Wall Street Steward Blog

The Real State of the Union

Have you ever watched a “State of the Union” address?  You know the one…circular room, 700 dark suits, politicians glad-handing every single person as they enter and leave the room.

Then, the President of the United States of America addresses the movers and shakers of our country and touches on the key issues we face as a nation.  Hereby providing the current “State” of our Union.

Oh, yeah, I almost forgot….the ridiculous standing ovations.  Sometimes the Democrats stand alone and clap, other times the Republicans fly a solo clapping mission, and occasionally everyone stands and applauds.  I think the applause is meant to waste tremendous amounts of time and ensure that very few American citizens actually watch the event start-to-finish.  If that is not the intent, they need to regroup because that is what happens.

After that meaningless intro, I would like to talk about the current FINANCIAL State of the Union.

Most people cannot wrap their arms around what a TRILLION dollars actually means.  That is one thousand billions.  According to the Forbes 400 list, if we take the respective net worths of:

                Bill Gates, Paul Allen, Steve Ballmer (of Microsoft)

                Eric Schmidt, Sergey Brin, Larry Page (of Google)

                The Entire Walton Family (of Wal-Mart)

                Warren Buffett (of Berkshire Hathaway)

                Pierre Omidyar (of eBay)

                Steve Jobs (of Apple)

                Mark Zuckerberg (of Facebook)

                Phil Knight (of Nike)

                Jeff Bezos (of Amazon)

                Michael Dell (of Dell)

                Larry Ellison (of Oracle)

…and then multiply it by 2.5 and that gets you to a TRILLION dollars.  1 trillion

Well, as of this writing, our national debt is $14.7 trillion.  Hard to comprehend, right?

Congressman Mick Mulvaney, who represents the fifth district of South Carolina, created a wonderful illustration of what this financial picture looks like in figures that we CAN understand.  I am a big fan of Mick due to his straight talk – he speaks like a real person and explains things in a way that an average citizen “gets.”   This analogy came from his office, and I give his office all of the credit.

A family is sitting around their kitchen table discussing their finances.  They look like this:

$46,000 annual income
$78,000 annual expenses (mortgage, power bill, groceries, insurance, etc.)

This is not encouraging.  A family that spends $32,000 more than they make is in horrible financial shape.

One other small detail about the family – they have a Visa bill with a $281,000 balance.

That’s right.  $46k income, $78k expenses, and a credit card balance of $281,000.

Does all of the arguing in Washington make sense now?  The debt ceiling negotiations were harsh, but in order to make tough decisions, we need to discuss difficult topics. 

How would a family get out of financial hole like that?  Step one would be to cut up the credit card, step two would be to do everything possible to reduce expenses, and step three would be to pull out all the stops to try to earn more money.  Basic finance – increase revenue, cut expenses, and do it quickly. 

Where should the US cut?  How much?  How can they raise revenues?

I will quote our leader, President Obama, and say that those questions are “above my pay grade.”

I think we can all agree that something drastic needs to be done, and it needs to happen VERY quickly.  So, if I were grading our financial “State of the Union,” I would give us an F minus.

And there would be NO standing ovation.