Retirement Guys: Avoid the debt time bombWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
I, Nolan, watched on TV as the U.S. national debt reached more than $15 trillion. That is now a debt of more than $48,000 for every man, woman and child in the country (www.usdebtclock.org). The sad part about it is my two boys, who are only 8 and 5, don’t even own a treehouse, but together have a debt our country has placed on them of nearly $100,000 and quickly growing.
Our elected leaders failed to reach any agreement in cutting the debt while 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.
Here is our country’s current financial picture. According to the Congressional Budget Office, $1.2 trillion in automatic spending cuts are set to kick in between 2013 and 2021 because our politicians couldn’t reach an agreement. Although that sounds like a big number, it is only about 3 percent of the projected spending. Knock a lot of zeros off the projected $40.3 trillion government spending during that time frame and the cuts are is like a family spending $40,000 a year reducing its spending by $1,200.
Cutting spending by 3 percent 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 more than 100 percent. 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, we were at 58 percent gross debt to GDP. Our country’s spending isn’t getting any better either. The U.S. fiscal year ended Sept. 30. This year’s $3.5 trillion spent is double what the government spent in fiscal year 2000, according to the 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 treasuries. Our government currently owes more than $2 trillion to foreigners based upon the most recent September 2011 report. Then there is the International Monetary Fund, which 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 that 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.
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, eliminate more debt and build up reserves.
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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