Debt is not a glamorous subject. Unlike global warming, feeding the homeless, or the AIDs crisis in Africa, there aren't very many celebrities running campaigns for 'living within your means'. Unfortunately, even without rock concerts or an Oprah endorsement, this harsh reality is setting in for Americans around the country.
Today the Washington Post released an article about Harrisburg, PA. Harrisburg, the 150 year old state capital, is looking to bankruptcy thanks to years of reckless spending. (See $8 million wasted on a non-existent Wild West Museum). While it's certainly a shame this had to happen, the tragedy is that it's not at all unusual. Harrisburg is only one of a long list of cities across the country with debt problems, from Vallejo, CA to Central Falls, RI the chickens are coming home to roost. In fact, just about every time we experience an economic downturn the individuals, governments and corporations, that don't have their financial house in order, go bankrupt. We all know about the business cycle, elementary school history class covers The Great Depression, and every stock prospectus written includes the same line, "past performance does not guarantee future results" and yet… people are shocked by collapse?
The mystery, to me, is not why this keeps happening, but the surprise when it does. The great Warren Buffet quipped, "It's only when the tide goes out that you learn who's been swimming naked", but that's not necessarily true is it? We all know that if we lost our jobs and have no other source of income, it's going to be pretty hard to keep paying our bills. Anyone who's purchased a car or a home is well aware of the impacts of their credit scores. Anyone who's purchased stock understands the importance of a debt to earnings ratio. It doesn't take a crisis to realize inherent risk. The simple fact remains, wasteful spending (especially when financed through debt) leads to a fiscal crisis even when it occurs in a strong economy.
I can't help but wonder if this lesson is simply (apologies to Webster for making up a word) unlearnable. Without a shadow of a doubt, there will be a group of people who will spend like there's no tomorrow. Let me assure you and all the residents of Harrisburg, tomorrow always comes.