Today I was reviewing some of the news from the NY Times and it got me a bit depressed. Chances are that if you did, you are feeling the same way. It’s one thing for the Times to break down why Apple’s iPhone is being made in China rather than the US but more depressing are the reasons why and what it means. Hint.. iPhone production is not coming back to the US anytime soon, so are all of those lost jobs from the last couple of decades. It’s a well written article that explains why iPhones and all kinds of other products are no longer being built in the US which will certainly make the economic recovery much more challenging.
Is This Where It Gets Better?
I wish I could say that a slow recovery is the only thing to be concerned about but you probably would not believe me even if I did. However, there is one chart that is even more depressing, the explosion of debt per capita of the US government. I will talk about Americans in this piece just because using a concrete example is much easier. That being said, don’t feel better if you are not American. Believe me, chances are that your country’s government is in much worse shape and if you are in Europe… well, I’m glad to see that things are holding up…for now.
So let’s get this straight. In 1975, the average US citizen had $44,762 of annual household income with a share of the US national debt equivalent to $20,564. That was probably a bit high but certainly could be managed. With a strong economy, fiscal discipline would probably help curve things back. After some heavy spending, and then the elimination of federal deficits by Bill Clinton came George W Bush and Barack Obama who both spended much more than they should have… the result?
In 2011, the annual household income is $50,876 while the share of debt exploded to $84,793!!! So income increased by 13.66% and debt by 312%? Are things about to change? Not exactly. Not only is the cost of this debt (interest) rising but expenses both in the short, medium and long term are all expected to rise. There does not seem to be anyone who can or even wants to seriously address these issues.
Why You Should Care
It’s so easy to always kick the can down the road, forget about the national debt and act as if it was a problem to be dealt with at some point in the future rather than today. I implore you to avoid thinking like that. Unless you are retired, have no kids, and do not depend on your government for any type of income, you are wrong. The fiscal problems will have major impacts:
–Broken Promises: The government has made promises regarding pensions, health care, etc. Those are looking increasingly impossible to fulfill and the longer we wait to fix those programs, the worse it will be when we do have to change.
–Rising Debt Costs: At some point, interest rates for the US government will start to rise, as has been the case in much of Europe. When that happens, not only will rates also increase for businesses and individuals but it will increase expenses for the government, will slow the economy, etc. Believe me, nothing good will come out of this.
–Depend On Foreigners: We keep complaining about our energy dependance to middle east countries, to the billions of dollars that we send to buy oil. But by letting our debt explode, we are making ourselves increasingly dependant on investments by the Chinese and others to help us sustain our current spending. At some point we will need to stop and the earlier, the better.
How We Can Reverse Things
It’s easy to simply say that we should vote for one party or another. That is far from being enough. I think it’s easy to convince ourselves that we cannot change much but there is actually a lot that can be done.
–Make Yourself Independent: Start investing early, do not count on corporate or government pensions as you will not know for a very long time if those will truly make it to you. Governments around the world will need to break many promises in the next couple of decades in order to survive. You do not want to depend on the government keeping its word.
–Invest Carefully: There are many different things that can be done in order to give yourself a good shot. I wrote about investing when your country is going bankrupt and I stand by that, prepare yourself for the worse and you might be surprised if things are not as bad as you feared.
–Get Involved In Politics: I do not mean running for any type of office or even giving your time. What I do mean is forming an opinion about the issues, how to improve things like the economy, our education system and our fiscal position. Those are critical and it’s not enough to vote for a part and hope for the best.
What Are Your Thoughts? Do You Care About Your Exploding Debt?
I mean we fight hard to save a few thousand bucks only to see the government spend that and much more. What do you think? Think that the 2012 elections will help in any way?If you liked this post, you can consider subscribing to our free newsletters here