Book Review: IOUSA

by Gary L. Fisher

iousa-book-cover“We suffer from a fiscal cancer. It is growing within us and if we do not treat it, it could have catastrophic consequences for our country.” – David Walker, Former Comptroller General of the United States.

David Walker made this statement on a 2007 episode of Sixty Minutes. Walker used to be the nation’s #1 accountant. As head of the US Government Accountability Office or GAO, he was charged with “improving transparency, enhancing government performance, and assuring accountability for the benefit of the American people. “ The GAO is the non partisan office charged with telling us how we’re doing fiscally, from a national perspective.

Walker left that role ultimately to proselytize to the nation about the financial illness that was developing in the nation’s fiscal infrastructure. Believing as he did, that if he approached the message from an individual basis he could garner more interest and attention, since many people find GAO pronouncements about as exciting as a story problem.  His appearance on television was part of that process. Unfortunately, his message didn’t create much more action that it did when he was inside the government tent.

When Walker first started his outspoken crusade the federal debt was 8.7 trillion. Today that number has increased to a breathtaking 18 trillion under the Obama Administration. That’s right. The federal debt has more than doubled the amount it took nearly 232 years to build to.* You don’t need to be an economist to know that it simply isn’t a positive trajectory. Rather, it’s “categorically unsustainable”, as Walker said, when it was ‘only’ 8 trillion. The federal debt is the sum of two numbers. The first is $12.92 trillion in public debt, which consists of all the outstanding Treasury bills, notes and bonds held by individuals, corporations, foreign governments and others. By the time you read this that number will have risen precipitously. However, to obtain a real – time number simply go to www.usdebtclock.org. You can watch the numbers clicking away in a very rapid fashion.

IOUSA is the best book that I’ve ever read which addresses this situation, putting it in to layman’s terms. Authors Addison Wiggin and Kate Incontrera have assembled commentary and insight from Walker among others that helps illustrate the impact on the average person in America. Since it’s 2007 publication date until now, many of the issues discussed appear to be coming to fruition.

One of the key concepts that they illustrate is the idea of the federal debt as a percentage of Gross Domestic Product (GDP). GDP is the total market value of goods and services produced by labor and property located within a country in a given year. It’s useful to know the debt as it relates to GDP because it is highly indicative of any particular country’s ability to actually pay back the debt owed.  So to put this in to perspective, America’s GDP was 13. 5 trillion in 2007 when the federal debt was a mere 8 trillion. Today the GDP is approximately 17.4 trillion with a debt of 18 trillion.  That means our debt is nearly 95% of our GDP, and it’s predicted to get much worse.  (This quote is from the book. Sadly it was right on target. “US Debt to GDP was 101.5% in 2014 according to tradingeconomics.com. and Forbes The US Debt; Why It Will Continue To Rise”, 9/18/2014.”).

The largest components of the debt are*:

Medicare :  923 billion

Social Security : 861 billion

Defense/War: 595 billion

Income Security: 310 billion

Net Interest on Debt: 238 billion

Federal Pensions: 250 billion

*Source: USDebtClock.org

What this means to the average American is disturbing.  The current portion of this debt per American citizen is $185,000, or an astounding $732,000 per family!  As Walker is quoted in the book, “The facts aren’t Democrat or Republican, the facts aren’t liberal or conservative. The facts art the facts…our financial condition is worse than advertised and we need to act; we need to act soon because time is working against us”.  Remember that Walker said this before the election of President Obama and the creation of an entirely new government program with the Affordable Care Act, and the increase of the federal debt by another 10 trillion.

The very first director of the Congressional Budget Office was Alice Rivlin. She discussed the current (as of 2007) state of affairs in the book. “ Deficits matter”, says Rivlin.  “Deficits occur when the federal government is spending more than it’s collecting in revenue, and that means it has to borrow money. We are not paying the government’s services we are asking our government to provide. The government then in turn, borrows money and passes the IOU or bill right along to the next generation.

Rivlin went on to say: “Increases in longevity and rising medical care spending are symptons of being a rich country. However, we have to do something about it. Unless we are willing to raise taxes and keep on raising them, or close down the rest of the federal government, we’ve got a very big problem staring us in the face.”

Ultimately, that’s the core message of IOUSA. While politicians on both sides of the aisle continue to kick the proverbial can down the street, future generations of bright-eyed young people, retirees, and the elderly face a future of rising taxes, diminished or vanished services, and extended waits for promised benefits. The Social Security statements that people have recently started receiving stipulate clearly that under current trend lines, they will only be able to pay a percentage of promised benefits by 2033. That’s most unfortunate news for millions who have been paying in to the system for decades.

Thomas Jefferson said “No generation can contract debts greater than may be paid over the course of its own existence.” While that sounds great, it’s fundamentally untrue. Our nation is in fact passing along this legacy of debt to future generations (as well as current ones). As for Jefferson, his public proclamations aside, he lived a lavish lifestyle, funded almost exclusively by debt. He died broke. His estate had to be sold off for pennies on the dollar. His grandson, Jefferson Randolph, paid on the remaining debt for most of his life. Luckily, we can’t experience that same thing today. When one passes on now, their debt passes on with them. However, on a national level, IOUSA makes it clear that we are following Jefferson’s example of letting our grasp exceed our reach fiscally. The ramifications of which may be manifest for years to come, unless and until some real action is taken by our political representatives. Until then, bracing for a future of lowered benefit expectations and higher taxes just might be a prudent financial course of action.

*Source: http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm

The opinions voiced in this material are for general information only, do not necessarily reflect the views of LPL Financial, and are not intended to provide specific advice or recommendations for any individual. 

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Oak Point Financial Group, a registered investment advisor. Oak Point Financial Group and MyRetirementMentor are separate entities from LPL Financial. 

Book Review: While America Aged

 by Gary L. Fisher

while-america-aged-imageRalph Nader coined the phrase ‘unsafe at any speed’ in his scathing indictment of the Corvair. If he had written a book about the General Motors business model of the time, he might have called it ‘Unsustainable at Any Speed’. The Ron Lowenstein’s book “While America Aged’, in my view, is one of those rare gems that not only explains a controversial subject in a terrific storytelling format, and in my opinion, it also happens to have the weight of being prescient and accurate.

I first read this book back in 2008, and it made an incredible impact on my thinking in how I viewed the trajectory of our nation at the time. In conjunction with other personal research, I made significant changes in my client’s portfolios, and my own personal financial life, that turned out to be extremely valuable.

Growing up in the birthplace of General Motors, and living nestled between the automotive enclaves of Flint and Detroit as I do now, the fate of the auto industry has always been a top-of- mind issue for me, as it impacts my life daily. In fact, 100 years of my family story has involved General Motors. Dating back to my Great-Grandfather John Pyne, who worked at the original Buick Motor Division and GM plant, under founder Billy Durant, and Buick leader ,Walter Chrysler, through my grandfathers, grandmothers, dad, and even my mom, who worked for a firm whose #1 client was GM.

Lowenstein’s book isn’t all, or even mostly about the auto industry. Rather, it is broken into three parts, exploring the impact of legacy costs on the public and private sectors. It’s a chilling tale of greed, selfishness, and outright stupidity that has, and will likely continue to impact all Americans for generations to come. It’s a book that predicts, in 2007, events that were to happen all to soon in 2009, and prognosticating the realities of over-promising and under-delivering on pension and health care legacies. These are issues that are now becoming frequent headlines as it becomes clear that the foolish and short-sighted decisions of the past predicted to likely undermine the innocent recipients of that legacy in the future.

There really isn’t one villain in this story, and even fewer heroes. Rather, as Lee Iacocca said in a Chrysler boardroom during the 80’s Chrysler bailout, blame lays on “the three of us”, meaning corporations, unions, and government. In my opinion, the book very clearly explains this in an extraordinarily balanced and fair manner. It essentially confirms my own beliefs as to how we got into this mess, and it goes a long way to explaining what it will likely take to extract ourselves going forward.

Lowenstein reinforces the reality that when it comes to retirement in the 21st century, there is simply no substitute for self-sufficiency, holistic retirement income, and financial planning. Hoping for bailouts, government intervention, and paternalistic unions and corporations to come to the rescue just might be a bigger fantasy story than the latest Star Wars installment. One sure take-away from “While America Aged” is that taking control of your own financial future has never been smarter, more urgent, or more crucial in pursuit of a sustainable and prosperous retirement.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Securities offered through LPL Financial ember FINRA/SIPC. Investment advice offered through Oak Point Financial Group, a registered investment advisor. Oak Point Financial Group and My Retirement Mentor are separate entities from LPL Financial.

Book Review: The End of Diabetes

by Gary L. Fisher

Book Review:  The End of Diabetes, by Joel Fuhrman, M.D.

The End of Diabetes.jpgDiabetes is extracting an awful price on America. It is a devastating and insidious disease that is not only growing like wildfire, it’s affecting people from youngsters to oldsters, and everyone in between.  The toll it can take on families is equally destructive. Emotionally it’s impossible to put a price tag on the pain it causes, and from a purely financial perspective it’s off the charts.

The average diabetic incurs $6,649 in health care costs directly attributable to diabetes each year. (Source Economic Costs of Diabetes in the U.S. in 2007. Diabetes Care 2008; 31(3):596-615/)More than half of all Americans will be pre-diabetic by 2020 at a cost of $3.35 trillion to the US health system if current trends go on unabated, according to an analysis of a report released by UnitedHealth group. The medical journal, The Lancet, called it a “public health humiliation” that diabetes, a largely preventable disease, has reached such epidemic proportions.

Diabetes Mellitus is a chronic disease that causes serious health complications including:

Kidney failure 

Blindness 

Heart Disease and Stroke – 80% of diabetics die of heart attacks and strokes.

High Blood Pressure  

Nervous System disease including Erectile Dysfunction and loss of feeling in the feet.

Amputations 

If that list isn’t enough to make you very interested in preventing or reversing diabetes, you’re not paying attention!

Dr. Fuhrman say’s that “The majority of medications used to lower blood sugar place stress on your already failing pancreas. The probability of your diabetes getting worse under conventional medical care is especially likely since medications used to control blood sugar, such as sulfonylureas and insulin, also cause weight gain.  The dangerous combination of pushing the pancreas to produce insulin and gaining more weight with medication actually results in the need for additional medication as you become increasingly diabetic. This common and yet failed approach shortens life span and increases the risk of heart attacks.”

Instead Dr. Fuhrman suggests something he calls a “Nutritarian” approach.

This formula is expressed as (H)=Nutrients (N)/Calories (C) 

This formula say’s that your health is determined by the nutrient per calorie density of your diet. When you eat more foods that have a high nutrient density and fewer foods with a low nutrient density, your health will dramatically improve and your diabetes will melt away.” 

The primary cause of diabetes in the first place is the American diet, which promotes obesity. This, coupled with our increasingly sedentary lifestyles, has exacerbated an existing problem and turned it in to the disaster we have now. In fact, as processed foods find their way around the world, the problem continues to grow globally, not just domestically.

Attacking the problem with the Nutritarian diet, and exercise have proven to be incredibly effective for Dr. Fuhrman’s thousands of patients.   In fact the results he cites in the book are nothing short of miraculous.  I suspect most Americans will not immediately embrace such sweeping lifestyle changes.  However, when compared to the nightmarish vision of what diabetes brings, the tradeoff looks like a pretty good deal.

This is a timely book that can make a huge difference in the lives and destinies of millions, and suggests enormous public health and economic benefits as well.   •