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Thursday, November 17, 2005

Paying The Country's Mortgage

Good morning! I'm about to ruin it, with much regret.

This post is inspired by the news that Bernanke's nomination to the top Fed post was approved yesterday by the Senate's Banking Committee. The full Senate still must vote, but Ben Bernanke will become the next Fed Chair when Greenspan retires at the end of January.

Somehow, I'm sure no one asked him the question I am about to ask you: When are you going to bring your delinquent mortgage current? Consider me the loan officer. The bank's loan committee has met to discuss your case. Not only we will advance you no more money, it's time for you to figure out how to begin to pay down your debt with us.

See USA Today's article about the fiscal crisis (which is real and immense):
The comptroller general of the United States is explaining over eggs how the nation's finances are going to hell.

"We face a demographic tsunami" that "will never recede," David Walker tells a group of reporters. He runs through a long list of fiscal challenges, led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades.
Without major spending cuts, tax increases or both, the national debt will grow more than $3 trillion through 2010, to $11.2 trillion — nearly $38,000 for every man, woman and child. The interest alone would cost $561 billion in 2010, the same as the Pentagon.
Okay, let's look at your finances in 2020. One of your parents will have retired, but one of your brothers will help you pay for them. So that's three of you paying for one retiree. How much do you want your parent to receive a month? $1, 500? That's not a great living, but you each need to pay $500.00 a month to accomplish that.

You also need to plan to pay for the interest on the national debt, which we will assume (ha, ha) goes no higher than the projected $38,000 in 2010 per each person alive. You and your husband have two children, so that's four. I don't think you can expect Granny to pay on $1,500 a month, so that's five. Include your brother, so that's six people. Six X $38,000 = $228,000.

Now we want to be reasonable about this, so we'll give you a good APR of 5%. The monthly interest rate will be 5%/12, or .00416667. .00416668 X $228,000 = $950.00 a month in interest. $950/3 = $316.67 for each of you three working. So between Granny's Social Security and the national debt, you each need to be able to pay $500 + $316.67 or $816.67 monthly. But we haven't addressed the rest of the cost of government, or Medicare, or your state taxes. We haven't addressed the cost of federal and state retirees, and their medical and retirement benefits. We haven't addressed paying for national defense.

But what we do know is that you and your husband need to come up with more than $1,600 paid directly to the government each month before you can begin to pay your mortage to us. We also presume that you will feel committed to buying food and clothing for your children and medical insurance. And that's why we, the loan comittee of your friendly national bank, have concluded that you are flat broke, busted, indigent and headed for the poorhouse. Believe me, we used the most favorable assumptions possible (unrealistically favorable) in coming to this conclusion.

It is with great regret that we must inform you that we expect you to sell your house and clear any other miscellaneous debt with us. We would prefer not to be forced to start foreclosure proceedings, but we must remind you that the note you signed allows us to add any legal costs incurred to recover debt to your original mortgage.

Have a nice day. We look forward to hearing from you.

Are you serious (rhetorical)?

That is extremely- and graphically, depressing. The 'tsunami' of retirees is a depressing thought. They will ligve well into their 80's and 90's, and will tax healthcare/medicare to the limit- never mind social security.

Will tax breaks really bring in the added revenue? When you think about it, free trade, globally, makes a lot of sense for us- and equally, Europe is facing it's own demographi bomb. We'll be competing for revenue just to slow the downward spiral!

Any ideas?
Obviously, we need to curb entitlements, raise taxes, cut spending and start actually saving for retirement.

This is a very painful pill to swallow. The longer we refuse to take our meds, the worse the situation will be later on.

Also, more immigration could somewhat adjust the worker/retiree ratio to improve the situation.

The fact that the media has been printing outright lies does not help. The arithematic is easy. The problem is difficult.
Also let me point this out with some bitterness. Allowing finance companies and credit card companies to unfairly profit at he expense of the consumer is a very, very unwise long term fiscal policy. By 2015 things will be tight indeed in this country.

We need more prosperity, but it needs to be more widely spread. Curbing entitlements can only be effectively done if people have accumulated some financial reserves.
The problem is that none of the people in office (or at least very few of them) are going to have to clean up the mess. So there is no incentive to deal with it.

And you get votes by promising, nobody wants to hear they can't have what they want. Bunch a damn spoiled children. Somehow people being self reliant is an out of date idea.
True. A politician needs to have guts and integrity to break this sort of news.

I don't think the electorate is a lot of spoiled babies, though. One thing's for sure - those two year-olds playing in the park today are going to be hauling like sled dogs trying to deal with this. They won't be spoiled.
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