As I write this letter on Memorial Day, I want to hit on subjects that don’t all necessarily deserve their own monthly letter but are very important.
My Top 10 on This Day
1. The History of Memorial Day
All Federal holidays have an important history behind them. People like the “free” day off from work, but we should remind our youth what caused the holiday to occur in the first place. In the case of Memorial Day (initially known as Decoration Day), it was the conclusion of the Civil War and the tremendous loss of life that occurred in defending the unity of this nation and its liberties to make it “free.” The first official occurrence was in 1868 but it was not made a Federal Holiday until 1971.
2. Our National Debt
The national debt ceiling crisis is before us as I write. I predict we will find a solution as even the boneheads in Washington DC must eventually come to the realization that the “full faith and credit” of United States Treasury obligations must be met or we risk losing our much-under-appreciated status as the world’s “reserve currency.”
3. The Addition of More Debt
Notwithstanding the comment in #2, we are adding debt at an unsustainable rate. As a nation, it weakens us, and for sure is unfair to those who come after us and must pick up the tab (kids, grandkids). It’s so big a number that you cannot count to one billion if you started counting at birth, and yet we are adding debt in the trillions (*1,000 Billion) each year.
Three brief comments on it:
- Our national debt hit $1 Trillion in 1981[i]. It hit $10 Trillion in 2008, $20 Trillion in 2012 and currently sits at $30 Trillion[ii].
- According to the United Nations, there are 193 countries in the world. However, of that list, only 16 countries in the world have a GDP greater than $1 Trillion per year. Of that esteemed list, only two countries (China and the USA) have GDPs more than $6 Trillion[iii].
- The United States spent more than $4.6 Trillion on COVID[iv] and then we added another couple trillion with the Infrastructure Bill, CHIPS Act, and Inflation Reduction Act. We have spent more money in the last 3-years than we have ever spent in this country’s 247-year history.
4. Inflation and Precious Metals
We have inflation now at the highest level in 41 years. Periodically, I get asked, “As protection, should I buy gold?” Some historical data will help us here as we have had inflation and trauma in the world before. Through it all the stock market – as measured by the S&P 500 index – has averaged returns of 9.8% to 10.3% over the last 25-50 years.
Conversely, let’s look at some metals over the same period:
- Gold – up 7.83% and 6.40%, respectively
- Platinum – up 3.88% and 4.09%, respectively
- Silver – up 5.71% and 5.01%, respectively[v]
It would thus seem buying gold earrings has a LOT better pay back than getting gold in your portfolio as the stocks do 30% – 50% better in long-term returns. On average, I would suggest you take care of your pocketbook by staying away from precious metals as an investment.
5. Social Security
Social Security is a system that must be made solvent. It is disingenuous for anyone to say (politician or citizen) that changing Social Security is taking this social net away. The only thing that takes it away is doing nothing. Economically, you only need to make four (4) changes and you would make the system solvent for the next 50 years. It’s not hard financially to fix it (moving the Social Security tax up from its present 6.2% to 7.4% would cost a $50,000 worker 50 cents per week in a 24-year tax ramp[vi]) and all we would need is sufficient political will. Taking that action would be a nice thing to do for our kids and grandkids.
6. The Gini Coefficient
A world-wide measure of income inequality is something known as the Gini Coefficient (developed Italian researcher Corrado Gini in 1912). A higher Gini Coefficient (or index) indicates greater inequality, with high-income individuals receiving larger percentages of the population’s total income. In 2021, according to the Gini coefficient, household income distribution in the United States was 0.49. This income figure was at 0.43 in 1990, which indicates an increase in income inequality in the U.S. over the past 30 years[vii].
7. Income Transfers
Notwithstanding the above income inequality point, an acknowledged shortcoming of the Gini Coefficient is that it obscures income transfers (the Gini index simply doesn’t count transfers as income). As an example, since 1967 in the United States low-income transfers to the bottom 20% of income earners has grown from $9,677 (inflation adjusted) per year to $45,389 per year. During the same time period, the percentage of working age adults in the bottom 20% of income earners who actually worked collapsed from 68% to 36%[viii]. It appears our social net of transfer payments is disincentivizing households to be independent.
8. Retirement Savings
The current median USA household total retirement savings is $95,776[ix].
9. Compounding
“Compounding” was called the 8th wonder of the world by Einstein for a reason. If a 25-year-old worker saved $4 per day ($28 per week) they would accumulate $277,071 by the time they retired, a sum of dollars that is nearly 300% more than the current average. This simple but powerful concept must be taught in our elementary schools or we compound the problem, not the solution.
10. Higher Education Costs
Finally, regarding schools, we have to control the costs of higher education in this country, whether that education be in “the trades” or in traditional universities, because we are pricing students out and simultaneously aggravating student debt issues. The total consumer price index inflation increased by 65% from July 2002 to July 2022, according to the U.S. Bureau of Labor Statistics. Over that same period, the cost of tuition and fees at national universities increased 134% – 175%[x]. If education is the best tool to elevate independence, income and self-esteem, we need creative solutions to bring that benefit to more Americans.
Opening Discussions
Please use the above data at the next family gathering. We don’t need people talking “at” each other, but “with” each other, which would lower national anxiety levels and increase our ability to solve big issues at the same time. That’s a deficit reduction we should all be proud of accomplishing.
It remains my deep and distinct honor to serve you well.
Patrick Zumbusch
Founder and CEO
[i] “U.S. national debt tops $1 trillion, Oct. 22, 1981” (Andrew Glass, Politico, October 22, 2017)
[ii] “Fiscal Data” (TreasuryDirect.gov)
[iii] “List Of Countries By GDP” (Wikipedia, May 29, 2023)
[iv] “COVID-19 Relief: Funding and Spending As Of January 31, 2023” (US Government Accountability Office, February 28, 2023)
[v] Rate Of Return; Precious Metals, CPI and S&P 500 (Internal Wellspring White Paper, YahooFinance.com, April 12, 2023)
[vi] “7 Changes Americans Are Willing To Make To Fix Social Security — including one with ‘overwhelming bipartisan support’” (Lorie Konish, CNBC, August 3, 2022)
[vii] “Household income distribution according to the Gini Index of income inequality in the United States from 1990 to 2021” (Statista, May 29, 2023)
[viii] “The Real Stakes Of The Debt Ceiling Fight” (Phil Gramm and Mike Solon, Wall Street Journal, May 22, 2023)
[ix] “How Your Retirement Savings Compare To The National Average” (Andrew Rosen, Forbes, March 2, 2023)
[x] “A Look at College Tuition Growth Over 20 Years” (Emma Kerr and Sarah Wood, US News And World Report, September 13, 2022)
