Retirement Guys: Avoid the debt time bombWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
I, Nolan, watched last week on TV as the US National Debt reached over 15 trillion dollars. That is now a debt of over $48,000 for every man, woman, and child in the United States (www.usdebtclock.org). The sad part about it is my two boys, who are only 8 and 5, don’t even own a tree house, but together have a debt our Country has placed on them of nearly $100,000 and quickly growing.
Also, last week our elected leaders failed to reach any agreement in cutting the debt. Showing once again our politicians have lost touch with the American people and just retreat to finger pointing. While at the same time, the reports across the pond in Europe are enough to make any investor wonder how far the ripple effect will go. As the global debt problems continue to grow, families can take one simple step to avoid the debt time bomb from going off at home.
First, let me be clear, I absolutely love America. I think we live in the greatest Country ever and I wouldn’t trade who I am for anyone else’s position now or in the past. I have everything in life I could ever want or need, I am truly blessed. I believe that I am like the majority of the informed and am willing to pay more in taxes and am willing to give up some of my “entitlements” if it means helping my children and others. Unfortunately, we live in a largely unaware society, some are starting to wake up, but more need to know. That is why it is our mission to educate all Americans on how to be financially self reliant.
Here is our Country’s current financial picture. According to the Congressional Budget Office, $1.2 trillion dollars in automatic spending cuts are now set to kick in between 2013 and 2021 because our politicians couldn’t reach an agreement last week. Although, that sounds like a big number, it is only about 3% of the projected spending. Back off a lot of zeros off the projected $40.3 trillion dollar government spending during that time frame and that is like a family spending $40,000 a year reducing their spending by $1,200.
Cutting spending by 3% is a good step in the right direction, until someone looks at how bad it has recently gotten. Gross Debt to Gross Domestic Product (GDP) is now over 100%. This means that our Country’s debt is now equal to the value of all goods and services produced in a year. Looking back 10 years ago, on 11/20/2000, we were at 58% gross debt to GDP (www.usdebtclock.org). Our country’s spending isn’t getting any better either. The United States fiscal year ended on 9/30/2011. This year’s $3.5 trillion spent is double what the government spent in fiscal year 2000. (source: Treasury Department). Long term the debt picture looks very troubling as well. Long term entitlements such as Social Security, Medicare, and the prescription drug program could topple our Country.
On the surface, the problems overseas may seem like their problems to deal with, but that may not be the case. China, Japan, and the UK are the top three foreign Countries that own our US Treasuries. Our Government currently owes over $2 Trillion to foreigners based upon the most recent September 2011 report*. Then there is the International Monetary Fund that has been involved in many of the global bailouts. Their website states “The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” One might think with 187 countries, the United States has little at stake. Not true, the IMF uses a “quota” system to determine which Countries have to put in the most money, based upon a complex formula. And guess who has to put in the most money? Yup, you guessed it, the good old United States of America. Meaning me and you are on the hook for a lot of the bailouts given by the IMF.
It is easy to blame others. At other times, it is easy to turn it off. The recent results of Black Friday and Cyber Monday show it is easier to just go shopping. Just remember there is one easy way to avoid the debt time bomb from going off at your home and that is to pay off and stay out of debt. I know, it is boring and it can take some hard work to accomplish. I like many Americans have gotten better in 2011, but keep pushing forward and eliminate more debt and build up reserves. Think about it, if you eliminated all of your debts, how much would you have left over each month to spend or save the way you wanted?
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