NYC Letter: We're Not Saying, We're Just Saying

Day 116 of CHOPE

There is coincidence. And then there is synthetic irony.

We’ve become accustomed to our economic dominance in the world, forgetting that it wasn’t reckless deals and get-rich-quick schemes that got us there;* but hard work and smart ideas –quality products and wise investments. So we started taking shortcuts. We started living on credit, instead of building up savings.

Mr. Obama,
counseling ASU graduates on thrift
TEMPE, Arizona May 13, 2009 (cqpolitics.com)

Mr. Obama has warmed to this theme of living within one's means and spending responsibly. Here he is the next day in Rancho Rio, New Mexico:

I also think there's no doubt that people need to accept, as I said before, responsibility that comes with holding a credit card. This is not free money. It's debt. And you shouldn't take on more than you can handle. We expect consumers to make sound choices and live within their means and pay what they owe in a timely manner.

And broadening his theme:

We can't keep on just borrowing from China, or borrowing from other countries -- (applause) -- because part of it is, we have to pay for -- we have to pay interest on that debt. And that means that we're mortgaging our children's future with more and more debt, but what's also true is that at some point they're just going to get tired of buying our debt. And when that happens, we will really have to raise interest rates to be able to borrow, and that will raise interest rates for everybody -- on your auto loan, on your mortgage, on -- so it will have a dampening effect on the economy.

This is indeed rich coming from someone who spends hundreds of billions of dollars at a clip, runs up trillion and hundred billion dollar deficits far into the future, and is hollowing out borrowings backed by the full faith and credit of the United States.

Mr. Obama's counsel is not so much laying out sound principles of personal finance as a veiled personal cautionary tale.

PRESIDENT OBAMA'S TROUBLING MANTRA:
IN DEBT, WE TRUST

OP-ED May 2, 2009 (NYDN) - A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005, when Obama's book royalties came through and Michelle received her 260% pay raise at the University of Chicago. This was also the year Obama started serving in the U.S. Senate.

...In April 1999, they purchased a Chicago condo and obtained a mortgage for $159,250. In May 1999, they took out a line of credit for $20,750. Then, in 2002, they refinanced the condo with a $210,000 mortgage, which means they took out about $50,000 in equity. Finally, in 2004, they took out another line of credit for $100,000 on top of the mortgage.

Tax returns for 2004 reveal $14,395 in mortgage deductions. If we assume an effective interest rate of 6%, then they owed about $240,000 on a home they purchased for about $159,250.

This means they spent perhaps $80,000 beyond their income from 1999 to 2004.

The Obamas' adjusted gross income averaged $257,000 from 2000 to 2004. This is above the threshold of $250,000 which Obama initially used as the definition of being "rich" for taxation purposes during last year's election campaign.

The Obama family apparently had little or no savings during this period since there was virtually no taxable interest shown on their tax returns.

... These numbers clearly show the Obamas were living beyond their means and they might have suffered financially during the decline in housing prices had they relied on taking ever larger amounts of equity from their home to pay the bills.

Mr. Obama counseling thrift is like the drunk on a lost weekend counseling sobriety after rifling your purse.

But in 2005, Obama's book sales soared and the royalties poured in. Michelle explained, "It was like Jack and his magic beans."

... President Obama has never faced consequences in his private life when it comes to managing money. He always had enough money simply by borrowing more and more. And just when things got tight, those magic beans came along to save the day.

Having binged on debt and survived, Mr. Obama is betting the commonweal he can scale up and beat the odds again.

CHOPE.

Prudent advice. Wanton practice. Beans.

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* We recall that get-rich-quick credit card fraud, in fact, had a great deal to do with getting Mr. Obama where he is today. More here and here.