My bite of the apple

"Plan? What plan? We will just keep spending until the balloon pops. And then the ship will really hit the sand..." 

This morning I awoke to the smell of coffee and the din of conversation as my live in family members were leaving for work. I grabbed some brew, read the paper and then fired up my laptop. Overnight, one of my more left leaning FB friends sent me a copy of a MSNBC (do they still exist?) story showing our deficits have been slowing down. He gave me an "I dare you" to ponder this story and then maybe write on it. Okay. I will take the bait, and then take my own bite of the apple.

I opened a Master Card. It had a huge open to buy of $50,000. I went nuts spending like crazy. Soon I reached my limit. No big thing. The bank kept raising my open to buy limit. But this back breaking debt was becoming an impediment to doing other things with my money. The cost to service this debt was high, but it could be worse. Since the Fed has kept the rates close to zero, I could make my monthly payments to service this gigantic debt.

Earlier this year I gave an excited squeal as I did our mid-year financials. I told my wife the amount of money we were charging was less this year than the previous year. In fact, the trend as of late was every year the amount we put on the card was less. However, the amount of payments we made were just taking care of interest only. Therefore our debt principle kept going up. And up. And up.

Recently, the Fed was considering raising interest rates 25 basis points (1/4 of a percent). Chump change many would say. That is unless you have a $50,000 balance on your Master Card. In fact I did some "bunny math". If the Fed raised rates by 100 basis points, that would be an entire percent on the prime. I would no longer be able to afford paying the interest on this loan.

Okay - I don't have a $50,000 Master Card balance. But the United States does (of sorts). We have a $18,400,000,000 debt and growing. The past few years it just has not been growing as fast. But it is still growing. And that is just the debt. We also have unfunded liabilities that few talk about. Why? because the number is so high, it is scary. A hundred trillion dollars scary. And the plan to address that is....plan? What plan?

Here is the bottom line. My Dr. Buzzkill statement. We are living on borrowed money and borrowed time. If the Fed normalized our interest rates right now to where they should be, we would not be in another recession, we would slide into a deep depression. The cost of money to service a debt as high as we have would simply overwhelm everything else like a giant red tsunami.

Here is one more piece of "good news". Since my FB friend had hit me with a NBC news story this morning (sort of NBC as it is MSNBC), I decided to return the favor. According to a NBC Politics story from February 2014, 2015 is the last year of the declining deficits. Then deficits are projected to go back up. In fact, the CBO Director testified on the Hill by 2024 the spending on Medicare, Medicaid and Social Security alone will be 80% of our GDP. Ouch.

So to all my friends, I can only say this - good luck. As the pin draws ever closer to our balloon, the Wizard continues to live in Oz. And more and more money experts are now saying the same thing - if you have some cash, spent it. Buy something or go someplace. Sooner rather than later, that will no longer be an option.