A fiscally prudent American is a sucker !

In Rome do as the Romans do! …don’t ignore this as an old cliché as there are new emerging meanings that if you don’t adhere to this then you could be a sucker for the rest of your life. And how is that?!

If a poor person has no home, no vehicle, and no prospects; then a mortgage sales guy tells them that they can buy a home, drive a SUV, and live like people on TV; why wouldn’t they say yes? What is their downside? If you have nothing and “The Man” offers you the American Dream, you’d actually be foolish to say no. Now that they have lost the home in foreclosure and the repo man has taken the Mercedes, they are exactly where they were a few years ago with no home, no vehicle and no prospects. The “poor” person got to drive a Mercedes for a period of time.
The greedy banks got bailed out, the bank CEOs took home $30 million, and the person who lived within his means, financially prudent, footed the bill for the reckless actions of others and is the sucker!...

The current generation in US without just blaming the bank CEOs or the regulators or the consumers has committed a crime on the next generation for they have chosen to leave the heavy lifting to future generations in order to live the good life today. What has happened is privatization of profits and nationalization of losses without punishing the bad behavior and current measures like reducing interest rates to near zero levels and massive printing of currency throughout the world will ultimately lead to a hyperinflationary bust. Also interesting is the graph below.


Let’s look at some stats:
· The personal savings rate has reduced from 12% in 1982 to near zero.
· Household debt % f GDP is at a staggering 140% which is highly leveraged by any measure. In the last 8 years (under Bush) this has increased from about 90% to 140% (an absolute increase of ~6% every year) while it has risen from 63% to 90% between 1982 to 2000 (an absolute increase of 1.5% every year). The quantum of decrease in personal savings rate in 18 years is matched in just 8 years under Bush regime.
· Between 1989 and 2007, credit-card debt soared from $238 billion to $937 billion, a 300% increase.
· The baby boomers (born between 1946 & 1963 and who were actually running American congress and most of the institutions) average spend is as follows, for 1$ they spend on education they spent $1 on casinos, >$1 on smoking and alcohol, $1.4 on entertainment, ~$2.5 on clothing , >$4 on restaurants and $4 on vehicles. The $160 billion spent on gambling is indicative of the get rich quick without hard work attitude of the Boomer generation. Even worse, households with income under $13,000 spend, on average, $645 a year on lottery tickets, about 9 percent of all their income. This generation which is running US lacks self control, morals, a work ethic, and savings ethic.

If you are one of these homeowners and can afford the mortgage payment, time will eventually bail you out. If you can’t afford the mortgage payment, you should lose the house to someone who can make the payment. This is the failure side of the creative destruction that is true capitalism. But if the government steps in to subsidize and eliminate failure, the system will ultimately collapse. This situation can improve only when the person who has defaulted can rise to a level to repay his debt. This can happen only when government spends its resources in creating jobs and not by buying bad assets.

“Deficits don’t matter” attitude taken by the US government reveals that fiscal deficit is just a byproduct of the actual deficit in wisdom and intelligence at all responsible levels. The out come of this deficit is a country with $10.5 trillion national debt; $53 trillion of unfunded liabilities; a military empire that has U.S. troops in 117 countries and has spent $700 billion on a pre-emptive war that has killed over 4,000 Americans; a $60 billion trade deficit; an annual budget deficit that will exceed $1 trillion in the next year; a crumbling infrastructure with 156,000 structurally deficient bridges; almost total dependence on foreign oil; and an educational system that is failing miserably.

The primary question is if you are aware that there is a systemic problem and if the majority is active participants then would you want to still stick to fiscal prudence? In Rome, do as the Romans do else you run the risk of being a sucker!

Happy Reading!
(This is a reflection on the article by James Quinn)