Dollars and Sense

Everyone needs to perform a net worth analysis on himself every few years. It is sort of an economic scorecard of how you are doing. It can be a depressing thing for many people since the stock market rolled over, but it is an exercise that is necessary for financial health.


Several years ago, Vice President Gore proposed that Congress increase taxes on millionaires. When asked to define a millionaire, he stated that anyone who made over $150,000/year was a millionaire. Talk about fuzzy math! Never confuse cash flow with assets. The simple traditional definition of a millionaire is someone whose net worth on paper exceeds one million dollars. Granted, since the Federal Reserve started devaluing our currency, it is much easier to reach that goal than in the past.


At any rate, if you simply go through your numbers and add up everything you own, subtract everything you owe –voila! – you’ll learn your net worth. If you are lucky enough to have a positive balance and are feeling extremely patriotic, let’s do some calculations using numbers from the U.S. government to see what else you could pay your fair share of.


The national debt currently stands at 16.4 trillion dollars. If we all just divide this evenly between all 319 million U.S. citizens (lots of luck there because we can guess who will pay the lion’s share of this one) you will find that your little family of four is responsible for $205, 600!


Our trade deficit represents current outstanding IOUs for our goods and services. This is sort of like a poker game in which you run out of money and then start using IOUs instead of cash. It is not a problem until a big pile of IOUs is presented for payment at the end of the game.  Foreign governments, including China, Japan, the United Kingdom, Brazil and various oil-exporting countries hold IOUs, or U.S. dollars that have built up on their shores. Why do they hold our paper dollars, you may ask? They do this because our US dollar is the world reserve currency. Why you may ask? Good question! Perhaps it is because of the strength that our dollar used to have. Perhaps it is because they feel there is not a better alternative. Perhaps it is just a bad habit.


Many of the United States’ best friends in Europe hold a large number of these IOUs that are redeemable at any time.  The total of trade deficit over the past 50 years (with most accumulating recently) is about $4.4 trillion dollars.  If all these chickens come home to roost at the same time, we must pay them off with our goods and services. Again our family of four, paying its average share, should add another $55,172 of debt to its total.


The Social Security system also has a little problem called a large unfunded liability. If Uncle Sam had to operate under the same rules as everyone else, the state-sponsored retirement program would be devastatingly in the hole.  This unfunded liability is over and above the national debt and is not included in that figure.  Our average family of four should either add on another $105,000 or another $257,000 of debt to its list of obligations, depending on which timeframe we care to consider. (The unfunded liabilities of the Social Security system are officially measured in two formats. The first is a 75 year projection, and the second is an “infinite” projection, which is more likely around 150 years. The government bean counters do this in an effort to shrink the observed number and assume someone else will be figuring how to solve this problem.)


There is more bad news, but I think you are starting to get the picture. We are either up to $252,000 or $404,000 in Federal government debt for our family of four’s share of the burden in this country’s debt. Our founders started this country in mortal fear of large government.  The prospect of seeing profligate government spending is one reason why.


There is a way out of this mess.   As a country and as individuals, we can live below our means and work off this debt. We can push back the retirement age and all work longer. We can scrutinize every dollar the federal government spends and slowly take our medicine. It will take decades of belt-tightening to work our way back, but it can be done with collective determination and will power. It will require politicians to become statesmen who vote for the good of the country and not for their next election. “Bringing home the bacon to my district” will have to become a dirty phrase. Politicians will have to talk about how much money they are not going to bring home to their districts, and the voters will have to cheer on their efforts. The new political phrase will become, “Please do not leave a big bill for my grandchildren to pay.”


Of course the weasel’s way out in the short term is for Washington to just keep on spending, borrowing, taxing and printing more money.  Or as we say in Louisiana, Laissez les bons temps roulez! (“Let the good times roll!”)  At least for a little while longer—until the wheels finally fall off.

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Since 2001, Larry LaBorde has sold gold, silver, platinum and palladium for investment to clients in the U.S. and around the world through his firm, Silver Trading Company LLC. The firm also offers guidance about metals storage options. We love your feedback! Please email Larry with your thoughts about this article or your questions about metals or storage.

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