From "The Coming Economic Earthquake", by Larry

"Imagine this scenario if you will: A family of four making $3,000 a month is spending $4,000 a month and has been doing so for more than five years. Their total assets consist of a home and two cars -- all mortgaged for more than their resale value. Their total debt to date is $150,000 in unsecured liablilities, plus an additional $100,000 they have borrowed from their retirement account, which must be repaid with interest in the next twenty years. And one last item: They borrowed their parents' life savings to help pay the interest on their debt and now are obligated to support them, in addition to their own current spending.

Let's assume this couple has come to you for advice about what they should do at this point. How would you counsel them?

Having counseled many couples in the past, I can tell you the options:

  1. They can try to generate more income, but essentially this husband is working at his capacity, so the most he can hope to get is a part-time job that will generate another couple of hundred a month.
  2. They can file for bankruptcy protection and just not pay most of their creditors. Of course this will destroy their reputation and their credit rating for the indefinite future. In addition, it won't help repayment of their retirement account or money they have borrowed from their parents.
  3. They can find someone who will lend them the money to consolidate, they will need enough extra to make the monthly payments for the next several years, at which time they are hoping that something miraculous will happen to pay off the entire debt.
Actually, now you find out that they have not come to you for advice but for a consolidation loan, since you seem to be doing pretty well yourself.

Logically, I hope you would say, 'It seems to me that you need to get realistic and face the facts: You simply spend too much for your income. Sell whatever you can, pay down the debt, cut back your spending, and start paying back what you owe. More money won't help at this point.'

Good advice, I would say. Only the couple in this case is our Government. The numbers used are smaller than the government's total income and debt but the ratios are correct."