Real Investment Advice
MAR 23, 2018
It’s not that complicated. Wall St. and the Fed have a lot in common, and one of the things most similar about them is that they want you to think debt is really, really complicated. That a fool like you couldn’t possibly understand the insanely complicated truths of borrowing.
Not true. Cutting taxes while raising spending is insane. Trump completely suspending debt limits and allowing for unlimited borrowing through February 2019 is madness. It is as simple, and as dire, as basic math dictates. Anyone saying otherwise is trying to take your money or further a non-reality-based agenda.
Saying things are fine because the system isn't collapsing at this very moment is much the same as saying “It’s chilly out today, global warming is not a problem!”
Excessive borrowing by companies, households or governments lies at the root of almost every economic crisis of the past four decades, from Mexico to Japan, and from East Asia to Russia, Venezuela, and Argentina.
But it’s not just countries, but companies as well. You don’t have to look too far back to see companies like Enron, GM, Bear Stearns, Lehman and a litany of others brought down by surging debt levels and simple “greed.” Households too have seen their fair share of debt burden related disaster from mortgages to credit cards to massive losses of personal wealth.
It would seem that after nearly 40-years, some lessons would have been learned.
Apparently not, as Congressional lawmakers once again are squabbling on not how to “save money” and “reduce the federal debt,” but rather “damn the debt, full speed ahead with spending.”
In 2017, the Federal Government spent an estimated $4.3 Trillion which was equivalent to roughly 21% of the nation’s entire GDP. Of that total spending, an estimated $3.68 Trillion was financed by Federal revenues leaving $657 billion to be financed through debt. In other words, it took almost all of the revenue received by the Government just to cover social welfare programs and service the interest on the debt.
Therefore, the larger the balance of debt becomes, the more economically destructive it is by diverting an ever-growing amount of dollars away from productive investments to service payments.
The relevance of debt growth versus economic growth is all too evident as shown below. Since 1980, the overall increase in debt has surged to levels that currently usurp the entirety of economic growth. With economic growth rates now at the lowest levels on record, the growth in debt continues to divert more tax dollars away from productive investments into the service of debt and social welfare.