The Fundamentals of the Economy are NOT Sound

James Kwak hits the nail on the head here. Even though there have been headlines for decades decrying the potential collapse of the Social Security system, a huge portion of Americans have not prepared at all for retirement.

And, yet, this does not surprise me. In my experience in loan underwriting and account servicing over the last few years, people are very poorly prepared. The existence of savings accounts, let alone financial planning, is just about non-existent. I would estimate that only one in five of the retirees that I work with actually have revenue from any kind of retirement savings, and usually social security amounts to the lions share of what they receive each month.

My friends and co-workers know that I'm a fan of Dave Ramsey. I am certainly not the archetype of personal finance, but I am convinced that most of my own personal problems were caused by my own lack of planning and willingness to charge it. When an individual, business or national economy tries to survive by leveraging itself all to H-E-double hockey sticks, then it really only takes one or two things going wrong to blow down your house (or economy) of cards. I watch my customers do this all the time. I have one family that is almost always 30 days late on their mortgage (they're not getting any principal reduction, btw), and we don't make a big deal out of 30-days delinquency, but they get shocked when I tell them that a lawyer is going to write them a letter if they don't get us a payment each month. I keep telling them, "You have to get this caught up, so that if something goes wrong, you've got another 30 days to work with." This is what we do when we have lots of debt - instead of saving your home equity for a real emergency, you use it to eat out every night for two years. And when the finance business tanks, you don't have anything to fall back on, because your house or business is leveraged out the ear.

On the flip side, my model for living is Exxon-Mobil (at least financial living). I bought some Exxon stock last fall when it had dropped to $75/share, down from $100/share. The number one reason: they can and do self fund their development projects. In this and any economy, I want to see that a company is running their house the way I want to run my house: you spend money after you've saved it. And you don't undercut your profits by paying out interest to some bank. If I make $100 doing something, I don't need to cut into my profits with finance expenses, and if the development project fails (which happens a lot in business), then I don't want to be caught with a debt AND a failed business.