An Article recently published by the International Business Times explored the potential for problems associated with aggregate student loan debt.  Since the total student loan debt outstanding exceeds $1 Trillion dollars, the scope of the problem seems immense.  When complicated by the 30% of student loans that are 30 or more days overdue, there appears to be a crisis brewing.

The concern expressed by many is that the burden of student loan debt will suppress people’s future disposable income.  To many, this presents a dire scenario where future consumption spending cannot keep growing due to the crushing burden of student loans.  It is complicated by the high rate of unemployment among recent college graduates, and has led many to believe that government action is required to “fix” the problem.

The Solution that Isn’t a Solution

When college students gather in protest rallies, they frequently hold up signs demanding that their student loan debt be forgiven.  Since the overwhelming majority of student loans are underwritten by the US government, all that this would accomplish (besides delivering a free ride to people who acted irresponsibly) is to turn $1 Trillion of private debt into $1 Trillion of public debt.  This sounds great for people that are either looking for a handout or looking to buy votes by giving away a handout with government money, but it does nothing to solve the underlying problem.

By accelerating the government debt problem, it accelerates the extent to which drastic action must be taken.  Many (mistakenly) think that the pile of student loan debt can be dissipated with additional taxes on the wealthy.  Unfortunately, this strategy has two main deficiencies.  The first is that there aren’t enough wealthy people to pay the taxes.  The second is that most wealthy people hire lawyers and accountants to reduce their tax burden with (legal) income sheltering strategies.  The ultimate result is that the government is unable to tax away its debt and will need to inflate the currency.  Since inflation disproportionately impacts the poor and middle class, it will ultimately end up coming back to bite the people who were holding the signs demanding that the government wipe away their student loans.

The Real Problem

A paper recently published by Georgetown University breaks down the average earnings and unemployment rates for college graduates based on the level of education and course of study.  It comes as no surprise that subjects such as education, business, and engineering all have relatively low rates of unemployment associated with them and respectable earnings.  However, studies in subjects such as social sciences and the liberal arts have very high rates of unemployment and relatively low earnings.

Thus, the real problem is not that people carry so much student loan debt, but that people have chosen to take out large amounts of debt to finance an education that does not have a significant market value.  Another way of stating the situation is that people who study subjects like engineering and business do not have a student loan problem.  The reason is because their education prepares them for a career that allows them to generate an income so that their debts can be paid off.

The Real Solution

Understanding the real problem is the first step toward a real solution.  The only way for this lingering problem to be solved is for the people who are under all of this debt to become gainfully employed so that they can pay their debt back.  However, attaining gainful employment requires that better decisions be made in regard to the course of study that one pursues in their path of higher education.  This is the only method of dealing with this problem that will not result in a simple transfer of the burden to somebody else.

The truth is that all choices involve cost.  The decision to attend college is frequently very wise.  However, it is highly important to choose a course of study that is consistent with your long-term career interests.  Studying the arts is fine if you are content with living the life of an artist.  However, if you desire to climb the income ladder, then you must acquire skills that will allow you to generate value for an employer that are sufficient to justify a favorable level of compensation.

Student loan debt is not fundamentally different from any other kind of debt.  It is not good or bad in and of itself … student loans taken out to acquire skills that allow you to earn a good income to support your family are a very wise decisions.  Loans taken out to finance four years of partying a degree that offers no employment prospects are much more suspicious.  All debt is fundamentally neutral in nature.  It only becomes good or bad when paired with an investment that is good or bad.

Thus, the answer is for more people to make better decisions regarding what they study.  In the larger context, the investments of time, money, and education we make are what will define whether any resources we borrow to make those investments were wisely deployed.  Instead of demanding that other people bail us out after making bad decisions, we should take the opportunity to make better decisions in the future.  Each day is a new chance for us to learn.  We should seize those learning opportunities to make each successive day more prosperous than the last.

 

Recent news has been dominated by the debate surrounding raising the US debt limit.  The US Treasury has stated that August 2nd is the date after which the US government would not be able to meet all of its planned spending, due to a shortage of funds.  This situation is the dreaded “default” that many have referred to in the repeated interviews and press conferences that have been conducted on this topic.

The part that most in political office fail to disclose is that the interest on government debt makes up a very small portion of government spending, and would presumably be given first priority if immediate spending cuts were required.  Evidence of this can be found in the fact that financial markets have not been plunged into the free fall that would be expected in advance of a real default.  A contributory factor to this could be the fact that President Obama has privately assured banks that payments on government bonds will not be disrupted, even if the debt limit is not raised by the August 2nd Treasury dept. deadline.

Thus, since a “default” on government bonds is clearly off the table (even for the people who talk the most noise about default), it raises the natural question of what will happen if the debt limit is not raised?  The simple answer is that the US government will be forced into immediately running a balanced budget.  In the current political and economic climate, immediately reducing government spending to the tune 0f one to one and a half trillion dollars per year will be certain to make many people very unhappy.  The current situation has been brought about by an explosion in the government budget deficit that began in 2009 and has continued through 2010, and into 2011.

A simple look at government receipts and expenditures published by the Bureau of Economic Analysis tells the story quite succinctly.  In 2006, total government tax receipts from all sources amounted to approximately $4 Trillion dollars, while total government spending amounted to approximately $4.15 Trillion dollars.  The resulting budget deficit was a relatively small $152 billion dollars.  However, in 2010 total tax receipts from all sources are still approximately $4 Trillion dollars, but total government spending has grown to approximately $5.3 Trillion dollars.  In-between 2006 and 2010 was the expansion and collapse of the real estate bubble, the financial crisis of 2008, and the subsequent economic recession.  The recession spurred a massive binge of government spending that failed to discernibly improve either economic growth or employment, since the rates of recovery for both are far slower than in previous recessions & recoveries.

This gets us to the debt limit political debate.  During 2008, the Democrat party was swept to power by a wave of voter discontentment over the weakening economy.  By 2010, that discontentment had turned around and swept the Republican party to power in Congress, based on promises to limit government spending and bring the nations finances back into balance.  In the current fiscal and economic situation, three things are highly apparent.

1. The Democrat party favors continuing high levels of government spending, which favors their constituents.
2. The Republican party favors lowers taxes and constraining spending, which favors their constituents.
3. If the current trajectory of spending is not changed, it will precipitate an economic collapse when either taxes become so high that it crushes the economy or interest rates climb so high from spiraling debt that it crushes the economy.

Thus, the current gridlock of Republicans and Democrats over the debt limit can be easily understood by viewing it as a high-stakes negotiation between two parties with opposite interests.  There have been many proposals floated over the past few weeks, but the general direction of proposals from Democrats have been heavy on tax increases and very vague on spending cuts, frequently resorting to budget gimmicks or counting spending reductions that will happen anyway as cuts.  Conversely, Republicans have been pushing back against the notion of raising taxes on the basis of an argument that it is more important to cut spending first since it is not possible to raise enough taxes to close the current budget gap without crippling the economy.

In order for the United States to move toward long-term solvency, it is most certainly true that large amounts of spending will need to be cut in one manner or another.  It is also true that the tax code will most likely need to be revised so that many of the distortions from credits and deductions are removed to re-align economic incentives with long-term growth.  However, the structure and timing of these inevitable changes seem to be the critical point of the arguments.

Democrats have stalwartly resisted any substantial change to government spending, even though most know full well that the current spending trajectory is flatly unsustainable.  Republicans have pushed back against the notion of raising taxes in accordance with the views of their political supporters, even though many are quite aware that some change in the tax code is all but inevitable.

In the end, it is likely that some form of deal will be struck in the near future.  It may or may not be by the August 2nd “deadline” set by the Treasury, but there will be no disruption to the financial markets regardless of whether the “deadline” is met due to the priority that is placed on paying government debt obligations before any other spending.  In the end, this whole issue comes back to the fundamental situation that precipitated this debate and will fuel future debates.  This issue is the trajectory of government spending.  Until something is done to address this fundamental problem, it is most likely that we will see many more of these debates emerge over the coming years.

 

The recent release of an S-1 Document by Groupon for the purpose of a public stock offering has brought the failures of its business model into the light.  At the end of 2010, Groupon refused a reported $6 billion dollar buyout offer from Google.  Their public stock offering is for $750 million dollars, which is significantly less than what was offered to them by Google and will be insufficient to finance their current rate of operating losses for more than another couple of years.  In retrospect, it appears that refusing the offer from Google was a monumental blunder.

The past few years have seen a tremendous rate of growth for Groupon’s “Revenue” while operating losses have ballooned.  In 2010, Groupon registered a $420M operating loss, with another $117M being piled-on in the first quarter of 2011.  In response to this, Groupon insists that “Non-GAAP” measurements of profitability be used to evaluate the company.  In shorthand, this is code for saying that the company doesn’t “really” make money, so they need to come up with clever ways of convincing the world to part with it’s money when the IPO goes public.

There are also many deceptive parts of Groupon’s business model that make its financials appear to be much more positive than they really are.  The most deceptive is the company’s revenue, which is touted in all of the media articles about how fast the company is growing.  What these media reports fail to mention is the fact that the “Revenue” of Groupon includes the amount that they are contractually obligated to pay the vendor.  It is only the “Gross Profit” part of their income statement that represents real money flowing through the company.  It is most certainly true that Revenue and Gross Profit for Groupon grow at similar rates, but the top-line needs to be viewed through the lens of reality.

Enthusiasts will most likely point to the rapid rate at which Groupon is growing its Revenue, Gross Profits, and Subscribers.  Their business model relies on marketing deals for local businesses to a (large) list of subscribers, and taking a substantial percentage of the total sale amount in the form of a commission.  This means that converting subscribers into buyers is a critical part of their growth strategy.

In the first quarter of 2010, 1.7M Groupons were sold to 3.4M subscribers for a net total of 0.5 Groupons per subscriber.  In the first quarter of 2011, 28M Groupons were sold to 83M subscribers for a net total of 0.3 Groupons per subscriber.  As time goes by, Groupon must acquire more subscribers for each sale.  This means that their customer acquisition costs will increase over time, creating a major cost problem if the company seeks to continue its current growth trajectory.

As more and more new subscribers are required for every new sale, Groupon is going to face a permanent problem of profitable growth.  Consider that many of the most profitable subscribers have already been acquired.  This means that more advertising, marketing, and other expensive forms of customer acquisition are required to keep Groupon growing.

In a previous post, we explored the dichotomy of Groupon as a potential boon for small business or an epic fail.  The fundamental problem we saw then (and now) is that high-quality vendors will be dis-inclined to commit to the large net price discounts required to list through Groupon.  This will steadily erode the quality of deals offered through Groupon, and shift vendors to other services such as Living Social that offer their services for a smaller commission.

Fundamentally, the IPO of Groupon represents a re-iteration of the tech-boom mentality where high growth was pursued over profitable growth.  Because of this, companies needed to invent clever sounding metrics for pretending to be successful since their non-existent profits could not be measured.  Many companies started, many grew, and many failed.  The fundamentals cannot be ignored forever.  Businesses exist to earn profits for the shareholders.  Ignoring this fundamental fact has historically been a road to disaster.

Attempting to grow rapidly by spending money and generating losses eventually creates the dilemma of when to stop pursuing growth and focus on making money.  Complicating this further is the fact that Groupon’s business model has already hit a point of diminishing returns, and continuing to scale-up the size and scope of their operation will only serve to exacerbate this problem and inflate the cost of generating incremental sales.

It is most certain that when the stock strikes its initial public offering, it will be to great fanfare and adoring media coverage.  It is also possible that this fact alone could be enough to create a speculative frenzy that drives the price of Groupon stock upward based on expectations of tremendous future growth.  However, for fundamental investors who purchase based on sound business viability, the IPO of Groupon seems to be an offer of failure to anybody who is foolish enough to invest.  Sticking to fundamentals is the road of wise investors who see through gimmicks and fads to build real long-term wealth.

 

There is an old proverb that states you should be careful what we ask for, because you just might get it.  The wisdom of this insight lies in the fact that most things we want are accompanied by undesirable consequences.  Children and adolescents frequently desire things that carry unwanted consequences with them, but generally lack the foresight to see the future impact.  Part of the responsibility implicit in becoming an adult is to anticipate when ‘getting what we asked for’ will result in something very unpleasant.

Unfortunately, this principal seems to be very difficult to communicate when it comes to electoral politics.  Evidence of this assertion is found in the general trend amongst free electoral systems for the populace to overwhelmingly support political candidates that promise to give ‘free’ services from the government.  However, very few people stop to consider where the resources for these government services will come from.

For example, the United States has a very large entitlement liability from Social Security and Medicare that is likely to result in tremendous demands for payment in future years.  (The current ‘bailout’ initiatives feed this phenomenon as well)  The options for raising the money necessary to meet these obligations all involve undesirable effects.  The ‘best’ alternative is for the economy to grow tremendously over the coming decades, creating a large increase in the tax base.  This alternative requires that the government maintain pro-growth policies for an extended period of time, while holding spending in check . . . all of this in spite of pressure to further increase entitlements.  The next alternative is for the government to either drastically increase taxes or issue new debt for the unfunded liabilities.  Unfortunately, this option constricts the economic activity that is necessary for generating future tax revenues.

The final alternative is to simply ‘print money’ or devalue the currency by increasing the amount of money in circulation by simply issuing new treasury certificates into the open market.  This is far and away the most likely scenario, because is the least visible and doesn’t require a direct vote by the legislature.  The unfortunate end result is that the increase in currency will cause large amounts of inflation that devalue savings, home equity, and entitlement payments.  Thus, the very same people who have demanded entitlements for many decades may see that the actions needed to finance their entitlements will ultimately erode the value down to where they would be better off if no entitlements had been created in the first place.

 

The current economic and political environment is one that has become increasingly polarized.  News continues to come in about a building US government debt spiral that is running a very real risk of destroying the international prominence of US dollars in the global marketplace.  There are serious problems on the horizon if large efforts are not made soon.

In response to this situation, people react predictably according to their political persuasion.  Those of a left-leaning persuasion exhibit a noted tendency to blame all economic problems on President Bush, high-income earners, and foreign military operations.  Similarly, those of a right-leaning persuasion are more likely to blame President Obama, and government spending.  However, there is a key principal that people on both sides frequently miss.

For the sake of argument, let’s say that all of the nation’s problems are the responsibility of George Bush / Barack Obama.  (Pick whichever name makes you feel more vindicated)  Now that we have “proven” who is responsible for all of the country’s problems, what are you going to do next?  In response to this question, most people will trail off into some manner of semi-coherent mumbling about fiscal policy, national priorities, or some other form of rehearsed phrases.  Moreover, this narrative completely misses the point of the question.  Most people get so wrapped up in what they think other people should do, that they completely lose focus on what they should be doing.

Thus, the important question for people to ask themselves is not whose fault the problems are, or even what the government is going to do about it.  The wheels turning those cogs will continue to spin with or without our constant attention.  The prescient question for each person to ask themselves is what they are doing for their own future and that of their family.  What decisions will you make right now that create a future of happiness and prosperity?  What sacrifices are you willing to make now for the sake of your future?  Are you prepared to rely on yourself when cuts to government services become unavoidable?

The answer to this question will frame the future of your personal, professional, and financial life.  The difference between informed achievers and self-indulgent whiners is the propensity to take action.  What action are you going to take today?  Are you going to start a business to create an additional stream of income?  Are you going to build an investment portfolio to gain greater control over your financial future?  The exact decision that you make is less important than making a decision and taking action.

In the end, each person is ultimately responsible for the well being of themselves and their family.  The government has made more promises than can possibly be financed, so dramatic changes of one stripe or another are inevitable.  That’s not politics, its math.  Smart players in the game of life will focus on the decisions that enable them to gain greater control over their personal, professional, and financial life.  The unfortunate truth is that there are many undesirable things in the world that we have no ability to control.  Excessively worrying about them only serves to distract our attention away from the actions and decisions that bring us closer to control over our own future. It is certainly worthwhile to stay up to date on the events of the day, but study them from the perspective of a person who takes thoughtful action.  This will train your mind to see opportunity so that it can be captured with intelligent action.

 

One of the logical fallacies that is becoming increasingly prevalent in the contemporary world is that of the false dichotomy.  This is also referred to as the either-or fallacy, fallacy of false choice, black and white thinking or the fallacy of exhaustive hypotheses) is a type of logical fallacy that involves a situation in which only two alternatives are considered, when in fact there are additional options.  Unfortunately, the false dichotomy has become a dangerous tool for pushing public policies that are not necessarily in the public interests by presenting them as the only alternative to prevent a catastrophic scenario.

The reason why this logical fallacy has become so problematic is that it is frequently used as a means of creating artificial emergencies and rushing decisions that are typically optimal for connected parties and sub-optimal for everybody else.  By and large, the harder somebody pushes for a decision right now, and the more they try to get you to act out of fear, the worse off you will be from the deal.  As we go throughout business and life, it is very important to avoid falling into the trap of these false dichotomies, as they frequently lead to very bad decisions.  Some of the more famous false dichotomy’s in the contemporary world:

We need to do a bailout now or the whole economy will collapse

This was the (in)famous plea from Hank Paulson when he was Treasury Secretary during the financial crisis of 2008 when an unprecedented level of power was shifted to the Treasury and Federal Reserve.  What was left unsaid in his dire plea for “emergency powers” is what would happen if the firms in trouble simply went bankrupt and were sold off at a discount to other players in the marketplace.  As it turns out, the financial markets still froze up after the so-called “solution” to the financial crisis, since nobody wanted to trade in the impaired debt instruments due to uncertainty about whether the value(s) would be supported by the government.

With all of the players waiting to see if they could get a better deal from Uncle Sam, nobody had any incentives to play by the (normal) rules.  What ultimately resulted was an unbelievable concentration of power in the hands of the Federal Reserve and Treasury without much (if any) real discernible benefit to the greater economy.  The justification typically cited is that if the actions weren’t taken, the economy would have collapse.  Of course, this is another logical fallacy since it is impossible to prove a negative.  Naturally the people making these claims are aware of this fallacy, but still persist with using it to justify destructive policies and further concentration of power.

If you’re not with us, you’re against us

This was the famous phrase uttered by President George W Bush in response to the terrorist attacks of September 11th, 2001.  It drew great ire from the media, and is another example of a clear logical fallacy.  It is most certainly true that the United States has an interest in stopping terrorism.  However, it does not necessarily follow that you should target people who do not act against terrorism with the same aggressiveness as yourself.  It is quite possible that a group (or nation) could be quite opposed to terrorism, but unable to commit resources for the purposes of actively fighting against it.  Of course, this rhetoric is not only used by George W Bush.  Politicians of all stripes and colors regularly depict any opposition to their policies as “extremism” or paints any opponents as the enemy.  When attempting to curry public favor for his stimulus project, President Obama regularly stated that the spending was absolutely necessary to create jobs and avoid an economic catastrophe.  It turns out that the expected job growth didn’t occur, and the only sector to significantly benefit was government.  Of course, (as usual) “Things would have been catastrophic if the measure hadn’t been approved.”

If cap and trade isn’t adopted, global warming will destroy the planet

The full extent to which mankind has the ability to create or stop global warming is still a matter of considerable disagreement and doubt.  There is convincing evidence in favor of the conclusion that our contributions to total global greenhouse gases are not sufficient to change whatever climactic events are in motion.  Nevertheless, a consistent drumbeat of fear-based rhetoric over the environment and global warming has steered a large amount of public policy over the past few decades.  This is not to say that the environment should be ignored … simply that positioning anybody who opposes a policy or initiative as being against clean air or clean water is intellectually bankrupt.  Logical fallacies such as this are typically the province of those who either lack the mental capacity for rational discussion or seek to shut down the process of rational discussion for the purpose of passing rules that are favorable to their political allies.

Ultimately, the false dichotomy serves as a highly dangerous rhetorical tool that has been used to influence many destructive decisions.  By using fear to force a quick decision with incomplete information, the people in power can acquire favorable decisions that would not otherwise be possible under the full scrutiny of a logical examination.  As individuals, we cannot stop this tide of destructive decisions in the public arena, but we can ensure that our own decisions do not fall prey to this fallacious reasoning.

 

The era of ‘popular culture’ that we currently find ourselves in has created a unique set of incentives for aspiring leaders.  The flow of information moves very quickly, and media such as television and the internet allow for instant, constant communication.  This has created a situation where ‘personality’ is a very powerful influencing tool because of the leveraging impact of global media to reach a large number of people instantaneously.

In some situations, this leveraging impact has compelled leaders with great depth and knowledge to reach out to their intended audience by becoming more personable and approachable.  In other situations, this phenomenon has created opportunities for people to create vast legions of unquestioning followers by delivering empty platitudes that lack any thoughtful substance, but placate the desires of the masses who follow their every word.

Unfortunately, this impact is compounded by a collective ‘groupthink’ that emerges when you have a large population of people who are all fighting to be exactly the same.  In the case of media culture, most newsrooms are run the same and pursue the same stories.  Because of this, there tends to be a startling shortage of people who even consider whether the right questions are being asked and the right stories are being reported.

Thus, we find ourselves in a terminal vortex where there are more and more different ways of obtaining information that look more and more alike.  This has created an unfortunate situation where a person who is adept at manipulating popular sentiment can create a vast multitude of cultish followers that will sheepishly believe anything that is said without any thought at all about the underlying substance.

This ‘cult of personality’ has produced (and will continue to produce) thought leaders who totally lack any meaningful substance, and teeming masses of people who think and act the same.  However, this situation will also produce tremendous opportunities for people who are willing to think and act for themselves.  By thinking independently, the adept person will realize when popular opinion is being manipulated and find the opportunity for gain that is being created by the collective sentiment of the masses.

 

Most people who have not been taking up residence in a cave are aware of Groupon, the web’s #1 group buying site and fastest growing company ever.  The notoriety of the company grew even greater when it turned down a $6B takeover bid by Google.  Many consumers are aware of the extremely low prices that are available through Groupon daily deals, but there is a basic problem implicit in its business model that may so the seeds of disaster for the small businesses that Groupon depends on for its revenue stream.

The Groupon business model is relatively simple, but quite powerful for generating profits.  The company sends out daily deals to its massive list of subscribers.  Those deals are from local businesses offering discounts that are typically in the range of 50% or more off of the retail price for their product or service.  The way that Groupon earns revenue from this is by collecting a share of the revenue that small businesses receive from their group advertisement.  Typically this fee is on the order of 50%.

The way that Groupon sells its services is by positioning a win-win proposition where local businesses get to attract a large wave of customers and Groupon earns half of the discounted revenue stream.  This basic concept has vaulted Groupon to the heights of media stardom.  However, there is a secondary effect of the Groupon business model that could spell disaster for local businesses and potentially for Groupon itself.  These dangers fall into two principal caregories.  The first is dead weight advertising, and the second is small business commoditization:

Dead Weight Advertising

Doing the math concerning Groupon’s business model shows a startling fact for business owners … namely that offering a 50% discount on your services, and then paying half of that discounted amount to Groupon means that you will only be left with 25% of your normal retail price.  In many businesses such as restaurants or other competitive business segments, this is not enough to cover variable costs and each Groupon customer results in a loss.  Thus, discounts through Groupon end up acting like advertising with a super-low sale price.  Typically, the desire on the part of business owners is to attract customers who will come back for a string of repeat business.

Unfortunately, what frequently happens is that the people attracted by Groupon are aggressive deal-seekers who will simply move on to the next low-priced promotion when yours is finished.  In this way, Groupon can become “Dead Weight” advertising, because it accomplishes nothing but attracting people who would not otherwise pay full price for your products or services.  In this case, the business would have been much better served with traditional advertising that emphasized the value of their offerings so that the people attracted to your business are those who will pay a higher price than what Groupon shoppers have come to expect (and in some cases demand).

Small Business Commoditization

The extended impact of the group buying phenomenon exemplified by Groupon is the fact that small business services have become commoditized.  With a consistent volley of deep discounts in people’s inbox from Groupon and all of the other group buying services, customers have become trained to expect substantial price reductions from small business vendors.  Thus, the “repeat customer” who previously came back regularly is now asking if you can meet the price of a competitor who is advertising a special deal through Groupon.  In this way, the extremely low prices funneled through Groupon have lowered the perceived value of small business services for customers.

Ultimately, this has become a textbook example of classical pricing theory … namely the dangers of deep price discounting to increase volume and grow market share.  When you establish a precedent of discounted prices, it lowers the customers perception of your product’s value.  You can most certainly gain more volume from discounts, but that additional volume results in lower profits.  Furthermore, most businesses find that if they attempt to start walking their customers up to previous price levels, they will begin to leave for competitors.

In the end, success as a small business is (and has always been) about providing a product or service that your customer values more than the price you charge.  This creates a perpetual win-win where the customer receives a product or service of value at a reasonable price and the business owner receives revenue that generates profits after the operating costs have been paid.  Attempting to short-cut this process through business fads like group buying at deep discounts can spell disaster for small businesses.

As time goes by, there is a risk that this small business disaster could become a Groupon disaster if enough businesses decide to stop offering their services through Groupon and the quality of their deals deteriorates.  As the deal quality declines, there will be less transaction volume, and lower profits.  If the trend continues too long, we could end up with a future Harvard Business Review case study for MBA students, warning them of the dangers implicit in trying to short-cut the ladder to success.

 

Recent news about the 8.9 magnitude earthquake and subsequent tsunami in Japan has caused many people to pause in consideration and prayer for those affected by this natural disaster.  As the news and images of the disaster comes in, they make the perceived difficulties of our lives pale in comparison to the real turmoil faced by those who are on the front lines of responding to the earthquake and tsunami.

When events such as this unfold, they draw a sharp line between the things that we spend time getting worked up over and the things that are really important.  In response to this, it would be wise for many of us to “get over ourselves” and put the so-called problems of our life in context.

Most of us remember the drama-filled days of high school when the tenner of our life revolved around what one person was saying about another person, and the furthest we looked ahead was the upcoming weekend.  The depth of self centered obsession in our youth only becomes apparent when the wisdom of age and experience has had an opportunity to emerge.  Upon deeper analysis of our lives in the context of a larger and more complex world, it becomes more and more apparent that the drama of our lives, which seems so important in the moment shades pale when compared against the larger world in which we live.  When mired in the depths of self-centered obsession, this is extremely difficult to see.  However, when one steps back from the gritty details of their own life, it becomes quite clear very quickly.

When thinking about the concerned of our personal world, it is important to understand that each of us are only a small piece of the larger scheme.  It is important to simultaneously avoid over-estimating the extent of our impact and take personal responsibility for the results of our own life.  Situations like a natural disaster frequently leave people with a feeling of powerlessness, as there is nobody to blame for the circumstances.  (Not that this fact stops people in power from attempting to assign blame or take credit)

It is most certainly true that none of us can cause, nor prevent a natural disaster.  It is also true that none of us can cause nor prevent a humanitarian crisis or economic recession.  What we can do is take specific actions to create specific results.  We cannot stop an earthquake in Japan, but we can contribute to the response.  We cannot stop an economic recession, but we can act to ensure that the financial well being of our family is secure.  We cannot stop people from being self-destructive in their personal decisions, but we can teach our children to make wise decisions in their own lives.

In the end, “getting over ourselves” ultimately comes down to a frank realization of what we can and can’t do.  This understanding allows us to focus on the things that we can do, the decisions we can influence, and the goals we can achieve.  In this way, each person can help to create a better world at large by creating a better world within their own sphere of influence.

 

As we move throughout life, we frequently hear glowing speeches from political figures about the responsibility to our posterity.  For some reason, these concatenations of rhetoric seem to be frequently accompanied by a proposal for profligate spending that will enslave our posterity into an eternal spiral of debt.  Furthermore, this propensity does not seem to stop with any particular political party.  The Bush administration racked up a record amount of debt that has already been eclipsed Obama administration, with the trajectory set for an expansion of national debt that shatters all previous records many times over.

Government has become a big party where each new guy tries to out-do the guy that came before him.  Like with all parties, there is a next-morning hangover to deal with.  Unfortunately, the solution sought by our government is to keep partying in hopes that the hangover can be forestalled indefinitely.  (Or at least until the next guy is in office so that he can take the blame)  This series of buck-passing from one administration to the next will only turn the inevitable hangover into a crash-and-burn.  And on top of all this, the cost of this massive party is being paid for with borrowed money, the tab for which will be inherited by our children.

The truly frightening aspect of this national spending binge is that it is being undertaken for no meaningful purpose other than to secure re-election by politicians who seek to use public resources as a means to influence voters by providing social programs and subsidies.  As this phenomenon compounds over time, the government will be faced with the prospect of either raising taxes to crushing heights, accelerating the debt spiral by continuing to finance overspending by crowding out private capital in credit markets, or by devaluing the currency through monetary inflation by the Federal Reserve.  Of all the scenarios, inflation by the government is far and away the most likely, since money can be printed without congressional legislation.

In the end, this amounts to stealing from posterity so that the current political leadership can continue their ride in the seat of power.  It would be nice to think that responsibility will be returning to government in the near (or distant) future, but there is little evidence to support such hope outside of wishful thinking.  Because of this, it would be very wise to seek opportunities in assets like investment real estate that produce regular cash flow, and are financed by fixed-rate debt that will be devalued as the ravages of inflation are unleashed by government monetary expansion.