EDMOND — In the 1978 “Superman” movie, Lois Lane falls out the window of a tall building, on her way to certain death.  Superman swoops in at the last moment to save the day. Superman proudly says, “Don’t worry Lois, I’ve got you.” Of course, Lois replies with that great line, “You’ve got me? Who’s got you?”

Perhaps that is a question we should be asking as we continually look to the government and Federal Reserve for financial rescue. Unfortunately, there is only so much they can do and at some point we have to ask who or what will rescue them? Rather than dealing with the problem of too much debt and too little growth, we expect to be rescued from ourselves and postpone the inevitable as we hope for a miracle. Here’s a news flash — the tooth fairy is not coming and neither is the miracle. We have to deal with the debt issue and it won’t be pretty.

One of the most pronounced trends in the global economy over the last 40 years has been the growth in the use of credit. In the 1960s, if I wanted to buy something I could spend money I had in my pocket or I could write a check against money I had in the bank. The one thing I could not do was spend money I didn’t have. (What a quaint custom that was!) As a result, I had no way to buy things I could not afford.

Around 1967, Bank of America came out with the first modern day credit card, the “BankAmericard.” First National City Bank countered with “The Everything Card.”

Before this, the credit cards in circulation consisted mostly of travel and entertainment cards — American Express, Diners Club and Carte Blanche — and they had to be paid off each month. They were generally limited to people in the upper income brackets.

It was only in the last 40 years that BankAmericard turned into Visa and The Everything Card into MasterCard. With these cards consumers were able to maintain an outstanding balance. It then became easy for people to buy things they couldn’t afford. And so they did.

At the risk of sounding like some old geezer, in those days it was important to “establish credit” somehow, but there was quite the “catch-22” to do it. You needed to have good credit to get a credit card, but you first needed to get someone to give you a loan that you could pay on to prove your credit worthiness. Something easier said than done.

I recall how in the late ’60s I applied for a credit card from every major gasoline company and was repeatedly turned down until Texaco showed mercy on me and gave me a credit card. I used it for all my gas and paid it off religiously so I could prove that I was a worthy credit risk. I would imagine that many of you my age have similar stories. Now, of course, they send credit card offers to you in the mail completely unsolicited. Attitudes have since changed and consumer credit has exploded.

But it is not just consumer debt. There has been massive growth in corporate debt and sovereign (government) debt as well. Most debt, outside of mortgage and consumer debt, is seldom amortized, i.e. payments covering interest and some of the principal so the debt is eventually paid off.

Instead, bonds, whether corporate or government, and commercial paper are loans for fixed time periods where interest is paid along the way, but the principal is returned at maturity. And then, more often than not, the note or bond is rolled over into a new one. This has the effect of keeping debt in circulation that is seldom paid off. It becomes a form of rolling permanent capital to some corporations and governments and all they have to do is be able to pay the interest.

This is all fine and good until a bondholder says, “No thanks. I don’t want to roll it over. I’ll just take my money please.” If enough people do that and the corporation or government or bank doesn’t have enough money to pay the principal back, we have a serious problem.  That’s where we are today with sovereign debt issues.

Here is the undeniable truth: Quoting from “This Time is Different” by Reinhart and Rogoff, “We have learned that excessive debt accumulation, whether by the government, banks, corporations, or consumers, poses greater systemic risks than we realize during a boom period. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable than they really are. Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short term and needs to be constantly refinanced. Debt-fueled booms all too often provide false affirmation of a government’s policies, a financial institution’s ability to make outsized profits, or a country’s standard of living. Most of these booms end badly.”

We all wish things were different today. But wishing that something is so doesn’t make it so. This problem will eventually require massive debt restructuring, much like a gigantic chapter 11 bankruptcy process. No one wants to hear that because it would mean losses for banks, bondholders and stockholders. The truth is that they already have the losses. They just have not admitted it yet.

In the broadest sense, monetary and fiscal policies have failed because government financial transactions are not the key to prosperity. Instead, the economic well-being of a country is determined by the creativity, inventiveness and hard work of its households and individuals.

So once again I ask the question, “Who will rescue the rescuers?” Ultimately, it will be all of us and it won’t be easy. Where is Superman when you need him? Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Nick can be reached at www.nickmassey.com. Securities offered through Securities Service Network, Inc., member FINRA/SIPC.