Are you mad?
You should be.
As the markets come unraveled and the banks implode, everyone’s searching for the villain.
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We need someone to blame. Someone’s got to pay.
There is plenty of blame to go around.
Since Day One, everyone’s favorite target has been the greed and ethical bankruptcy on Wall Street. There also is no longer any debate that our regulatory watchdogs fiddled while our financial institutions burned.
We can’t forget George Bush or Bill Clinton. One conservative, the other liberal; different parties, same result. Both favored a laissez faire approach to the economy.
The root of the problem, however, goes way beyond who’s in charge and who looked the other way while fat cats got fatter. It’s more than just a question of toxic assets, exotic debt instruments or ungodly bonuses.
Time for You and Me to Pay up
The real issue is debt. Not the multi-trillion dollar national debt that has the politicians spinning. Rather, our debt. The debt we owe for all the houses and cars we financed; the flat screen TVs and vacations we put on our credit cards.
We've been living high on the hog.
During the past 25 years, our standard of living has risen dramatically. To achieve this level of prosperity, we’ve been borrowing like drunken sailors, at a level not seen for nearly 80 years.
Since the end of World War II, personal debt, as a relative percentage to the U.S. Gross National Product (GDP), has hovered around 50 percent. During that period, the ratio sometimes has been higher, but generally we’ve lived within our means.
From 2000 to 2007, the personal debt of every American skyrocketed. In 2007, consumer debt hit 100 percent of GDP. To put it simply; both the GDP and household debt equaled roughly $13 trillion.
The last time these numbers were identical as a percentage of one another was 1929!
[img]390|left|||no_popup[/img] To put it in further perspective; most Americans could work for one full year, and assuming that the government does not tax us, we don’t eat, and spend no money, we would still would be unable to fully pay off the debt we owe.
The painful reality is that there is no magic bullet to slay the beast. We are ogres of our own creation, and the solutions to this crisis will start and end with us.
As we go forward, everyone will pay more. On the surface, some will appear to benefit more than others.
But, unless and until we change our relationship with debt, we will be unable to overcome this crisis, and we will be destined to repeat history again and again.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
