Today, many American families have “boomerang kids”—kids who leave home and go to school, only to return unemployed and unable to survive in the real world.
On top of boomerang kids, many adults have aging parents who depend upon them for care. In the United States, long-term and assisted-living care can start as high at as $8,000 a month, which is more than many people earn per month.
Multi-generational survival will be your child’s problem. Will your child move in with you, or will you move in with them and their kids? Will your child be able to afford your long-term healthcare if you are lucky enough to live a long life?
The Biggest Gorilla
The most expensive problem on the horizon is not Social Security or multi-generational housing. The biggest gorilla sitting quietly in the room is Medicare. Medicare was created in 1965 and today is an unfunded liability estimated at over $100 trillion, more money than all the money in the world. Your child will wrestle with this $100-trillion gorilla, one way or another.
President George W. Bush created the most expensive social problem in recent years, and the largest Medicare liability, when he signed into law Medicare Part D.
President Barack Obama’s Obamacare sets the stage for another massive problem that your child will pay for, one way or another. I believe Obamacare is more problematic than Medicare.
Today, the first wave of approximately 80 million U.S. baby boomers has begun to collect on Social Security and Medicare. Keeping the math simple, if 80 million baby boomers collect $1,000 a month from the government, that is $80 billion each month in taxpayer money… yours and your child’s taxes.
Baby boomers will live longer than their parents and demand expensive medical care to stay alive, as long as someone (your child and his or her peers) is willing to fund their golden years. This leads to the next gorilla.
800-Pound Gorilla #2: Accelerating National Debt
Most of us have heard of the power of compounding interest. Albert Einstein is often credited with referring to it as the “most powerful force in the universe.”
A parallel concept is the miracle of compounding debt. Your child will face the tyranny of compounding debt as well as the compounding interest on that debt.
In the year 2000, the national debt of the United States was over $5 trillion. By 2012, it had risen to over $16 trillion.
In 2011, riots erupted in Greece when the government of Greece declared bankruptcy. The United States, England, and Japan may not be far behind.
This leads to the next gorilla waiting for your child.
800-Pound Gorilla #3: The New Depression
Chairman Ben Bernanke is currently running the U.S. Federal Reserve Bank. He is arguably the most powerful banker in the world, simply because he has the power to tell the treasury to print U.S. dollars.
His first profession was as a college professor at Princeton, and he particularly studied the Great Depression. He believes the reason the last depression was so severe was because the Fed did not print money, which caused the economy to collapse. Hence, he believes the way to save the economy in this new depression is through “quantitative easing,” aka printing money. That is why his nickname is “Helicopter Ben,” for reportedly suggesting he would drop money from helicopters if the economy stalled.
History records two different types of financial depressions:
1. The Great Depression of 1929 in the United States
2. The German hyperinflation in the 1920s
Summarized in simple terms, the American depression was caused by not printing enough money. The German hyperinflation type of depression was caused by printing too much money.
A few disturbing comments from the Fed Chairman Ben Bernanke, an “A” student, are:
• “The U.S. government has a technology called a printing press [or its electronic equivalent today] that allows it to produce as many U.S. dollars as it wishes at no cost.” (2002)
• “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.” (2005)
In 2007, housing prices began crashing.
• “The Federal Reserve is not currently forecasting a recession.” (2008)
• “One myth that’s out there is that what we’re doing is printing money. We’re not printing money.” (2010)
Chairman Bernanke is a distinguished academic. Unfortunately, he is not a businessman. From my viewpoint, his statements reflect being “out of touch” with the real world.
After 2007, it became apparent to me that Chairman Bernanke favored the German type of depression, a financial crisis that, if successful, will lead to hyperinflation. He believes printing money will solve the problem of printing money. It is like an alcoholic drinking more to cure his addiction.
Q&A
Question: How long did the last U.S. depression last?
Answer: It lasted 25 years. In 1929, the Dow was at a high of 381 before crashing. It took until 1954 before the Dow reached 381 again.
If the Great Depression lasted 25 years, the New Depression could last from 2007 to 2032.
Hyperinflation is a period of rapid inflation that leaves a country’s currency virtually worthless. For people who work for money and savers who believe in saving money, hyperinflation could wipe them out. This is important to note because, during the last U.S. depression, the Americans who had jobs and had money saved were the winners.
During the German depression in the 1920s, those who produced products that were needed for survival—products such as shelter, debt, and fuel—did well. A few did very well because producers could raise their prices.
In the New Depression, savers, retirees, and fixed-income workers will be the biggest losers. Debtors and producers of food, fuel, and shelter (as well as those who hold gold, silver, and diamonds rather than cash) will be the biggest winners.
The point is, it is important to prepare your child for the possibilities of both types of depressions.
Sir Edmond Burke, who lived from 1729 to 1797, said:
“Those who do not know history’s mistakes are doomed to repeat them.”
This global financial crisis is a global condemnation because our schools fail to teach financial history, an essential element of financial education.
The Warnings of Economists
Today, many people claim that “printing money” to stimulate the economy is Keynesian Economics. That is rubbish. That is a lie told to a public that has no idea what Keynesian Economics are.
Rich Dad Lesson
Financial education must include lessons in financial history. He said, “If you want to prepare for the future you must know the past.”
This is what British economist John Maynard Keynes had to say about devaluing the currency:
“Lenin is said to have declared that the best