Governments, companies, and people all watching their burn rates
About a month ago, I wrote an article describing how the United States is churning through cash at a rate unrelated to its ability to pay. Analogous to the “burn rate” mentality of dot-com startups in the late 90′s, the government is facing a finite period of time in which it is able to do this. The burn rate calculation is designed to figure out when that day of reckoning will occur.
In fact, the United States government is not the only entity facing burn rate expiration. In Maryland, Paul Joegriner calls it his “D-Day.” Laid off a year ago, his family did not adjust their spending rate down enough, and has burned through $300,000 in cash since then. Beach vacations, porterhouse steaks, private schools, and dining out accelerated the consumption of the cash. During that time, several job offers were turned down. Now, the money is all gone but he is trying to keep up appearances at all costs. In the Wall Street Journal interview he described it as “..on the outside, no one has any idea that we’re in trouble.”
The millions of unemployed all have a burn rate, and a specific day when the money runs out. In the WSJ article, there 
are several out of work Americans featured who continued their lifestyle of multiple BMW’s, spending $1000 per month dining out, and daily Starbucks. Wealth can be defined as “how long you can live off your assets until you are broke.” Many suggest that wealth should be measured in time, not dollars. In that case you can increase your wealth from both sides of the equation, by increasing income and reducing expenses. Hefty severance packages, while intended as a safety net, can lull the unemployed into a false sense of security, with some people continuing spending as before. “It made me feel like I was still at work,” says Michelle Patterson the 41-year-old resident of Newark, N.J. She spent as much as $250 a week on networking meals and drinks with contacts. Some days, she scheduled up to four coffee meetings a day, picking up the tab most of the time. She also spent $30 a month for pedicures and $150 on her hair.
Last week, lawmakers passed a bill extending unemployment benefits up to 20 weeks.
Individuals are not he only ones with a burn rate. Commercial property owners are still facing a looming crisis in vacancies. CBRE predicts that occupancy rates won’t start rising until 2013 and won’t return to last year’s levels until 2014. Building owners are trying to hold on until then. Even the state of Florida is having trouble trying to unload some 64 state-owned commercial properties. “In the past, there have been efforts to sell some of these, and there have been no takers,” said Linda South, secretary of the Department of Management Services.
Next door, in Georgia, the state has been forced to curtail prosecutions of capital crimes, because the states public defender system is out a money. An accused murderer is asking that his case be dismissed due to the prosecution not being able to pursue the case in a timely manner. His appeal to the Georgia Supreme Court, could determine whether Georgia can afford to pursue capital cased at all. Numerous death-penalty trials across the state have been delayed because there has been no money to pay defense lawyers, investigators, expert witnesses and mitigation specialists.
The Federal government is facing its own burn rate crisis, what Reuters calls an “inflation time bomb.” The article points out that real inflationary threat isn’t the $12 trillion public debt, which on its own is serviceable. The problem is $63 trillion worth of unfunded obligations for healthcare and social security.
This is exactly what I wrote in February, it is simple math. The government owes $60-something trillion. It takes in $2 trillion per year. Even if it pays ALL of that revenue towards debt, it would take 33 years to pay off. Of course, all of the $2 trillion per year is already spoken for, needed to pay for operating the government, interest payments, defense spending, and payments to social security and medicare. So in reality none of it can go to the debt, but even if it could hypothetically, there is no way out.
At the same time, debt is piling on even faster, and revenue is dropping. The burn rate is accelerating.
Chuck & Kelly Hipsher were both laid off from their jobs in 2007, but continued to spend like before. They moved with three cars — two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly. “We were stupid,” he says. “You become accustomed to a certain lifestyle. When your world changes and things dictate that you change, you’re pretty stubborn to give things up.”
What is the difference between the Hipshers and the Federal government? (Besides more zeros in the numbers.)
