(Title to be sung in your best Salt-N-Pepa voice…)
Today I’m busy preparing for an upcoming business trip– I’m flying to Florida tomorrow to meet with two of my all-time-favorite Internet heroes, Craig Ballantyne (Internet Independence.com) and Matt Smith (SovereignMan.com). What I really love and respect about Craig and Matt is that they are experts at building businesses that create enormous value for their customers– they continually under-promise and over-deliver and are extremely low on hype (a rarity on the Internet!). I hope they will have some great ideas for me about how I can create the most value for you and your financial success with Kung Fu Finance. Stay tuned and wish me luck! I’ll have much more to report on that next week.
But today, I want to talk about the four-letter word, DEBT. (Let’s talk about all the good things, and the bad things, debt may be, let’s talk abooooout debt…). Because we are DROWNING in it. “But Kung Fu Girl, look at the stock market! We’re up almost FOUR HUNDRED points today! The Europe problem is SOLVED!”…..Except that it’s not. 🙁
I wish I wish I WISH that it were, but truly, once again, the illustrious politicians have just kicked the can down the road. Again. Let’s take a quick look at the global debt, courtesy of The Economist:
From the Economist:
The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock shows the global figure for all (or almost all) government debts in dollar terms.
Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.
Of course, a little bit of all that debt (100 billion euros) is supposed to magically disappear now, thanks to the Greek deal struck today by European leaders. (Our trusty math tells us that will reduce the global debt to…$43.4 TRILLION, give or take the EURUSD exchange rate…)
But when you dig down into what exactly is supposed to happen with this new agreement, you find that once again the plan is big on promises and weak on details. According to Reuters, economists are “split down the middle” as to whether this 50% “haircut” (debt forgiveness) will be enough. “The fact that they’re suggesting on pretty optimistic growth forecasts that the debt to GDP ratio will only fall to 120 percent is unlikely to eliminate fears that the problems in Greece have been solved,” said Ben May at Capital Economics. Swell.
And then of course, there is the U.S. debt, courtesy of the U.S. Debt Clock:
Nothing has changed here today (except that our debt has continued to increase). US Total Debt (that’s Household, Business, State and Local Governments, Financial Institutions, and the Federal Government) stands at $54.5 TRILLION. That’s roughly $175,000 per citizen, or $662,000 per family.
Are you kidding me? How many families have $662,000 lying around? I highly recommend checking out the Debt Clock if you haven’t already…it does a great job of explaining all of the numbers you hear spouted off on TV (just mouse over anything you are interested in for an explanation).
OK, I’ve got to keep this short today because I need to go pack, but as the markets soar with insanity, enjoy the ride (if you’re on it) but try to keep YOUR sanity intact! (And please, be careful!)
Have a great weekend…I’ll be back in your inbox on Monday. Thank you for reading, and please let me know what you think about all this debt!
To your financial success,
— Kung Fu Girl