Wednesday, April 20, 2011

One American Family: A Parable

This is the story of Dave and Rita. They have a pretty good life: three kids, nice house, three cars, and a dog. Dave works as an independent consultant and Rita is a stay-at-home-mom. They have typical family debts: a mortgage, a couple car loans, some credit card debt, a student loan, and a home equity line of credit. The bank approved their line of credit at $100,000, which is more than Dave makes in a year. But Dave and Rita both know this and have no intention of actually using that much credit. Like many couples, Dave and Rita often have disagreements about their finances. Rita thinks Dave works too much and should should spend more time with the kids. She also thinks Dave spends way too much money on his hobbies, including his health club membership, country club membership, and restoring a classic car. Dave, meanwhile thinks that now that the kids are all in school, Rita's stay-at-home mom days should be behind her and she should go back to work. Despite their disagreements about their finances, things chug along pretty smoothly.

Then BAM, their son is in a car accident. A drunk driver slammed into his car on his way home one night. Thankfully, he survived, but needed years of intense physical therapy. Rita and Dave sued the driver, but what they thought was an open and shut case dragged on for years. All the while, the medical and legal bills kept pouring in. Dave sold his classic car and began golfing less, but the balance on the line of credit continued to creep up. After a while, Dave and Rita had a talk. They agreed that things were getting a little precarious and that, given Dave's salary, they would not let the balance on the line of credit go over $15,000.

Things didn't get dramatically better, and eventually, the balance on the line of credit started getting close to the $15,000 mark. Dave and Rita talked again. Dave said that, given the circumstances, he really thought it was time for Rita to go back to work. Rita disagreed. Dave showed her the balance on their line of credit. Rita agreed that it was bad, but insisted that Dave stop the gym membership or the country club membership. Dave didn't think he should be the only one making sacrifices. They couldn't agree on what to do. They eventually decided that this was just a rough time that they were going through. The line of credit was doing what it was supposed to do: be their safety net. They would cut back on spending together. They agreed that they would not let the balance go over $30,000.

The mortgage, the credit card bills, the legal bills, and medical bills continued to come, and Dave and Rita continued to transfer more money from their line of credit into their checking account. Months went by. Dave did not quit the gym or the country club. Rita did not get a job. Again, the balance on their line of credit kept creeping up, until finally the balance was nearing $30,000. Dave was paying the bills and realized they needed to transfer more money into the checking account to pay them. He talked to Rita, but Rita was worried. This was a lot of debt. She told Dave that she was drawing a line in the sand. Rita had to approve all transfers from the line of credit and she said that she wouldn't approve anyting until Dave agreed to quit the country club and the gym. Dave said he wouldn't do either unless Rita was willing to get at least a part-time job. Rita wouldn't give in: no transfer. Dave handed her the mortgage and credit card bills and told her that if she wasn't going to approve a transfer from the line of credit, she could figure out how to pay the bills. Dave agreed that they needed to do something, but the mortgage needed to be paid now, so unless Rita wanted to lose the house, they needed to transfer money from the line if credit now. Rita dug in her heels. She would not approve the transfer.

A week later, Rita still was refusing to approve a transfer from the line of credit. The mortgage was late. The credit card bill was late. The car payments were late. Rita and Dave finally sat down to talk. They agree that they both needed to give a little. They looked at all the numbers. They came up with a plan. Dave would quit the gym, but not the country club. Rita would get a part-time job. They would have enough extra money that they would be able to start paying down their massive debt. Rita felt so much better. They actually had a plan and the numbers worked.

Rita and Dave logged into their online account to transfer the money from their line of credit to pay the now overdue bills. Their credit line had been frozen.Since they were late with their credit card and mortgage payments, the had bank frozen their line of credit. Then they logged in to their online credit card accounts. The rates had gone up - way up. Their new minimum payments were now 5 times what they were before. Without access to their line of credit, they could not pay their bills that month. The plan that they had drawn up was suddenly in jeopardy. Without the line of credit and with the higher minimum payments, they couldn't pay the current bills. Rita did quickly find a part time job, but it didn't pay very well. Soon they were choosing which bills to pay and which they couldn't pay. Soon enough, the bank repossessed one of their cars, so Rita could no longer get to her part-time job. They struggled to try to catch up, but they just couldn't do it. Eventually, the bank foreclosed on their house and took the remaining car. Rita and Dave had to file for bankruptcy once they realized that they would never be able to dig themselves out of the hole they were in.

In the end, they lost everything. Why? Because Dave and Rita couldn't work things out? Sure, bad decisions and an inability to make tough choices got them into a deep hole. But the final push off the cliff came when instead of sitting down and facing the tough choices, Rita decided that the only way to get Dave to listen to her was to stop paying the bills, even though she could have paid them. One week late, but that was enough. Dave and Rita were already so leveraged that it started a downward cycle that couldn't be reversed. Had the bills been paid on time, the interest rates would not have shot up and they could have struggled through it. They could have made the tough choices and turned it around.

Unfortunately, Dave and Rita lost everything. Clinton, Raegan, and even baby Paley's bright future disappeared.

OK, folks. This is the time where good authors would just leave you to with Napoleon and his human friends playing cards and let you ponder the deeper meaning on your own. I, unfortunately, lack Mr. Orwell's self-restraint.

The moral of the story: Stop talking about not raising the debt ceiling. If you do not want to raise the debt ceiling, this is what you are saying: "I want to bring financial ruin to the United States of America. My beliefs are more important than the actual well-being of everyone else in this country that I claim to love. I will stand by my principles without considering the consequences of my actions."

We all agree that the nation's debt is out of control. We all agree that it is a problem that needs to be fixed. Can't we all also agree that we should not bring down the nation's economy because we can't quite agree on how to solve the problem?

Oh, and Democrats, this goes for you, too. In x years when you are no longer in power and try to do this same sh*t to the Republicans, just like you did 5 years ago.

All of you. Cut it the f*** out!


OakParkGirl said...

This was a good parable to explain things, only you made the husband and wife far too mature about it if it is meant to represent our government, sadly :p

Daydreaming Fool said...

Sigh - I'm not as up on American politics as I would like to don't know if I feel like I can REALLY say as much as I would normally on a subject like this.. (I'm totally wrapped up in Canadian politics right now..we're about to have an election..)

..But this entire issue just..scares me. And frightens me. Beyond belief..and I just feel like there HAS to be a reasonable, logical way for everyone to work together to create a solution that will work. Sigh.

rubyspikes said...

*sigh* A sweet Canadian girl is disappointed that she's not up on her American politics. Meanwhile, exactly 7 Americans know that Canadians even have elections, much less that there is one upcoming.

In short, a while back the US Congress decided that they would put in a cap on how much the US could borrow. Now, every time we get close to that cap (which has happened several times), Congress has to vote to raise it. Basically all economists agree that this whole process is ridiculous. If they don't raise the cap (aka the debt ceiling), the US cannot pay it's bills because there simply isn't any more money and they aren't allowed to issue any more treasury notes, because those increase our debt. It's pretty obvious that if the US doesn't pay out on all the treasuries already out there in the world economy, it's going to have an incredibly SEVERE impact on the world.

But the thing that's so annoying is that most everyone knows this. So every time we come close, the party not in power throws up their hands and says that they're not going to go along, knowing that they full well have to or risk a global collapse. But it means that we have to listen to people say things like, "If an American family ran their household the way the American government does..." and a bunch of other nonsense.

The debt ceiling is not the problem. The problem is the failure to come together and figure out how to actually bring the debt under control.

Ahh. There I go again.


Daydreaming Fool said...

Ugh. This election is a bit of a doozy one of the parties running (we have four major ones) basically wants to eliminate national healthcare. You know, the thing that most countries actually WANT and are working towards. When yes, we are in debt - but not nearly in comparison to a lot of countries. Sigh. I'm pretty liberal and like my health care/welfare/knowing that even if there ARE flaws - everyone - no matter what..could be taken care of if they need it. A lot of the things that one party in particular is saying scares the heck out of me. I usually can be pretty tolerant..and see others POV...but I haven't liked our current PM/things he has said since I first started reading/follwing info about him before he even got elected YEARS ago. Scary.


That was so helpful in clarifying it a lot - I mean, I got a lot from your ACTUAL blog post - and put it together with the bits and pieces I DID know - but plain and simple helps my brain these days..haha! My brain has been so boggled lately..that following the election here..and a few other headlines from are most of the news that I scan right now..usually I'm a news junkie.

I remember one of my teachers and I have a conversation while I was in highschool (this was at least 10 years ago) about how scary it was that the US was teetering on the verge of being able to make less as a country on a whole then its debt..or maybe it's debt payments (There is a term for this - but I'm not good at remembering terms. Especially late at night. Especially ECONOMIC terms. Ew.) just spelled out BAD - and me - a 15 year old was talking/worrying about this a DECADE ago. I think people seemed pretty shocked that this whole debacle is happened/happening..yet..economists (and a few rural Canadian teenagers who are giant dorks) have been talking about it for a while now..

I really hope for the sake of your country and the world..that people put aside their stupid selfish differences and come up with a plan that will be best for EVERYONE and EVERYTHING. That can meet peoples needs, that they can stabilize and revitalize the country and its economy - and work on paying down debt..for the country, it's people and the future. Sigh. There HAS to be a way.

Anonymous said...

The U.S. Dollar remains a currency standard for the world.....the question is if it will continue and if not what that means to the U.S. economy.....if anyone is worried about our economy, that is the area to research....clearly some of us are better at research than others (You know who you are).....that just might be a point to ponder.....maybe even more than just pondering.

rubyspikes said...

I think someone is suggesting that I should research the US Dollar. OK... off I go to research the US Dollar. Fun times ahead.

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