Can the US Handle its Debt – Can You Handle Your Debt?
I was watching Rand Paul filibuster the spending bill on Thursday. Politics aside, he’s a talented speaker and his discourse rang true on many points. Have you seen the movie, Dave, starring Kevin Kline who plays the dual role of the President and the President’s stand in? It is what I call a channel stopper – meaning that if I happen across it on the TV selections – I inevitably stop and watch it. In short, Dave is pretending to be the President Bill Mitchell after the President suffers a stroke while sneaking off with his assistant. Dave, induced by the President’s Chief of Staff and Communication’s Director, pretends to be Mitchell while they attempt a contrived effort to oust the Vice President with the ultimate goal of elevating the Chief of Staff to the presidency. Along the way, a Budget meeting occurs and Dave breaks from his assigned protocol and instead attempts to trim $650 million from the budget in order to save funding for a children’s shelter – a project valued by the first lady (who detests her husband but in the end falls in love with Dave). In the meeting, Dave drills cabinet members on wasted federal funding – such as millions allocated to the Department of Transportation for commercials designed to make American’s feel good about their after the fact purchase of a domestic automobile. The cabinet agrees with Dave, they trim the budget and save the homeless shelter.
I’m certain Rand Paul is a fan of Dave. During his filibuster, he repeatedly posted graphics on an easel illustrating wasted government spending. One example was of a $1.6 million street car in Washington DC that he called “A Streetcar Named Waste” that extends mile on H street in D.C, but goes nowhere and no one rides it. He goes on to identify several others – including, $500,000 on a study to determine if taking selfies makes you happy, $450,000 on a video game about Climate Change and $700,000 for a study on whether Neil Armstrong said, “One small step for “a” man or “man” when he stepped onto the lunar surface. (If you’d like to see this segment of his filibuster, go to:
The question Paul was raising – that I think has merit – is where is the US going on spending? We know the tax bill is adding $1.4 trillion to the deficit, and now the two-year spending bill is increasing that by $300-$400 billion. We know President Trump does not fear debt – in fact, he claims he loves debt and is its master. As a business person – he has credentials here. He knows and has his own record to prove that if a venture fails, there are means to avoid paying the debt via bankruptcy and negotiations. I’m not critical here – these are concepts I endorse and pursue on behalf of my individual and business clients. There are issues, however, for the USA. For starters, the United States does not have the ability to default on its loans and then negotiate a settlement with China and its other debt holders to resolve the debt. While Greece could do such a thing – it’s simply not in the cards for us – for a simple reason – global chaos would ensue. We couldn’t let the banks and AIG fail in 2008 – they were too big to fail – imagine the fall out if the USA fails!
Next – you can sustain debt, if you are foolish enough to do so – so long as you continue to generate income endlessly. As you do – you pay more and more interest and your costs to keep pace with your expenses keep rising. For individuals this is deadly – on two counts – (1) when the time to retire comes and you can’t keep the income up – there is hell to pay in two forms – you need to get rid of the debt and (2) you have NOTHING to retire with because you gave it all away paying interest on your debt all those years. We can solve the first problem – and dump the debt late in life – but we can’t get back the money you wasted in paying interest – that was your future and it’s gone. A similar truth exists for the USA. The USA is not going to retire, and it can continue to generate revenue to cover the cost of the debt. The problem is – where will the revenue come from? It will not matter how much you trim the budget, because the interest expense will be the biggest component of the budget. To cover – it will mean higher taxes – for us, our children and our grandchildren – and the taxes will be to cover the interest costs. The only difference is – rather than giving away our retirement – we are giving away the quality of life for our children and their children.
If you are paying $750 per month on your credit cards – and rather than paying interest, if you saved that money at 7% interest for 20 years, you’d have $390,700 – in savings for retirement. The US Debt stands at $20.6 trillion www.usdebtclock.org/ and we know it’s growing! Just for the fun of it, 3% interest on $20.6 trillion is $741.6 billion per year. Imagine the quality of life we could have without this debt – and worse, imagine how the quality will suffer as it grows, and grows. We can’t stop Congress from spending – excessively or foolishly except via our vote. Granted the issues are tough. I value education, health, social justice and a strong defense. So, the question of how much we spend and who pays the tax bill is difficult. I don’t have the answers to the USA’s issues. I do know that we, as individuals, need to not waste our retirement by paying endless interest on credit card and other debt. This is within our control and it’s a lesson we must implement and teach our children.
Enjoy the snowy weekend – and if you can, watch Dave – it will make you smile.
We are keeping Michiganders informed of the current legal, financial and social issues that we face on a day to day basis. The law is interesting – but it must be viewed in light of reality!
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