Stephen Robert on the debt problem

Stephen Robert
Starting as a portfolio manager of the Oppenheimer Fund in 1968, Stephen Robert became President of the Oppenheimer Group in 1979 and Chairman and Chief Executive Officer in 1983.

For years, Americans thought they were living on credit. The truth is just the opposite: they were living on debt. So, what is the cost of this debt?

Noted financier and philanthropist Stephen Robert quantifies the debt problem in a piece for Forbes magazine. Household debt soared from around 60 to 65 percent in the late 1950s up to 130 percent in 2006, with over 6 trillion dollars of debt added between 2000 and 2008. “Savings rates for consumers at times dropped below zero, as our economy feasted on a binge of easy credit,” writes Robert. Over time, only a small fraction of the accumulated debt has been repaid.

Government debt, which Stephen Robert calls “the other major component of our borrowing dilemma,” has been equally damaging. It is projected to balloon from 60 percent of GDP in 2000 to about 300 percent by 2040. The bulk of this debt, he says, can be accounted for by social security, Medicare, and Medicaid. “We are becoming a nation of Floridas,” he writes.

The good news is that Florida’s economy is improving and will outpace national growth. Time will tell whether the national economy follows suit.

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Financial Expert Stephen Robert: “No Short-Term Fixes” for Troubled U.S. Economy

stephen robert
A financial expert and philanthropist, Stephen Robert and his wife founded Source of Hope Foundation. Since its establishment, The Source of Hope Foundation has been active in nations such as Colombia, Haiti, Ethiopia, Malawi, Uganda, Israel, and Palestine.

Q: Thank you for joining us today, Mr. Robert. What do you point to as the main reason our economy’s recovery is taking so long?

Stephen Robert: Simply put, a depression of this magnitude simply cannot be repaired overnight. Our leaders continue to pose solutions that aim to repair the damage in two or three years. As with the Great Depression, working our way out of this situation will take many years.

Q: How important is an understanding of the reason for the decline itself?

SR: We can’t fix what we don’t understand. In short, our consumer and government debt is both the source of the problem and an impediment to a solution. Household debt as a percentage of disposable income rose from 65 percent in the 80s to 130 percent in 2006, as consumers eschewed savings in favor of easily attainable credit lines. With the credit collapse, millions had to struggle to pay off their debt. As Americans prioritize debt repayment over consumer spending, America’s GDP will continue to lag.

Government debt is unsustainable, having risen to 100 percent of the nation’s GDP. Much of this debt is due to unfunded Medicare, Medicaid, and Social Security payments. With no financial reserves, the government is unable to utilize traditional fixes, such as economic stimulus packages, without incurring further debt.

Q: In your view, what can be done to speed the recovery?

SR: We need to boost consumer confidence through economic stability. Balancing the budget by reducing health care costs should take priority. Another tactic is to forego short-term stimulus packages like Cash for Clunkers and build future programs around long-term investments.