(Originally Published: Jan 2007; last updated Jan 2009)

America has long been considered the "land of opportunity”. It has traditionally been a “melting pot” for all people of whatever race and whatever nationality. It has led me to believe that America is, in a traditional sense, all of the best that the world has to offer rolled up into one country.

But, before we get too far ahead of ourselves here, we should realize that the American dream could eventually turn into a nightmare due to our lack of vigilance. Let’s get one thing straight. I am focused on objective facts, not subjective guesses. I would not regard myself as a “doomsday prophet” - yet we must be realistic and pay attention to reality. There are a few issues that are on the horizon that are, at this time, acting as a warning to all those who have the wherewithal to pay attention.

A Government Of Debt

The U.S. government debt, before taking into account Social Security and Medicare obligations, is quickly closing in on roughly $9 trillion (as of this writing - Jan 2007). If we take into account Social Security and Medicare and any other unfunded obligations of the U.S. Government, the figure rises to a staggering $60 trillion! Most of us have no clue how much money that actually is. It’s very difficult for us to conceptualize an amount so large. So, let me paint a picture for you.

A trillion is 1000 x 1000 x 1000 x 1000, or a million millions. To say it another way, as Ronald Regan so aptly pointed out the first time he addressed congress, a pile of $1,000 bills stacked 4 inches high will make you a millionaire. A trillion dollars would be a stack of $1,000 bills piled just over 63 miles high. If we are talking about $60 trillion, well then that would be that same stack of $1,000 bills reaching a mind-boggling 3,780 miles into the heavens! Gosh, that's a lot of money.

How the Government landed itself into this predicament is beyond the scope of this article, but an ultra-simple explanation is that the Government, through the Federal Reserve, is allowed to inflate the money supply by being directly responsible for the printing of money and through various mechanisms it has at its disposal to manipulate interest rates. It needs (and has) nothing tangible to back up this money. When money can be created by simply "pushing a button" on a printing press rather than through hard work, inflation and a Government of debt is the necessary result.

Many Americans who have gone into retirement have a net worth of about $60,000, and this includes IRAs and other pension plans. What does the rest of the nation do now that these folks aren't working and saving money? What does the rest of the nation do when these new "senior citizens" start petitioning congress for an increase in their social security payments?

A Nation of Debtors

As we become older, it can become more and more difficult to accumulate money because if we have it set in our minds that we want to retire at age 65, we can only ignore the fact of reality for so long that we do not have any (or enough) savings. For most of us, we need time to accumulate money. Most of us are not professional stock market speculators. We are not earning 100% or more on our investments every year. When you give up rate of return you have to replace it with something else: time. Yet this is exactly what many Americans are ignoring (and what many more do not have).

When it’s “crunch time”, I suspect that you will see a lot of people suffering, lowering their lifestyles to poverty levels, and attempting to return to the workforce because they have to - simply to make ends meet.

The recent real estate crash will soon be forgotten, but we must struggle to remember its lesson. As and when interest rates drop again (and they will), Americans will rush to the banks to expand a false sense of wealth as they did during the last real estate boom.

Home equity instills a feeling that we are wealthier than we really are. But feelings are not facts. Home equity never made us wealthy. Which means using home equity as a savings is a fictitious concept. Home equity is not, and never has, resembled anything like a savings or savings account.

It is a loan against a piece of property. A loan which must be repaid. The same is true with credit cards and any other form of credit that we attempt to erroneously use as a source of wealth or savings. When we spend it, we forget...until interest rates creep up again as they always do. Then we are called upon to take full responsibility for our own actions. At that point, it’s time to pay up or lose your home. This is a lesson that many Americans are now learning the hard way.

Is Social Security Really A Problem?

Morally? Yes. It is an attempt to make other people responsible for your retirement. Economically? Again, yes. The Social Security “Trust Fund” is being depleted and our benefits can be changed or lowered at any time. If you request a Social Security Statement of expected future benefits, you can find a disclaimer at the bottom of your expected benefits statement that says something to this effect.

Many would claim that the fix would be easy: overhaul the system. However, I’m not sure that the restructuring of Social Security is on the horizon. 78 million people represents a big chunk of the American population. It may prove to be politically unpalatable to cut benefits to the new senior citizens. A demographic that, traditionally, flocks to the voting booths more consistently than younger Americans. This means that there are only a limited number of ways left to solve the Social Security crisis. If we can’t cut benefits then we must:

1) Raise taxes

2) Print our way out of trouble (have the Federal Reserve print more money and pump it into the economy by lowering interest rates - which ultimately causes inflation); or...

3) Dissolve the system for future generations.

It’s pretty easy to figure out what happens when inflation and/or taxes continue to rise, when individuals continuously spend more than they make and have little or no savings. At some point something has to give. Would you like to hope and pray that everything turns out O.K. when you are ready to retire or would like to have a solid plan in place to deal with the tough times that are likely ahead?

The Collapse Of the U.S. Dollar & The Stock Market

This is a really strange time to be investing. Interest rates are low and the stock market is in shambles. That's not supposed to happen, is it? To add to the existing credit problems, many investors are not finding solace in the stock market. With massive losses in 2008, what will the future bring?

Well, I for one, have become optimistic. While there are many things going wrong in the financial markets right now, it represents a great time to deconstruct false premises about financial planning (like blindly trusting others to make you rich) and build a proper understanding of the fundamentals. While there are some things that are outside of your control, there are also many things that are directly controllable by you. Your personal financial life happens to be one of them (if done properly).