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SOVEREIGN MAN

Ending up like the Joneses…

Reporting from: Santiago, Chile

There’s a funny take on the Fiscal Cliff floating around the Internet that several of our keen subscribers have passed along.

Like most things floating around the Internet, though, the details are inaccurate. So I’ve gone back and modified the parody with accurate numbers, and a bit more plot. What follows is 100% accurate based on 2012/2013 data:

  • 2012 US Tax Revenue: $2,469,000,000,000
  • 2012 Federal budget: $3,796,000,000,000
  • 2012 Budget deficit: $1,327,000,000,000
  • US Federal Debt as of January 18, 2013: $16,432,620,067,491
  • Total interest paid on the debt in 2012: $359,796,008,919
  • Budget increase/decrease between 2012 and 2013: $38,500,000,000 INCREASE

Now… chop off eight zeros and imagine the same numbers for the Jones family:

  • Annual Jones family income: $24,690
  • Annual Jones family expenses: $37,960
  • Annual Jones family shortfall borrowed from friends and neighbors: $13,270
  • Total interest the Jones family paid last year: $3,598 (at practically 0% interest)
  • Total Jones family debt (mortgage, auto, credit card): $164,326
  • Change in Jones family spending this year: ++ $385

Not to mention, Aunt Bertha, Uncle Ned, and Grandpa are all coming to live with the Jones family this year… which is only going to increase household spending. And little Johnny, who is about to graduate from university, has no job prospects.

Further, the Jones family hasn’t made any substantial changes to their lives… no jobs training, no skill development, no investment in education. Yet somehow they feel confident that their income levels will rise much faster than the debt.

Friends and neighbors who have loaned them money are starting to get nervous. But Papa Jones has put a plan together. He aims to cut the family’s annual shortfall… so that, five years from now, they’ll -only- be short $8,000 per year instead of $13,000.

He also insists that, because his great-grandfather was a hardworking professional with an excellent reputation, that the neighbors should just cut him some slack.

The extended family is also getting nervous… but Papa Jones tells them not to worry. They believe him because he is very charismatic and has a great jump shot.

A few projections:

  1. The Jones family is obvious too ignorant to know that they’re bankrupt. This ignorance is even more dangerous than their insolvency.
  2. The kids are going to inherit all of this debt, and if they’re lucky enough to find work, will spend the rest of their lives paying interest and supporting the rest of the family.
  3. Friends and neighbors who have loaned money to the Jones family have had enough, and they are slowly beginning to reduce their exposure to this disaster.
  4. Papa Jones is going to deal with this by grounding his children, raiding their piggy banks, and sending them next door to fight the neighbor’s kids.

When you look at it this way, it really seems absurd. Yet it’s true… a slow motion train wreck that you can see coming miles away.

This is why the principles of international diversification are so important– you live in one country, your money lives in another, your business lives in another, you have an escape hatch in another, etc.

This ‘multiple flags‘ lifestyle is a strategy that anyone can adopt. And it’s one of the best ways to avoid ending up like the Jones kids.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Dave

    Simon, you missed the most important point: the Joneses have a printing press that prints green paper ‘certificates’ that they use to pay their bills and debts.

    Crisis? There’s no crisis so long as the friends and lenders keep accepting the green paper as payment.

    • Mevo

      You’re right Dave, and even more important: The Jones have managed to have quite everyone to keep their “wealth” in that green paper. So it makes it the absolute best Ponzi Scheme which will hardly collapse because quite nobody ever takes it’s share out !

  • Ty Brown

    To counter this they’ll quote Krugman while telling you that the laws of simple mathematics are suspended when the numbers get really big…

  • Mevo

    There’s just something I often feel when reading Simon’s posts. I like the point of view, and it’s globally right, BUT: If the US and the US Dollar fail (and I’m NOT saying it won’t), as the USD is the biggest “reserve currency” held by a lot central banks around the world (just have a look at the biggest central banks accounts if you want), I’m not sure that holding a foreign bank account in a different currency will save anyone … If the USD fails, I guess it will probably drag everyone with it’s fall, and all fiat currencies will implode. Such a bank account is a great protection against the US agencies in case of problem or that kind of hedge, but about a big default, I really think that only “real” assets can protect you.

    • Rob

      This is what the prophets of doom seem to forget, US economy collapsing is in no one’s interest, not just Americans but everyone else.

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