Coronavirus Proves America is Dangerously Overleveraged

Coronavirus Proves America is Dangerously Overleveraged

President Trump is on the precipice of signing the largest stimulus bill in history. A total $2 trillion package, nearly half of the entire federal spending budget for one year. While the grossly excessive bill is full of a litany of items totally unrelated to the coronavirus (money for the Kennedy Center, diversity initiatives, etc.), the funding is intended to be distributed to households, small businesses, and massive corporations to essentially hold them over until business can open as usual. 

The US economy has been shut down for approximately two weeks and the political rhetoric surrounding the shut-down would have you believe that households, businesses, and whole industries are on the verge of bankruptcy because they can’t spare even a day’s worth of revenue to survive. 

This leads us to a conundrum. Unemployment is at historic lows, wages are up, and the stock market has been on a wild bull run (until the shutdown). Surely individuals and American enterprise have an emergency fund of cash for unforeseeable emergencies like this?

Apparently not. And frankly, we only have ourselves to blame for this.

A Nation of Abundance and Excess 

There are several different metrics and studies that measure a nation’s income or material wealth, many of which are flawed in that they do not account for government benefits like housing and food assistance, nor do they account for charity. Therefore, the most accurate way to measure household wealth is based on consumption data.  

By this metric, America is indeed the wealthiest nation. Even our poor/working class are wealthy in comparison to the rest of the world. We earn a lot of money, unfortunately it would appear that we also spend nearly all of it.  

Debt Dependency 

While earnings and consumption data show a healthy economy, debt figures would indicate otherwise. Here is a snap shot of current debt levels for US households.

  • The average car payment $530 for a new car and $381 for used cars. Additionally, the average new-car loan term is around 63 months
  • As of the first quarter of 2019, 5.2 million federal student loan borrowers are in default, 3.4 million federal student loans in deferment and another 2.7 million in forbearance.
  • The average U.S. household with revolving credit card debt has an estimated balance of $6,849 as of September 2019.
  • Consumer debt levels for auto loans ($1.3 trillion), student loans ($1.4 trillion), and credit card debt ($829 billion) are all at record highs.
  • According to the Federal Reserve in 2019, 40% of Americans could not cover a $400 unexpected emergency. 
  • When Barrack Obama left office, the federal debt was about $20 trillion. As of today, that figure is $23.6 trillion. Once the stimulus bill is dispersed, we will be approaching $27 trillion. The Trump administration is set to exceed Obama’s spending by a country mile.

From Congress to the cul-de-sac, a substantial portion of the country are not being good stewards of their finances. And now, when the country is in a genuine emergency and many are out of work through no fault of their own, we are helpless.

Being Weird

The news isn’t all doom and gloom. There are businesses and households alike that have gone against the grain and prepared accordingly. Millions of households like my own adhere to the financial principles of Dave Ramsey. His ‘7 Baby Step’ strategy teaches you to eliminate all debt and have at least 3-6 months of expenses saved in case of an emergency. Using the Baby Steps, the Ramsey clan households across America are not only able to ride out this economic storm with minimal stress, but we are also able to continue to keep up our charitable donations during a time when so many other families desperately need it.

Businesses small and large also follow this plan. The most popular Mexican restaurant in my hometown can last over 2 months without a dime of revenue, covering rent and still compensating employees. Sysco, the largest food distribution company in the nation, has a surplus of $2 billion in cash! Usually a supplier for restaurant chains, Sysco has transitioned during the crisis to deliver goods to grocery stores and is helping to keep the supply chain moving. Contrast that with the Cheesecake Factory who is now refusing to pay rent after less than a month of closure.  

The buy now pay later lifestyle in America has made this dangerous health crisis infinitely more stressful for millions of families and businesses. But there is an army of fiscally conservative people that have fostered a culture where the first line of defense against an emergency is family, friends, community, church, and charity. Not the government. 

In a culture of such fiscal frivolity where others expect the government to save them, do what Dave Ramsey says, “Be weird.”

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