FDLIC Corporate Officers blog about current issues in the preneed industry and in funeral service, providing insight, commentary, and news updates.
MIND-BOGGLING NUMBERS
Thursday, August 18, 2011
Being a "numbers guy" I always want to try to make sense out of numbers I hear or read. Lately, it seems like the numbers we mostly hear about are federal government red ink. Things like a $14.3 trillion dollar debt. As individuals we are used to dealing with hundreds and thousands of dollars, but trillion? I have no concept of a trillion dollars ($1,000,000,000,000). Here are a couple of examples to put that into perspective:
- If someone gave you $1 every second, how much money would you have at the end of one year? Answer: $31,536,000. So you would be a millionaire many times over. At that rate, how long would it take you to become a trillionaire? Answer: 31,710 years! Hmm. I can't fathom 31,710 years either.
- If someone gave you $1,000,000 per day, how long would it take you to become a trillionaire? Answer: almost 2,740 years! In order for you to be a trillionaire today, your benefactor would have had to start paying you in 728 BC!
And the federal government has accumulated a deficit of 14.3 of those trillions, and counting. Mind-boggling.
My boggled mind then started wondering "what does 'boggle' really mean?" According to the Merriam Webster online dictionary, "boggle" means "to overwhelm with wonder or bewilderment." Bewilderment seems appropriate here. Overwhelm certainly is. That same dictionary gives an alternate definition of "to mishandle or bungle." Hmm, are our minds boggled because of federal mishandling or bungling? See how this all fits together?
The $14.3 trillion is more like the tip of the iceberg than the whole 'berg. Here are estimated off balance sheet deficits:
- Medicaid - $35 trillion
- Medicare - $23 trillion
- Social Security - $ 8 trillion
Add that to the $14.3 trillion and we get a total of about $80 trillion. In the twelve months ending June, 2011, the USA gross domestic product was about $15 trillion. So, it would take the entire output of goods and services of the United States of America for 5.33 years to pay off the current deficits. Not in any of our lifetimes. Something is going to give in a big way.
What's really interesting to a "numbers guy" is that even though the federal government finances are a fiscal house of cards, the world is clamoring to lend our government money at 0-2% interest! Treasury bill yields even went negative in early August for a brief time! Thats really bewildering. Are we looking at an interest rate bubble here? Apparently, not any time soon. The Federal Reserve has just announced that they are committed to keeping short term interest rates near zero for the next two years at least. This all seems like a mania of some kind that my boggled mind cant quite get a handle on.
Where does this situation leave us? Low interest rates favor borrowers. At the top of that list is the federal government, followed by states and municipalities, then individual companies and people. Low interest rates are currently helping our governments work their way out of fiscal messes, and low mortgage rates help refinancers and home buyers. So, it's not all bad, it just depends on your perspective. If you are a lender, such as a saver or investor, low interest rates are a real problem. Sometimes the return on investment doesnt even keep up with inflation, then you have to pay tax on it.
FDLIC is a lender/investor. We make "loans" to government entities and corporations when we buy their bonds, as we must do. We also make a few mortgage loans. As a lender, we have been getting whiplash lately. Yield rates on our new investments have declined nearly a full percentage point in the past six weeks! I would say that was unprecedented, except the same thing happened last year about this time, then rates shot up in the fall and winter, only to crash again now to even lower lows. I wrote an article about last years crash a year ago. This is really déjà vu. One thing is certain--we are still under the Chinese curse of living in interesting times. Seems like one way or another, the Chinese get the best of us lately.