Tuesday, July 24, 2012

Moving to Higher Ground, Part 1

When we are in their paths, floods, hurricanes, and wildfires have a way of getting our attention. The need to evacuate our homes in the face of imminent disaster brings wrenching decisions. Although helpful, no amount of preparation can completely eliminate the anxiety, doubt, or pressure of time. When a threatening situation arises, we are likely to receive warnings as firsthand witnesses, from our neighbors, or via the media, to evacuate. First and foremost, we must protect the safety of our family and others in our care. Next, we may wish to preserve important documents and family photos (which, these days, may simply be on a digital device). Given a little time and some forethought, we should be able to take items necessary to our survival (food, drinking water, blankets, etc) and the kids' favorite toys.
However, we must leave many things behind, knowing that if and when we return, we may find that some were destroyed or are simply gone. And as important as they were – the garden we cultivated during years of hard work, the furniture passed down through generations, and the house we cared for and which kept us safe and warm – and as sad as we will feel about their loss, we will be alive to work and rebuild.
Tragedy is an unfortunate risk of being alive, but tragedies can be compounded by denial. When we fail to recognize the danger posed by the approaching flood and choose to ignore warnings to move to higher ground, we increase risk. Of course, it is possible that the hurricane will change course, that the wind driving a wild fire will change direction, or that a sudden drop in temperature will slow the snowmelt and decrease the flood danger. However, if we ignore warnings about high threat and low margin of safety, we increase the probability of injury and death and of turning tragedy into catastrophe.
To live in America today is to experience warnings of economic disaster. Is this life-threatening? Isn't there always someone telling us that the end is near? Why is this time any different? And if we heed these warnings, aren't we simply giving in to panic? While it may not seem as dangerous as a wildfire or a hurricane, economic disaster can have widespread, direct impacts on the lives of many; the Great Depression of the 1930s bears this out. Warnings of economic disaster are a reason for concern.
Assertion: our country is facing a rising flood of debt at the personal level, the business level, and the city, state, and federal government levels. At the personal level, some people are trying, with mixed success, to service credit card debt, student loans, and mortgages which in some cases exceed the market value of their homes. Many have been subject to foreclosure, unable to service mortgage debt. Still others have thrown up their hands and declared bankruptcy to cut losses and get on with the rest of their lives, albeit with altered self-images and lower credit ratings. These are signs that the flood has already arrived for many.
 At the business level, while some companies have kept positive cash balances, many have not. Some have been reduced in size or simply closed up shop, as we can see from the surplus of commercial real-estate. And on the "flip side" of consumer debt, banks and credit agencies are carrying loans on their books that will never be repaid. Acutely aware of the flood, lenders have turned cautious and this caution has prevented many credit-worthy businesses from obtaining loans.
City governments, where public unions and city councils have worked together to establish unsustainable pension and health-insurance plans, are now running deficits and several (three, at last count, in California) have declared bankruptcy; take this as another sign of the rising flood.
Many state governments are running deficits making them unable to help cities in need and forcing them to raise fees for everything, most notably, to attend college. State workers and students in state colleges and universities are in the direct path of the flood.
Our federal debt is at legendary levels, so much so that our federal government is trapped in a low interest rate environment, terrified that any increase in the prime rate will immediately result in an unsustainable debt-service requirement that will crowd out many other forms of federal spending.  This part of the flood threatens to sweep away services and jobs and to spill over to join other parts of the flood.
I have stayed away from statistics in this discussion, but if you doubt that the flood of debt is rising rapidly and that it is time for us to move to higher ground, you may want to invest a little time examining your own finances and those of your company and your local, state, and federal governments. You might also want to check out the situation in Europe to imagine how a debt flood like theirs might play out here.
I submit that, if we fail to recognize the dangers of the flood of debt, we are in denial and we risk turning tragedy into catastrophe. The opposite of denial is acceptance, not panic. If we accept the need to move to higher ground, we empower ourselves to make the rational decisions that evacuees make when faced with the need to save their lives and to leave behind things they cannot carry. Once we accept that we face potential catastrophe unless we move to higher ground, we must next decide what to keep and what to leave behind.

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