THE ENTERPRISE--HOW DEEP IN DEBT IT "TOO DEEP?" & "WHAT CAN I DO?"
EXCESSIVE DEBT DEVASTATED OR WOUNDED MANY COMPANIES & FAMILIES
Now the USA--the entire country is doing the same things. This has dire implications for all Americans--when YOUR elected representatives spend far beyond OUR means, and have ABSOLUTELY NO IDEA how this will ever get remedies. There are huge implications for US businesses too. This edition of THE ENTERPRISE will explore the implications, personally, professionally and for your business (or employer). When families take on too much debt, bad things happen. Sometimes a "workout" plan can be agreed upon. Sometimes, not. Such a mistake is usually a life altering experience, and might ruin a family or individual for years to come, making them unable to get credit of any kind.
WHEN BUSINESSES TAKE ON TOO MUCH DEBT--BAD THINGS HAPPEN
When businesses take on too much debt, they suffer under the burden of excessive interest costs, AND lenders usually put covenants in place that require an earnings stream that will support the debt. Lately, more covenants have been broken than have remained in compliance. When the covenant is violated, the lender can "call the loan" or require a "refinancing" IF a lender can be found. These kind of finance deals are usually very expensive--in fees, and in interest rates, and then new covenants are still set, that must be met. If the business continues to fail, it is usually forced into either Ch. 11 of the bankruptcy code (reorganization--applicable IF there is "hope" and a "debtor-in-possession" (DIP) lender can be found. If this is not the case, it goes directly to Chapter 7 (liquidation--in which all of the assets are liquidated and the proceeds distributed to debtors in a "priority order" where "secured lenders" come first and stockholders, and unsecured lenders come last, frequently getting little to no recovery from their investments.
CREDIT CARDS ARE LIKE DRUGS--ENJOY THE "HIGH" NOW, AND PAY FOR IT LATER
Most of us use credit cards. The vast majority of readers of THE ENTERPRISE understand the problem of getting in debt too deeply on credit cards. When a credit card user pays only the minimum payment required each month, the interest piles up faster than the payment reduced the debt. Credit card interest is typically 20% (annual rate) or more. Interest is how credit card companies make money. Getting in too deep is how many Americans destroy their financial well-being. When last I checked, the average household credit card debt in the US was over $6000, which is also more than the average working American makes in a month. Worse yet, car companies discovered that they could lease cars to people wherein the monthly payments covered the depreciation of the car over that time, and enabled people to drive more expensive cars than they could have afforded to buy. The problem with this, is that at the end of the lease, the person leasing the car has nothing to show for the money spent except the use of the car for the term of the lease. It is like "drug addiction" of another kind.
HOW TO DEAL WITH THIS
Radio personality and author Dave Ramsey has a simple theme. Cut back your standard of living and pay off your debts, then "cut up" your credit cards and stop using them. This is great advice, and will lead to a much more financially sound life strategy. Financier Bernie Madoff is now in prison, likely for the rest of his life, for taking people's money claiming it was being invested, and then using the new money coming in to meet old obligations. This scheme (called a Ponzi Scheme) worked pretty well when markets were rising continuously. When markets turned down, Madoff did not have enough money to meet the obligations and request for money from investors. He was "broke." When a Ponzi scheme is "broke" there is not enough money to pay back the creditors. LIquidate what assets there are and distribute the proceeds, and "that's all there is." Period. And there is no other solution for that.
SOCIAL SECURITY IS A "PONZI SCHEME" --OPERATED BY THE GOVERNMENT
Social Security does exactly what Madoff did. Take new money and use it to pay old obligations. The infamous Social Security "lock box" was a figment of someone's imagination. It never existed. New Social Security money went into the general funds of the US Treasury to be spend on whatever came up next. Thus, we must find a way to "make good" on the promises of a flawed system--which will not be easy. SS was created and retirement age of 65 was created when life expectancy was 63. Now, nearly 75 years later, life expectancy is in the high 70's and retirement age has barely moved. It needs to move up to 70 ASAP, and possibly beyond that. Early retirement with actuarial reductions in benefits can still be made available starting at age 62 to help bridge the transition period
.
IN CASE YOU DON'T THINK OUR NATIONAL DEBT PROBLEM IS SERIOUS, READ THIS:
Taking the National Debt Seriously
In 2009 about 40% of income taxes will go towards debt interest payments.
By LAWRENCE KADISH
[Ed note: My emphasis was added to this excerpt.]
If you think those town hall meetings over health care were fierce, wait until Americans come to understand the threat to our national financial survival posed by the interest on the government's credit card. When the government spends more than its revenue, there is a budget deficit. These deficits are paid for by Washington selling interest bearing Treasury securities. If the government were ever to default on its promise to pay periodic interest payments or to repay the debt at maturity, the United States economy would plunge into a level of chaos that would make the Lehman bankruptcy look like a nonevent.
It is the interest on the national debt that makes our future unstable. The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill.
As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department's Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.
Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest. Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt. Unfortunately, that's a vicious cycle that will likely only get worse. The OMB projects deficits of about $9 trillion over the next 10 years. If that occurs, the national debt will be almost $21 trillion by 2019. However, the actual amount could be much higher. The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt. ...
In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained. Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.
It is against this background that Washington is now debating whether to create social programs it can't afford. Americans need to take notice, stand up, and remind our elected officials that in a democracy the people can change bad leaders.
Mr. Kadish, a real estate investor, is a trustee of the Claremont and Hudson institutes.
======================
I'M REALLY NOT TRYING TO DEPRESS READERS--YOU JUST NEED TO KNOW THE FACTS.
I'd love to come up with some positive spin to put on all of this. The problem is that a "positive spin" would be as dishonest and pretending we can borrow and borrow and never have to "pay the piper." (The "piper" in our case right now is China, who holds about $2 Trillion of US debt.) For those who think the government "stimulus" is the answer to our woes, study the chart below. It shows what a dismal failure the stimulus has been (and will continue to be). And no matter how much President Obama speaks to the contrary, this chart was compiled by Christine Romer, head of his Council of Economic Advisors, so he has to know the truth. It's not working, and it won't work. Government stimulus spending has a zero to negative effect on job creation in the economy. That was also based on one of her earlier studies.
FOR THOSE WHO ARE GETTING DEPRESSED BY ALL THIS, I HAVE A REMEDY.
THE MATERIAL BELOW FEATURES MATTHEW KELLY. He speaks at length about knowing what's right, and doing what's right. The long piece listed first has several religious areas, because it is being delivered to a Catholic Church group--BUT--the principles he talks about are as relevant and important in any setting. IF YOU WANT TO BECOME MORE POSITIVE, AND KNOW WHAT TO DO IN THESE TROUBLED TIMES, LISTEN TO HIS ADVICE. (Plus it is entertaining!)
I PROMISE YOU, THESE WILL BE WORTH THE TIME TO WATCH.
If you can devote 37 minutes, this one will change your life...and how you think about your life, and how you dream about your life. If you want to spend the time, watch this, and don't bother to read any further. Start it at the 10:00 minute mark, and watch it to the 47:00 minute mark. (If you are put off by the few "more religious" parts," listen anyway...)
http://www.youtube.com/watch?v=NY9wGSuF5Bo&feature=related
For those who are pressed for time and don't want to "change your life" too much, here are some shorter snippets.
http://www.youtube.com/watch?v=SxHIoHyTE8I&feature=related
How do you see the world?
http://www.youtube.com/watch?v=js087b-YdW4&NR=1
Time the most valuable resource? NO! "Personal Energy" is.
http://www.youtube.com/watch?v=CvY_cf8_dR0
Are you ready to find your dreams and follow them?
FINALLY, A LITTLE PARABLE ABOUT HOW WE GET OUT OF THIS MESS
That's plenty for this week. PLEASE, READ AND HEED...UNDERSTANDING THE NATURE OF THE PROBLEMS IS THE FIRST STEP TO SOLVING THEM. THEN WE NEED TO ELECT SOME NEW LEADERS, MEN & WOMEN WHO WILL TACKLE THE HARD PROBLEMS, WITH OUR SUPPORT. THERE IS NO SHORT CUT OR EASY WAY OUT OF THIS ONE.
BEST, JOHN
-----------------------------------------------------------
FINALLY, A "GRIN" FOR ALL THOSE WHO APPRECIATE A STORY WITH A MORAL. THERE IS WISDOM TO BE GAINED IN THE BARNYARD:
John was in the fertilized egg business.
He had several hundred young layers (hens), called 'pullets,'and ten roosters to fertilize the eggs.
He kept records, and any rooster not performing went into the soup pot and was replaced.
This took a lot of time, so he bought some tiny bells and attached them to his roosters.
Each bell had a different tone, so he could tell from a distance, which rooster was performing.
Now, he could sit on the porch and fill out an efficiency report by just listening to the bells.
John's favorite rooster, old Butch, was a very fine specimen, but this morning he noticed old Butch's bell hadn't rung at all!
When he went to investigate, he saw the other roosters were busy chasing pullets, bells-a-ringing, but the pullets, hearing the roosters coming, could run for cover.
To John's amazement, old Butch had his bell in his beak, so it couldn't ring.
He'd sneak up on a pullet, do his job and walk on to the next one.
John was so proud of old Butch, he entered him in the Renfrew County Fair and he became an overnight sensation among the judges.
The result was the judges not only awarded old Butch the
No-Bell Piece Prize
but they also awarded him the
"Pullet-surprise" as well.
Clearly old Butch was a politician in the making.
Who else but a politician could figure out how to win two highly coveted awards by being the best at sneaking up on the populace and screwing them when they weren't paying attention.
Vote carefully in the future... the bells are not always audible.
-----------------------------------------------------------
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959 http://www.mariotti.net http://mariotti.blogs.com/my_weblog/
------------------------------------------------------------
EXCESSIVE DEBT DEVASTATED OR WOUNDED MANY COMPANIES & FAMILIES
Now the USA--the entire country is doing the same things. This has dire implications for all Americans--when YOUR elected representatives spend far beyond OUR means, and have ABSOLUTELY NO IDEA how this will ever get remedies. There are huge implications for US businesses too. This edition of THE ENTERPRISE will explore the implications, personally, professionally and for your business (or employer). When families take on too much debt, bad things happen. Sometimes a "workout" plan can be agreed upon. Sometimes, not. Such a mistake is usually a life altering experience, and might ruin a family or individual for years to come, making them unable to get credit of any kind.
WHEN BUSINESSES TAKE ON TOO MUCH DEBT--BAD THINGS HAPPEN
When businesses take on too much debt, they suffer under the burden of excessive interest costs, AND lenders usually put covenants in place that require an earnings stream that will support the debt. Lately, more covenants have been broken than have remained in compliance. When the covenant is violated, the lender can "call the loan" or require a "refinancing" IF a lender can be found. These kind of finance deals are usually very expensive--in fees, and in interest rates, and then new covenants are still set, that must be met. If the business continues to fail, it is usually forced into either Ch. 11 of the bankruptcy code (reorganization--applicable IF there is "hope" and a "debtor-in-possession" (DIP) lender can be found. If this is not the case, it goes directly to Chapter 7 (liquidation--in which all of the assets are liquidated and the proceeds distributed to debtors in a "priority order" where "secured lenders" come first and stockholders, and unsecured lenders come last, frequently getting little to no recovery from their investments.
CREDIT CARDS ARE LIKE DRUGS--ENJOY THE "HIGH" NOW, AND PAY FOR IT LATER
Most of us use credit cards. The vast majority of readers of THE ENTERPRISE understand the problem of getting in debt too deeply on credit cards. When a credit card user pays only the minimum payment required each month, the interest piles up faster than the payment reduced the debt. Credit card interest is typically 20% (annual rate) or more. Interest is how credit card companies make money. Getting in too deep is how many Americans destroy their financial well-being. When last I checked, the average household credit card debt in the US was over $6000, which is also more than the average working American makes in a month. Worse yet, car companies discovered that they could lease cars to people wherein the monthly payments covered the depreciation of the car over that time, and enabled people to drive more expensive cars than they could have afforded to buy. The problem with this, is that at the end of the lease, the person leasing the car has nothing to show for the money spent except the use of the car for the term of the lease. It is like "drug addiction" of another kind.
HOW TO DEAL WITH THIS
Radio personality and author Dave Ramsey has a simple theme. Cut back your standard of living and pay off your debts, then "cut up" your credit cards and stop using them. This is great advice, and will lead to a much more financially sound life strategy. Financier Bernie Madoff is now in prison, likely for the rest of his life, for taking people's money claiming it was being invested, and then using the new money coming in to meet old obligations. This scheme (called a Ponzi Scheme) worked pretty well when markets were rising continuously. When markets turned down, Madoff did not have enough money to meet the obligations and request for money from investors. He was "broke." When a Ponzi scheme is "broke" there is not enough money to pay back the creditors. LIquidate what assets there are and distribute the proceeds, and "that's all there is." Period. And there is no other solution for that.
SOCIAL SECURITY IS A "PONZI SCHEME" --OPERATED BY THE GOVERNMENT
Social Security does exactly what Madoff did. Take new money and use it to pay old obligations. The infamous Social Security "lock box" was a figment of someone's imagination. It never existed. New Social Security money went into the general funds of the US Treasury to be spend on whatever came up next. Thus, we must find a way to "make good" on the promises of a flawed system--which will not be easy. SS was created and retirement age of 65 was created when life expectancy was 63. Now, nearly 75 years later, life expectancy is in the high 70's and retirement age has barely moved. It needs to move up to 70 ASAP, and possibly beyond that. Early retirement with actuarial reductions in benefits can still be made available starting at age 62 to help bridge the transition period
.
IN CASE YOU DON'T THINK OUR NATIONAL DEBT PROBLEM IS SERIOUS, READ THIS:
Taking the National Debt Seriously
In 2009 about 40% of income taxes will go towards debt interest payments.
By LAWRENCE KADISH
[Ed note: My emphasis was added to this excerpt.]
If you think those town hall meetings over health care were fierce, wait until Americans come to understand the threat to our national financial survival posed by the interest on the government's credit card. When the government spends more than its revenue, there is a budget deficit. These deficits are paid for by Washington selling interest bearing Treasury securities. If the government were ever to default on its promise to pay periodic interest payments or to repay the debt at maturity, the United States economy would plunge into a level of chaos that would make the Lehman bankruptcy look like a nonevent.
It is the interest on the national debt that makes our future unstable. The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill.
As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department's Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.
Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest. Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt. Unfortunately, that's a vicious cycle that will likely only get worse. The OMB projects deficits of about $9 trillion over the next 10 years. If that occurs, the national debt will be almost $21 trillion by 2019. However, the actual amount could be much higher. The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt. ...
In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained. Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.
It is against this background that Washington is now debating whether to create social programs it can't afford. Americans need to take notice, stand up, and remind our elected officials that in a democracy the people can change bad leaders.
Mr. Kadish, a real estate investor, is a trustee of the Claremont and Hudson institutes.
======================
I'M REALLY NOT TRYING TO DEPRESS READERS--YOU JUST NEED TO KNOW THE FACTS.
I'd love to come up with some positive spin to put on all of this. The problem is that a "positive spin" would be as dishonest and pretending we can borrow and borrow and never have to "pay the piper." (The "piper" in our case right now is China, who holds about $2 Trillion of US debt.) For those who think the government "stimulus" is the answer to our woes, study the chart below. It shows what a dismal failure the stimulus has been (and will continue to be). And no matter how much President Obama speaks to the contrary, this chart was compiled by Christine Romer, head of his Council of Economic Advisors, so he has to know the truth. It's not working, and it won't work. Government stimulus spending has a zero to negative effect on job creation in the economy. That was also based on one of her earlier studies.
FOR THOSE WHO ARE GETTING DEPRESSED BY ALL THIS, I HAVE A REMEDY.
THE MATERIAL BELOW FEATURES MATTHEW KELLY. He speaks at length about knowing what's right, and doing what's right. The long piece listed first has several religious areas, because it is being delivered to a Catholic Church group--BUT--the principles he talks about are as relevant and important in any setting. IF YOU WANT TO BECOME MORE POSITIVE, AND KNOW WHAT TO DO IN THESE TROUBLED TIMES, LISTEN TO HIS ADVICE. (Plus it is entertaining!)
I PROMISE YOU, THESE WILL BE WORTH THE TIME TO WATCH.
If you can devote 37 minutes, this one will change your life...and how you think about your life, and how you dream about your life. If you want to spend the time, watch this, and don't bother to read any further. Start it at the 10:00 minute mark, and watch it to the 47:00 minute mark. (If you are put off by the few "more religious" parts," listen anyway...)
http://www.youtube.com/watch?v=NY9wGSuF5Bo&feature=related
For those who are pressed for time and don't want to "change your life" too much, here are some shorter snippets.
http://www.youtube.com/watch?v=SxHIoHyTE8I&feature=related
How do you see the world?
http://www.youtube.com/watch?v=js087b-YdW4&NR=1
Time the most valuable resource? NO! "Personal Energy" is.
http://www.youtube.com/watch?v=CvY_cf8_dR0
Are you ready to find your dreams and follow them?
FINALLY, A LITTLE PARABLE ABOUT HOW WE GET OUT OF THIS MESS
That's plenty for this week. PLEASE, READ AND HEED...UNDERSTANDING THE NATURE OF THE PROBLEMS IS THE FIRST STEP TO SOLVING THEM. THEN WE NEED TO ELECT SOME NEW LEADERS, MEN & WOMEN WHO WILL TACKLE THE HARD PROBLEMS, WITH OUR SUPPORT. THERE IS NO SHORT CUT OR EASY WAY OUT OF THIS ONE.
BEST, JOHN
-----------------------------------------------------------
FINALLY, A "GRIN" FOR ALL THOSE WHO APPRECIATE A STORY WITH A MORAL. THERE IS WISDOM TO BE GAINED IN THE BARNYARD:
John was in the fertilized egg business.
He had several hundred young layers (hens), called 'pullets,'and ten roosters to fertilize the eggs.
He kept records, and any rooster not performing went into the soup pot and was replaced.
This took a lot of time, so he bought some tiny bells and attached them to his roosters.
Each bell had a different tone, so he could tell from a distance, which rooster was performing.
Now, he could sit on the porch and fill out an efficiency report by just listening to the bells.
John's favorite rooster, old Butch, was a very fine specimen, but this morning he noticed old Butch's bell hadn't rung at all!
When he went to investigate, he saw the other roosters were busy chasing pullets, bells-a-ringing, but the pullets, hearing the roosters coming, could run for cover.
To John's amazement, old Butch had his bell in his beak, so it couldn't ring.
He'd sneak up on a pullet, do his job and walk on to the next one.
John was so proud of old Butch, he entered him in the Renfrew County Fair and he became an overnight sensation among the judges.
The result was the judges not only awarded old Butch the
No-Bell Piece Prize
but they also awarded him the
"Pullet-surprise" as well.
Clearly old Butch was a politician in the making.
Who else but a politician could figure out how to win two highly coveted awards by being the best at sneaking up on the populace and screwing them when they weren't paying attention.
Vote carefully in the future... the bells are not always audible.
-----------------------------------------------------------
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959 http://www.mariotti.net http://mariotti.blogs.com/my_weblog/
------------------------------------------------------------
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