***Debt ‘Rooster’ Comes Home to Roost

written by A.T. "Al" Benelli, CFP, FIC

Deficit spending — it’s a term we hear so often that I’m beginning to believe we’ve become numb or desensitized to its meaning.

Simply put, it means spending more money than you have; sending out more than you’re taking in; going into debt. This country has being doing it for decades, and this current Congress has been doing it at a rate never before seen in human history. Europe began doing it a few decades ago as well, and now we are seeing Europe dealing with it as countries within the European Union begin to flirt with “default” (I/we can’t pay what we’re supposed to…) on that debt.

Unless you’ve been on a deserted island for the past few weeks, the European debt “crisis,” as it’s being called, is mostly to blame for the recent volatility in the global stock and bond markets. The focus appears to be on Greece, but they’re not alone in the sinking lifeboat of excessive debt. So how would Europe get into this mess in the first place? Well, just take a look around. The countries that are in the most trouble are those with the biggest government influences in the daily lives of their citizens. They have universal health care, taxpayer-funded pensions combined with early retirement of massive government workforces. Sound familiar? Yup, that’s the very direction this country is headed in, with trillions in debt owed by American taxpayers. Even as the results of local elections repudiates the policies of our spend-crazy Congress, we continue to witness the results of deficit spending. It’s called “loss of independence.”

The city of Philadelphia is nearly out of money and will likely have to borrow from the state. The state, if it lends Philly the money, will likely put “strings” on that money to get Philadelphia to do things the city might not normally do, if it weren’t beholding to Harrisburg. Get the picture? Now recall the state is in financial trouble as well.

It will likely need to turn to the federal government in order to bail out its own budget deficit. The feds are notorious for putting “strings” on everything from highway funding to education grants. The feds, in turn, attempt to ameliorate their own budget woes by selling bonds to other countries — like China. Is this why we haven’t heard much about pollution or human rights violations over in the Far East? Could it be that China might threaten to call in the huge U.S. “marker” it holds?

If you believe, as I do, that this country is on a slippery slope to losing some or all of its financial independence, then we as a nation need to start paying for things with real money and not federal IOUs. As any homemaker with an IQ greater than a tomato will tell you, “You can’t keep running up debt forever. There is no 800 number that our Congress can call to renegotiate the national debt.”

At some point you’ll need to reverse the process and pay down the debt. It’s called “fiscal responsibility,” and I believe that point in time will be the elections in November. If it isn’t, there may be no place to hide when the Debt Rooster becomes a bird of prey and replaces our beloved American eagle.