Consider this imaginary scenario:
You have lived next to Richard for some thirty years; you really enjoy Richard’s company because he is bright, articulate, and has a great sense of humor;
However, Richard has confided in you that the cost of his family’s lifestyle exceeds his income. Therefore, Richard worked out a deal with his banker that has allowed him to borrow more money each year. Those new loans have enabled Richard to keep his house and pay just enough of the ongoing bills rung up by his wife and kids to keep him out of court.
You have always expressed high regard for Richard, and you do concede that it is none of your business… but out of concern for Richard’s future – you ask him how he will pay off all that additional debt!
Richard smiles and says he isn’t worried. He knows that something good will happen to “save” him. In fact, Richard is so confident of that hope that for the past thirty years, he has been covering most of his kids fixed expenses, as well as 20% of their discretionary expenses out of his own pocket!
Out of concern, I ask Richard when the kids will take responsibility for themselves. Richard nods his head knowingly and replies that whenever he has tried to talk the kids into taking responsibility for themselves, they have gone crying to mom… who then pressures Richard into keeping things as they are.
What do you think the end result of Richard’s story will be?
While the scenario above sounds preposterous… and it does not completely “fit” any single real world circumstance, I think you’ll agree that it is parallel to any situation in which someone has exceeded her/his current financial capacity.
Folks like Richard fall into an endless debt spiral when they find tough financial decisions (eg. which expenses to eliminate) far too painful. Consequently, they borrow more and more money each year to try to “keep up” with expenses. It does not take a PhD to realize that Richard’s situation (barring a sudden huge inheritance) will end at some point amidst much trouble, pain, and embarrassment.
Of course there are millions of persons today who could fit that description. But there are loan regulations, banking policies, and existing statutory provisions that limit just how deeply any one person can move into debt.
However, there are no such provisions that limit how deeply a government can go into debt. Of course, Greece comes to mind… having been much in the news since 2010 because of its seemingly endless “Debt Crisis”…. a crisis that always seems to get worse instead of better.
Then we have the “Greece of the United States” – Illinois, the state widely acknowledged as having the worst financial situation among all 50 states! This is a topic we’ve touched upon countless times before, and we’ve dissected a number of the myriad causes of Illinois’ financial ills.
Let me remind you that Illinois is in the painful straits it currently finds itself – not because of members of the state’s public unions, but because of the cumulative impact of short-sighted, narrow-minded, politically expedient decisions made over the past 40 years by politicians more intent upon re-election than upon ensuring a sustainable state economy and state government – capable of providing essential current public services (including education) and fulfilling all of its promises (paying promised pension/health benefits, as well as servicing and paying off all loans).
As if the state’s woes are not enough of a burden upon us, we now face what could be an even thornier crisis within the City of Chicago itself – feeling crushed by the burden of accumulated debt, soaring costs, and pension plans with unfunded liability which (on a relative basis) make the state’s unfunded liability look much lighter!
In Part II, we will review the big issues at hand, try to uncover “solutions”, and attempt to discern what may lie ahead!