in front of me without much time put in on my part.
Here’s what happens: I sit down, I think for about 20 minutes. Dissatisfied with taking so much time and not doing anything, I begin to type. I write a paragraph. I write a couple more sentences which are then deleted because they lead too quickly to the ‘next thing’ instead of making my writing richer in content.
And I don’t go on with it. I give up and start another project or idea rather than finish something that I consider to be less than good.
I’ve been trying to produce something and I find myself vastly unhappy with the result. It makes me sad because I feel pretty good about my writing in its non-fiction forms.
Now I’m going to go check up on my cohort to see if he’s managed to produce anything yet.
October 3, 2007
For the last year and a half the ol’ computer has been slowly falling apart. It began when one of the USB ports on the front of the case stopped working. Then, one by one, all the ports started failing. Now I’m down to 2 functioning ports.
The floppy drive (yes I have a floppy drive, shut up.) works only halfway – recording or reading only half the data that I require.
And now whenever the computer is even nudged slightly by my overactive foot the power fan slows to about half speed. It then gradually works its way up to full speed until I nudge it again.
I could fix these problems, given enough time and patience.
I think that instead I’ll just try to save up and buy a happy new computer. If I actually do that it will be the first time in my life that I’ve simply purchased a computer rather than build one. It’s a strange thing to consider.
June 5, 2007
I’ve encountered a new first in my career. I have met with a family recently who is within a decade of retirement- who have pretty much no way outside of winning the lottery to achieve their retirement goals. My partner says “Well, we’ll have to remember to smile, at least.” I wonder if that will help.
I get the feeling that they were hoping for some kind of approval of their retirement plans, or perhaps some kind of suggestion that will magically make their money dance itself into an interest-earning frenzy. The simple fact is that they make too little money to reach their goals. They’re either going to have to keep working long after they’d like to, or lower their expectations. (A daunting task for a family who lives on so little.)
Alas, I have no such dance-inducing spell.
At least, not for money.
Of course we will make suggestions, and if followed, the family may find that they are able to get pretty darn close to their target retirement income for the first few years. But it isn’t going to sustain them forever, nor at levels that grow with inflation. The upside is that they may be more willing to suggest we talk to their children and prepare them for retirement in a way more suitable than “Well, I have a 401k. Isn’t that good enough?”
Life is strange sometimes. I think I would hate to get to within a few years of retirement and find myself looking around wondering where my money went. I got into the business because I was worried that my parents were in this situation. Turns out they’re pretty much okay – much to their own surprise! (and my relief.) But now as I meet people who are really facing this problem – basically being forced to work till age 75 or beyond – I feel somewhat helpless.
Strange strange world.