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When Debt Commands

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Staff  ·  August 31, 2017
When Debt Commands
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By Craig Reger

“Even if we are ruined by it, it was still beautiful”. Many Nationalistic Germans had this to say about WWI. Fast forward one-hundred years, extremists detonate truckloads of explosives in war zones, near governmental buildings or well-attended pop concerts and European soccer matches, or choose to drive a Dodge Challenger into a gathering of people with opposing political or religious views while in 5th gear.

Janet Yellen, et al, hold the keys to the US homicidal truck and our government owns the license plate and registration while the payload is debt, an inconceivably high and dense mountain of debt, like new found treasures over-flowing from the top of an extended pick-up truck whose driver is searching the curbs Thursday evening before county employees pick-up the rubbish on Friday morning. Buried in this mountain of debt is international war, civil war, outsized social spending, the war on drugs, war on poverty, war on war and other cosmically bad spending ideas. A Von Mises economic archeologist will someday dig into the U.S. economic bedrock and declare what we always knew to be true but couldn’t admit in such a politically charged atmosphere. Wasteful spending was always our worst nationalistic idea, even after carefully considering the current trade war proposition. Even as I type, envious debt piles up.

Government debt increases as the demand for government credit increases. Consider our current debt levels to GDP (Gross Domestic Product). The U.S. national debt level stands at 110% of GDP. For comparison purposes, Greece’s current debt level to GDP is 180%. Greece will never pay back its insurmountable debt. It can’t, so it won’t and Germany will be left holding the outsized portion of the eventual Greece financial implosion and the citizens of Germany will not be happy. I suggest the U.S. is in a similar re-payment predicament. I do concede the fact that during WWII the U.S. debt to GDP was 120%. So, while we have returned to extreme debt levels, the prospects of alleviating the debt in an increasingly technologically productive and price deflationary world seem remote if even non-existent. Deflationary in the consumer sense, not the financial asset sense, there is a clear difference between the two.  As consumers, we like low-cost items including our groceries and automobiles.  As investors, we like our retirement accounts to increase quarterly and our home prices to incrementally increase over time. In other words, we are all curious what the neighbor’s house sold for and we never admit we overpaid for an automobile.

The Congressional Budget Office has warned the U.S. will hit the debt ceiling in early October.

When suffocating debt commands a prudent and balanced bureaucratic spending agenda, will we as a nation heed this important agenda as the debt ceiling debate shifts to high gear or will we be ruined by it?

The four colors of the American Flag are flying high in my neighbor’s yard this morning, red, white, blue and green.

Craig is a Registered Investment Advisor Principal at Leamington Capital Advisors.
Craig can be reached at [email protected] for a free consultation.
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