By Ivan Beliveau: Another family has expressed a desire to come to Goffstown and share the experience of living in a smaller somewhat rural NH “bedroom community.” They are reasonably typical of many families today and they are quite open and willing to share their personal finances with interested parties.
When they went to local banks to get a loan to purchase a house, they filled out the usual forms and detailed exactly where they stood financially. This is what they shared with the bank:
· Outstanding credit card and loan (various types) balance: $142,710
· Total annual family income: $21,700
· Amount of annual spending: $38,200
· Additional new debt to credit card each year: $16,500
· Cuts from the budget for next year: $385
This family was quite pleased with these numbers and gave themselves a “triple AAA” rating. Naturally, a few years ago, this family would have qualified for a decent $500,000.00 loan at any bank. In fact, that family could have gotten as many of these $500,000.00 as they wanted because the banks could bundle these loans together, insure them, and sell them to as many pension funds, countries and endowment funds as they wanted to. Today things are different.
Most banks today are finding it a little more difficult (to say the least) to sell these kinds of loans to other financial institutions. Financial institutions are no longer excited about buying into this kind of business model. Who would blame them? Why did they get into this kind of business at all?
Also, the bank that might be left holding this loan is forced to come to one inescapable conclusion: This loan will never be paid back. Period! Where would that leave the bank…Bankrupt?
Because of those facts, would you say that this family is in big financial trouble?
There is no possible way that this family can ever even pay back their existing loans. They spend too much each year and don’t have a high enough income to justify their existing loans, never mind a new loan. This family for all practical purposes is bankrupt. Is there another possible conclusion?
What is really interesting about these numbers is that if you add 8 zeros to all the above new Goffstown family numbers, you get the exact numbers for the current financial status of the U.S.
International banks and financial institutions also know that these U.S. loans will never be paid back!
Of course Alan Greenspan, former Federal Reserve Chairman has stated the U.S. can never go bankrupt because the Federal Reserve can always print the money to pay off the federal debt.
Also because of Greenspan and Bernanke and their zero interest rate fed funds policy, large banks don’t have to loan money at all. They borrow money for nothing and buy U.S. bonds and treasuries that pay some interest. It is a risk free “carry trade” that few understand. Why even attempt to loan money to people who are unqualified and have no ability to pay it back? What’s the problem?
Naturally the unrestrained FED “money printing” will cause prices to rise (inflation) and taxes to go up covertly which is still a mystery to most people. People are starting to get wise however!
This problem of inflation will be left for people to handle. Are we up to the task yet? Get ready!