In the time it takes you to read this sentence, the government - at the federal, state, and local levels combined - will spend money and take on new financial obligations totaling more than $1.5 million. That's money government does not have and obligations it cannot honor, piling up mountainous debt that threatens to undermine the financial well-being of you and your family for generations to come. Currently, federal, state, and local government debt, in the form of bonds and other securities, totals approximately $16 trillion. As staggering as this figure is, it doesn't capture the full scope of the threat that confronts us.
In addition to selling bonds and other securities to borrow money, government at all levels also has made enormous financial commitments over the years, without providing funds to back up these commitments. Currently, the unfunded commitments of the federal government to programs such as Social Security and Medicare total almost $109 trillion.
It's difficult to grasp the significance of such huge numbers and the real threat they pose to you and your family.
Let's consider the case of a family living in Richmond. Call the parents Michael and Jennifer. They have been married 10 years, live in the Fan, and have two young sons who attend William Fox Elementary School.
They both graduated from college and have good jobs. Jennifer is a high school teacher and Michael is a corporate financial analyst. Last year they had a combined earned income of just under $125,000, the median income for the typical American two-income professional couple. They are hard-working and financially responsible.
Last year they were able to save approximately $1,500. They took one family vacation trip to Sandbridge. In 2003, they purchased their house in the Fan for $380,000. They are current on their mortgage payments and other monthly bills.
Over the past year or so, Michael and Jennifer have become very concerned about their financial situation. Recently, after reviewing some financial advice columns in The Times-Dispatch, they decided to draw up a household balance sheet to get a snapshot of all their financial assets and liabilities.
Like most Americans, Michael and Jennifer's home is by far their most valuable asset. Its current market value is approximately $450,000. Their savings and in- vestments total just under $76,000. The combined value of their two cars and other personal property is approximately $45,000.
So, altogether, their household assets are worth more than $570,000. The liabilities on their balance sheet are limited as a result of their responsible lifestyle. They owe $266,000 on their mortgage, and approximately $34,000 on their car loans.
When Michael and Jennifer compared their assets to their liabilities, they were pleased to see that the value of their total assets exceeded their total liabilities by about $270,000. They were proud that they had been able to build up this much net worth.
But wait! The balance sheet that Michael and Jennifer prepared does not begin to accurately represent the family's real financial health and future financial prospects. It does not take account of their household share of federal, state, and local government debt and unfunded commitments.
In round figures their share is:
Federal debt: $108,000 Federal unfunded obligations: $907,100 Virginia debt: $3,100 Virginia unfunded obligations: $30,200 Richmond debt: $16,000 Richmond unfunded obligations: $4,700. So this young family's total share of government obligations and debt is $1,069,100. When these obligations are added to their other liabilities their household ends up in a deep financial hole. Despite all their hard work and responsible financial behavior, decades of financial mismanagement by the government have effectively wiped out the net worth of $270,000 they thought they had. Instead, they owe almost $800,000. How about you? What does your household balance sheet look like when you factor in $1,069,100 of additional liabilities? Make no mistake, the financial liabilities of the government will affect every American family. Just as Michael and Jennifer must pay off their mortgage and car loans, so too must the government pay off its debts and ultimately own up to its massive underfunded financial commitments. It cannot indefinitely borrow money, or simply print money, to support its reckless spending. Unfortunately, as we approach the point where we are compelled to address the mountainous public debt that confronts us, there seems to be a widespread mindset among the governing class that the only responsible approach includes substantial tax increases. This spells bad news for Michael and Jennifer, and for the rest of us. As a typical professional couple with a median level of income, Michael and Jennifer already turn over a substantial portion of their income to the federal government, the Commonwealth of Virginia, and the City of Richmond. Still higher taxes will cut into their disposable income, hurt the economy, and reduce the value of their home and other investments. Just like Michael and Jennifer, you've worked hard for everything you have. You've been financially responsible, even if the government has not. Now, before they take even more of your money, the time has come for responsible people to tell the governing class they cannot continue to borrow and print and spend, and then raise taxes again to be "responsible." Instead, they need first to get their irresponsible spending under control. There is no time for delay. In the past 30 minutes you might have spent reading today's paper, the government spent money and took on new financial obligations totaling more than $90,000,000. // var ranNum = Math.round(Math.random()*1000000); document.write('http://content.yellowbrix.com/images/content/cimage.nsp?ctype=full_story&story_id=147337860&id=thirdage&ip_id=ProQuest&source_id=Richmond+Times+-+Dispatch&category=Financial+Planning&random=' + (ranNum));// ]]>//
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