This year has been a catastrophe in terms of 'spreading it around' though. Folks like Bezos and Musk are sucking up billions per day, while 'regular folks' manage to make rent payments. The rich don't have anything left to soak up all the money sloshing around in their accounts, and the poor are drying out and starting to feel the drought. At some point, the government will have to rely on the economy actually paying for the country to stay solvent, instead of borrowing and spending trillions with no end in sight.
OK. I’ll bite. Why does the economy have to pay at all? Our national debt to GDP ratio is somewhere north of 107%. Compare that to Japan at above 235%.
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I keep hearing this refrain and can't help but wonder, do you want America to follow Japan's Nikkei Index post-1990? That's 30 years of break even, after a really terrible crash? Sure, Japan isn't looking as bad as Greece on the surface, but it's a homogenous culture. On the flip side, there is Norway, similarly homogenous, with surplus for years.
America cannot continue to borrow as it has indefinitely without seriously knee-capping its options to continue to borrow. We are far from a stable, homogenous society, in case you haven't noticed lately.
Given that I try to keep my exposure to US equities low, I can’t say that it much matters to me what US equity markets do, other than the US markets have a nasty tendency to correlate with other global markets. But I don’t think that’s the real concern here. I think it’s more of a concern that the US won’t be able to sell its debt at favorable terms and that the US will somehow, in some way suffer some horrible malaise as a result of profligate state spending.
I’ve been hearing this argument my entire adult life and you know what? The malaise hasn’t happened yet. The Government has been spending to beat the band for decades now. The national debt hasn’t been a problem from the perspective of being able to service the debt. It has been a problem in that the spending has tended to benefit the already ultra-wealthy at the expense of everyone else. Not that surprising when you have a multimillionaire Congress and a never ending succession of corporatist presidents.
What concerns me though is this logic that says that the national debt is like personal debt. It isn’t. Personal debt has to repaid at some point, public debt doesn’t. And it never will be. But what ends up happening is that well meaning people in their zeal to try to repay what can never be repaid start coming up will all sorts of not-so-bright ideas to pay it off. Like raising taxes on the ultra-wealthy. Sounds nice! It’ll never happen. Part of the reason the ultra-wealthy are that way is they have the systems and accountants and lawyers and, let’s face it, politicians to ensure that they will never pay more than a token amount. What a tax hike for the ultra-wealthy really means is that everyone else’s taxes get jacked up.
And when taxes don’t work, then we get into the really destructive ideas like selling off public assets to pay off the debt. And guess who will be buying them at fire sale prices?
The national debt is just one of those nonissues that we can largely ignore. Yeah, there probably is a point where issuing more debt won’t work. We’re not there. Given that we’re experiencing negligible inflation, we’re nowhere near that ceiling.
I'm responding at the point that I bolded. I'll read the rest, but honestly, this is not in touch with reality. In the 1990's, the US budget finally started running a surplus and GDP was still growing. We slipped in to some deficits and had bubbles burst, but the US GDP could have outpaced national debt for the most part, other than the financial crisis. But we just went from bad to worse. Nowadays, folks don't seem to care that GDP is meh and debt is the way to get more rich. I very much feel that we are in the final throes of an instant gratification society and that this won't end well. We hardly have the stomach to try to balance the budget, now that hard times are upon us.
You say that you invest internationally, but there aren't many other places that had the US patent system and 'brain power' advantages of the US. I think the global system is on a decline, until the reigns are fully handed over to whatever is next. Maybe China, but they don't have the dynamism that the US had yet. I think we are in for a whole lot of stagnation as the engine of the global economy sputters and chokes.
Can we talk about this more?
Back when I studied economics, it was pretty standard view that some debt was OK but too much debt was bad. Debt denominated in your own currency was safer, but there was a risk of hyperinflation, which does damage the economy because it makes pricing unpredictable and so throws off allocations of good and services, as well as because in general instability damages economic growth. Now there is something called Modern Monetary Theory which I haven't had time to study but seems to me to basically be like Dr. Strangelove -- " How I Learned to Stop Worrying and Love the Bomb."
I fully admit I don't understand it. Instead I use general rules of thumb and wisdom I've picked up along the way, including:
-- Just because a bunch of the cultural elite that live in one part of the world in one particular time and place happen to believe something doesn't make it true. They are always swayed by the intellectual fad of the day and if you look at the arc of history these ideas go in and out of fashion. So the argument from authority, "this guy has a Nobel Prize and he believes it" doesn't always work for me. This is especially true for any sort of theory that can't be tested in a lab, like MMT.
-- People who say "this time, it's different" are usually wrong.
-- "You can run along for a long time, but sooner or later God is gonna cut you down." -- Johnny Cash (Secular economic translation: The negative consequences of dumb behavior may not be felt until far in the future, but that doesn't mean they aren't going to be felt.)
My instinct is that the developed world is going to look up and realize that huge piles of debt and declining worker to dependent ratios have put them in a bad spot, and so at some point our day of reckoning is going to come even if the powers that be aren't too worried about it now. But there's very little... actual math or proof or whatnot in my analysis, so I leave it open for those better versed in the subject to explain where I've gone off track.
Corollary is that since we don't know how the fallout will occur or when, what do we do? My best answers are pretty simple. Don't overextend yourself with debt, invest globally, stay invested because you don't know the hour of when the other shoe may drop and the market can be irrational longer than you can be solvent, have the resources to ride out a storm for a few years without selling at the bottom, realize a portion of your wealth is illusory and is probably going to disappear at some point, be a little more liberal on spending on durable goods that will retain their value (or are just really well made and will last a long time -- buy them now and you can use them later when things are nutty), cultivate a broad range of skills so you can make (and, through your own efforts, save) money in various economic climates.
Topic: Race from $2M to $4M...and Beyond! (Read 1411731 times)