What About the Seventh Generation?

“If we choose to live beyond our means, our children will have to live below theirs.” – David Kelly, JPMorgan, November 27, 2017 weekly podcast

I’m not sure I’ve heard anyone put it any better than Dr. Kelly in this week’s podcast.

The U.S., like much of the developed world, is in fact choosing to live beyond its means. And the tax cuts currently being bantered about in Congress would only exacerbate the situation, with the high levels of deficit spending being used to fund them.

I am reminded of this particular provision of the Constitution of the great Iroquois nation:

In all of your deliberations in the Confederate Council, in your efforts at law making, in all your official acts, self-interest shall be cast into oblivion. Cast not over your shoulder behind you the warnings of the nephews and nieces should they chide you for any error or wrong you may do, but return to the way of the Great Law which is just and right. Look and listen for the welfare of the whole people and have always in view not only the past and present but also the coming generations, even those whose faces are yet beneath the surface of the ground – the unborn of the future Nation.

“Have always in view … the coming generations, even those whose faces are yet beneath the surface of the ground.”

One of their chiefs added:

We are looking ahead, as is one of the first mandates given us as chiefs, to make sure and to make every decision that we make relate to the welfare and well-being of the seventh generation to come. … What about the seventh generation? Where are you taking them? What will they have?

As a grandfather, I am particularly attuned to the interests of our future generations. I am concerned about your generation, Vera, and those of your children and grandchildren.

It pains me to see my generation act so selfishly — so callously towards future generations. We take from your and your parents’ generations so we can live above our means today. We dig our financial hole deeper every day and remain willfully blind and ignorant to the implications of our decisions on future generations. And we continue to elect members of Congress and presidents who cater to our selfish desires. We are a nation with leaders who know not what leadership truly means but, instead, patronize and act only out of self interest.

Europeans thought native Americans were savages. Yet some of them — people who inhabited this land of ours long before the ships from Europe arrived — were concerned with the seventh generation.

Perhaps we need to reconsider what it means to be civilized.

Turning Black Friday White

Many people are shopping today. Data show that some of them haven’t yet paid off the bills from last year’s shopping binges. But it won’t stop them from shopping more.

In the short-term, this is good for the economy and, by extension, for the rest of us. The long-term is a different story. But, as Americans are prone to do, we’ll deal with that if and when it becomes a problem.

I don’t need anything and I don’t know anyone who does, so I won’t be shopping today. It occurred to me, however, that that’s a problem. Why don’t I know anyone who needs anything?

Perhaps I know too few people. Or perhaps my sphere of personal interactions is too small.

I don’t feel the need to shop, but I do feel like I should have to shop. I feel like I should know someone who needs something.

In general, I think we’re either givers or takers. Most of us aren’t one or the other entirely; we’re a mixture of both. I have seen, however, people who seem to be 100 percent takers. I don’t find them to be attractive and have no desire to emulate them. But perhaps I’m more like them than I care to admit.

What I’ve learned over the course of my life is giving matters. It helps keep us grounded. It helps us maintain proper perspective. It nourishes our souls and makes us better people.

I used to think staying away from the stores was a good thing. That not spending was meritorious. But I’m no longer so sure.

When Debts Are Fun, and When They Aren’t

“Some debts are fun when you are acquiring them. But none are fun when you set about retiring them.” – Ogden Nash

I don’t mean to beat a dead horse to death, Vera. But I know you’re going to be bombarded with people, banks, credit card companies, stores and others encouraging you to borrow. And making it really easy for you to borrow.

Why wait when you can have it now? And you can have it all!

That’s the message. What you’ll never hear, however, is anything about the pain of paying it back (retiring the debt). And of not having enough savings to become financially independent and enjoying the freedom that comes from that.

Borrowing has come to be the American way. I’m not really sure why. But I am sure that excessive debt — and, in particular, the incurrence of huge amounts of unproductive debt — have caused all kinds of problems for people, companies, and local and state governments.

Yet we seem never to tire of debt. In fact, we borrow even more.

Oh, well, I suppose you’ll figure out what’s best for you. Just try to remember Mr. Nash’s point when you’re considering whether to get into debt: there is nothing fun about repaying loans.

That’s not to say that all debt is bad. Indeed, debt for productive uses can be good. Debt that yields a robust debt-income stream can be good.

But much of the debt incurred doesn’t. Paying that back will hurt the most.

There Are Only Three Good Reasons to Borrow

America has fallen in love with debt. We borrow for everything. And, frequently, too much.

As a nation, we’re so overextended on debt that there’s a real debate on whether we’ll ever be able to climb out of the financial hole we’ve dug for ourselves, that is, without fist going through another depression or financial collapse with large write-offs (losses taken by debt holders). But even if we avoid those catastrophes, the debt will hang around our necks, depressing economic growth.

We’ve mortgaged our future. We’ve pulled future spending forward with little to no regard for the impact on tomorrow.

On an individual basis, often this means we’ve heaped a load of stress on our lives. Unnecessarily. Sometimes it results in bankruptcy. Sometimes, in depression or anxiety. Sometimes, in failed marriages or other ruptured family or work relationships. Often, it means a delay in retirement (less financial freedom). Rarely are there no adverse consequences.

Having lived nearly a lifetime, I’ve concluded there are only three good reasons to borrow. They are:

  1. to buy real estate
  2. to pay for valuable education or training
  3. to finance an ongoing profitable business

If I were given the opportunity to live life over, I’d never borrow to buy a car or to pay for a vacation or any other discretionary expense. Or borrow to buy stock (on margin), which I’ve never done. And I’d certainly never carry a balance on any credit card.

As for the three permissible reasons listed above, it would be important not to overpay.

That means not buying real estate at inflated values (such as a house in the mid-00s) or beyond what could be repaid with a margin of safety (not more house than I need or could afford).

And not overpaying for a college degree (such as borrowing to attend a mediocre school or to obtain a degree with little or no economic value).

Purpose and amount are key. Proportionality. Margin of safety.

One nice thing about being older is being debt-free. It’s actually quite liberating. I wonder why I didn’t do it sooner.

Next time, I will.

Generational Theft

In my lifetime, we have witnessed the greatest intergenerational transfer of wealth ever seen. Seniors have benefited. Our youth have taken it on the chin.

Oddly, even so-called conservatives don’t seem to mind this massive redistribution of wealth. It enjoys broad support. The reasons are obvious; 1) older people vote at a higher rate than young people and 2) people (both voters and their elected representatives) tend to vote their self interest.

Hence, at least thus far, the Boomers and their parents’ generation are doing just fine, the recipients of massive transfers; the youth are massively in debt and on the hook for trillions of obligations owed to what I call the dying generations.

I’m not going to get into the numbers here. If you want to catch a glimpse of them, you can watch this video of renowned investor Stanley Druckenmiller (a former Pittsburgher so he must know what he’s talking about!).

But you shouldn’t have to be convinced. Just think for a moment of the massive transfers that take place in the form of Social Security (people take out far more than they pay in), Medicare, special benefits extended to seniors by state and local governments (e.g., real estate tax breaks) and the less visible countless tax breaks and subsidies that inured mainly to the benefit of the Boomer and their parents’ generations, both in earlier times (education in particular) and now as they age and die.

The result? Continue reading

The Price To Pay For Spending Tomorrow’s Income Today

When you borrow, you’ll pulling spending forward, that is, you’re spending tomorrow’s income today. Sometimes that’s smart; sometimes it isn’t. In fact, debt can be a killer.

It can kill your retirement. Your security and well-being. Your marriage. Your job. Your dreams. Even your life (suicide rates rise during recessions and periods of high unemployment).

Yet America is in love with debt. But perhaps it’s a toxic love affair. Perhaps, Vera, you’d do well not to fall in love with debt as so many of your fellow Americans have done.

Not all debt is bad though. Continue reading