A MODERN PARABLE
Last year, I
met a same-sex married couple, Jack and Tom, who have adopted two children,
aged 12 and 14 (their gender is not relevant.) The couple are conscientious,
competent, and devoted parents but they are at loggerheads over their financial
situation and have asked for my advice. Both partners work, but Jack, who earns
the most, is clearly the lead partner and makes most of the decisions.
They are
deeply in debt. Their debt exceeds 4X their combined annual, after tax,
incomes, and current spending exceeds that income by around 30%. They have a
variable rate mortgage. Tom has been pleading for years for Jack to cut
back before it's too late, but Jack argues that it will all work out.
I've met
with each of them separately in an effort to help them cooperate on some
sensible plan.
Jack tends
to regard his spending as necessary for the here and now: 'We're only young
once.' (they're both in their fifties); expenditures on the kids are an investment.
'If necessary, they'll be well able to support us when we're older'; 'When the
kids are out of college, our expenses will be a fraction of what they are now;
we can live in a cheaper place'.
Tom believes
that they are headed for a crash in the near future when Jack runs out of
sources of more credit and he does not believe that expenses will drop; a major
illness for either partner would throw them into bankruptcy. He argues with
Jack over specific expenditures, such as private school for the kids and expensive
European vacations, part of the kids' cultural education. Jack has ready
justifications for these and more.
Before I met
with them together, Jack offered a compromise: he would cut back spending to no
more than 115% of their income. Tom feels that they should be saving some
money.
At our
subsequent meeting, I tried to be entirely objective, pointing out that when
interest rates return to historic norms (well before the kids are out of
college), they'll be paying about 25% of their annual income for interest only.
Also, I expressed concern for where the loans were coming from and what the
legal implications might be.
The
aforementioned couple does not exist. The story is intended to roughly
approximate our federal situation. State and local debt are not included, nor
are unfunded liabilities at all levels of government. Many analysts calculate
our situation to be much worse.
All the
current activity (blame the bad guys) and all proposals to fix things
are hopeless--completely useless, the system masquerading as a democracy in DC
can't cope. We're headed for a point where arithmetic takes over, just as
surely as it did in Greece. You can watch it all take place on TV.
Who cares,
as long as we know who to blame?
*President Obama's
bi-partisan commission charged with recommending an optimum budget. They did,
but it was rejected.
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