For the last 20 years, I have been hearing that we were in the midst of the Greatest Wealth Transfer in History (GWTH). During that period the slogan has remained the same but both the alleged sources and beneficiaries of the wealth have changed several times.
The first time I heard about this wealth transfer was in the late 1980s in my role as both a solicitor for and a donor to a number of Jewish community organizations. We were all told that the next 25 years would be a critical period for philanthropy because the generation of immigrants who had achieved enormous financial success in America would soon start passing from the scene. The huge amounts of wealth they had amassed over the years would be passed on to their families and/or the organizations that many of these people had generously supported during their lifetimes.
As fund raisers we were instructed to get out in front of this transfer of wealth lest all the money pass into the hands of their less generous children who would be more likely to spend it on themselves and less inclined to be philanthropic.
I have to assume that this wealth transfer is well underway but we don't hear so much about it anymore.
That's because a new GWTH has supplanted it in the public conversation with an assist from T. Boone Pickens.
That GWTH is the transfer of more than $700 billion a year from the United States to those countries that provide us with oil. Pickens has spent more than $50 million of his own money over the last year to publicize our need to eliminate our dependence on foreign oil. The case is even more compelling since the recipients of our wealth include all the countries and leaders in the world who are trying to destroy us.
Pickens has met privately with and apparently had a great influence on the thinking of both John McCain and Barack Obama, each of whom has incorporated most of his talking points into their campaign rhetoric. Each candidate,of course blames the other for the problem.
As is so often the case, while all of the media headlines and political attention has been focused elsewhere, the real GWTH has been taking place quietly and beneath the radar. There is no Pickens Plan or other public effort being made to alert people, but it is by far the most significant wealth tranfer in our lifetime.
It has been the trillions of dollars of wealth that our generation has transferred (actually embezzled) out of the pockets of our children so we can live way beyond our means.
This addiction to debt--the things it can buy us and the painful choices it keeps us from making--has saturated every level of our society including government, corporations, and our personal finances.
The devastating impact that the irresponsible use of leverage has had on the financial system is well documented. Established blue chip companies such as Lehman, Bear Stearns, and AIG have disappeared from the scene completely and many others are a shadow of their former selves--not because they made bad investments but because they were so leveraged up and had borrowed so much that a big move against them in the market could actually wipe them out.
On the personal finance side we have all heard about the sub-prime mortgage disasters but we're learning that the sickness is far more widespread. According to CNN, more than 20% of all homeowners in the U.S. now owe more principal on their mortgages than their homes are now worth and that number is rising. That means that purely from an investment perspective, they would be better off giving their homes back to the lender and walking away with nothing.
And it doesn't end there. Millions of people now owe more on their auto loans than their cars are currently worth. Pools of securitized car loans could be the next credit issue that the markets have to deal with.
On top of that, millions more Americans are maxed out on multiple credit cards which they have used along with home equity loans to maintain their unsustainable standards of living for many years. Now credit is harder to come by and the credit card companies are actually starting to call in outstanding debt and raise minimum monthly payments dramatically. It's not surprising that the economy is in the tank.
But the real embezzlement from our kids has taken place on the government level. Since 2001, our national debt has more than doubled and is now spiraling into the stratosphere as the result of needed rescue programs designed to keep our financial system from totally collapsing.
Since Bush took office, we have embarked upon two wars and seen government programs grow exponentially without any serious discussion of how we are going to pay for any of it. Instead, our president has given us tax cuts and told us to keep shopping.
Throughout the presidential campaign, both McCain and Obama have been obsessed with defining who is rich and figuring out which of us should get the biggest tax cuts. There has been no discussion from either side about how we are going to pay our bills much less the bills we have racked up over the last eight years.
New York Times columnist Thomas Friedman said it perfectly: "Never has one generation spent so much of its childrens' wealth in such a short period of time with so little to show for it as in the Bush years." The bill for our tax cuts, wars, and bailouts will all fall on the heads of our kids. And still there is no serious discussion of what it means and how to deal with it.
There is no doubt that the Greatest Wealth Transfer in History is taking place right under our noses. It's just not the one we've been hearing about. It's about our generation spending our kids' inheritence and embezzling money from their futures to pay for our addiction to wars, bigger houses, fancier cars, and more stuff.
Before we can hope to solve the problem, we have to recognize it. Hopefully our new president will help us act like grownups so we can put ourselves in "time out" until we learn how to behave as individuals and as a country.