I was talking to a work buddy last week and he was telling me about his financial predicament. What I found to be disturbing was the notion that he was completely cognizant of the peril of his spending habits yet there was a complete lack of vision in ever paying it off. He was very much ambivalent about the situation, almost in denial, but rather open about the facts and details. Even stranger though, was the notion that he is able to continue borrowing. He’s been borrowing from all sorts of friends, neighbors, family members, peer-to-peer lending outfits and pretty much anyone that will loan him money. It was really rather bizarre. Here are the numbers, and you tell me if this seems unfathomable or I’m just old-fashioned.
- Salary is ~ $50,000 annually.
- He expects slight salary increases annually in the range of 2-3% over the long haul.
- He is currently in debt $47,000 and counting.
- Each year, he allows his total debt to increase. According to his estimates, he expects this to continue into the foreseeable future.
- He did some basic budgeting calcs, and he figures that by just 2015, his total debt will be over $50,000 which is a key milestone since his total debt load will have exceeded his annual income.
- Just recently, the people and entities he’s been borrowing from have started to get concerned and have started asking for their money back and want to charge him higher interest rates to borrow. He seems annoyed that they want to lend to him at a higher rate, but he just takes it in stride and continues to borrow.
- I was completely appalled by this, but he said it with complete sincerity. He said, “I guess my kids will just have to pay it back“. WTF!!! See, some of his debts can’t be discharged when he dies and he said people are gonna want – and gonna get their money back one way or the other. He said he’s not really thinking about it now, but his kids are the next logical step to pay back the debt since he clearly won’t.
Amazingly, he continues to borrow, and others continue to lend. Surely there’s gotta be some sort of day of reckoning here, but he keeps saying “debt doesn’t matter” and that he’ll grow his way out of it, even though the numbers just don’t support that notion.
Would you Lend Money to This Guy?
….How About This Guy?
Since people often either don’t care or don’t understand the current debt situation of the United States, I thought I’d put it into the perspective of an everyday guy’s finances. These numbers are in the exact ratios that exist currently for the US debt load. And the examples are perfect corollaries for what we’re seeing in the credit market. I had said to Short Treasuries for the trade of the century just before the crash in bonds. And munis are crashing too. Hopefully a few people made some money. If not, at least it’s tough to deny what is happening. Listen to what the market is trying to tell you. This country needs a debt snowball.
For some perspective, here’s how we compare to the rest of the world. Notice who’s red. Bond vigilantes are attacking Europe as we speak. The Euro zone will implode, this is an undeniable mathematical certainty.
Who do you think is next on their list?
CBO – We will be spending 4X what we spend now by 2020 just to continue to fund our debt.
Wikipedia – Our Total Public Debt Outstanding is over $13.5 Trillion, which is 94% of our GDP – and growing.
We will forever be known as the Greediest Generation.
Are you Ashamed?