November 13, 2019

Out of Control

Do you get the feeling that our government or at least the direction of our government is out of control? Don’t feel alone. Americans seem to be in the midst of a debt revolution. Everyone seems to have a “plan,” but the plans are not coordinated in any way with no clear objective in mind. 

One day we read that it is imperative that we fix our crumbling roads and bridges and the following day we are told that our southern border needs to be fixed. We know that we have no immigration plan but that doesn’t seem to matter. The answer is to tax or find some phantom money to pay off the 44,000 student loans that are strangling our economy to the tune of a trillion and a half dollars. Really? This, obviously, is not a feasible solution unless there is some control on college spending. Medicare for All sounds good until we look at our present Medicare spending and discover that Medicare is running in a sea of “red” ink along with Social Security. Medicare is now 15% of the Federal Budget as of 2017. Many of the current proposals that are in Congress consist of increasing the taxes for both Social Security and Medicare while raising the age of retirement and Medicare eligibility to 67 years of age from 65 years of age.


Debt seems to be everywhere. Our government now spends a trillion dollars more than we take in and at the end of each fiscal year we add this ongoing debt to the accumulated debt from past years of $23 trillion dollars. Our personal debt is moving upward to the tune of $13+ trillion dollars consisting of mortgage loans, auto loans, credit card debt, personal loans, and student loan debt. A whole “debt consolidation” industry exists today to take high interest credit card debt and reduce it to one “easy” payment. The problem with the debt consolidation is that it works just once. Without the financial discipline to stop new spending, old spending does not decline as it should under a fixed payment plan and eventually becomes part of a larger problem.


It should come as no surprise that Americans are not providing for their retirement. Saving for the future means spending less now which is something that Americans have no taste for. We live like our government but, as individuals, we cannot defer our debt by selling bonds that we do not have and never will have the ability to pay off like our government does. All the government entitlement programs are in some form of financial distress. These entitlement programs are consuming more and more of the Federal budget leaving our legislators less and less money to meet current needs.


Our cost of living is going up and wages are not keeping pace with the cost of living. The answer for the majority of Americans is to borrow. This consists of a higher mortgage through the form of refinancing to incorporate other existing debt, using credit cards to get by and then consolidating the outstanding balances in the form of a new loan usually at a reduced interest rate but for a longer time period. Car loans are now being stretched from 48 months to as far as 72 to 84 months which is a ticket to disaster as maintenance costs becomes a factor as the car ages long before the car is even close to being paid for.


Many things Americans buy today have increased in cost. The average car is running around $36,000 and the average home is close to $200,000. Food has increased substantially in the past 15 years and is complicated by changes in smaller packaging as well as the introduction of new cheaper store and generic brands for most staples. From April 2000 to April 2015, the cost of fresh or frozen beef has gone up 117.5%.


Unless some change is made to the way we live, the final solution will be some form of a massive bankruptcy. We want larger houses with more and more features; we want luxury cars; we want to live and entertain at a level that most of us can’t afford, and while they can’t afford it, our children want to attend expensive colleges. Too many students borrow their way through four years of college. The cost of college is a financial trap. Education is important but when it comes with a hefty price tag, one has to evaluate the total cost and what it will eventually add to your bottom line. For many, it is a ticket to a lifetime of economic struggle.


How do we go from “out of control” to “back in control?” I think it is a mind change that creates an attitude as to what is important and what is not. My grandparents lived in a six hundred square foot house with one bathroom. Our cars did not have heated seats or a heated steering wheel. I am not advocating going back to these homes and cars but how important is it to our “comfort level” going forward that we have a house with 5 bathrooms or cars with imported leather seats. It will take time to change from having an 84-inch TV to a more normal size, but is the TV experience any better or worse when one has a 55-inch TV? I think advertising has given us expectations of an exaggerated life that feeds upon itself. Time will tell.

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Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

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Written by Donald Wittmer
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