The above
are famous ways to warn people to save for the future. Surely you can empathize
with the solider who spent too many bullets practicing at the firing range, only
to be out of bullets on the battlefield. Or imagine the budding new socialite whose
daughter sucked down the last of the JD right before the big lawn party. Prudent
people know they should save. Even if you save only a little, it can mount up
to a nice nest egg in the future.
We ALL know
this wisdom. We sometimes don’t follow it, especially in emergency situations.
But we know it and we realize we jeopardize our future when we don’t.
Why is it
that our own government cannot follow this simple and straightforward advice? Think
about it. Most of our elected officials are educated and smart people. They
also appear to be motivated to do good things for their country. Yet when they
get together and vote, you would think that they just came from cocktails with
the devil.
In 2007-08, we had an economic emergency. Counting on my fingers, we have exited that emergency that started 12 years ago. 12 years ago, I was a young
lad of barely 61 years. Nolan wasn’t even thought of. 12 years ago Abraham
Lincoln was president. Just kidding on that one. But 12 years was a long
time ago.
Point—if we
needed to borrow for an emergency that started 12 years ago, we don’t need to
borrow for it now. And it would be prudent to pay off the debt. Yet our fearless leader and all those goons we call congressmen
are digging us deeper and deeper into debt. Our government was not very good at
saving for a very long time – but they have gotten even worse as we approach
2020 and beyond. Our national debt is now big enough to finance a national Tuna
convention in Hotlanta.
Who cares?
Debt schmet. No big deal. What’s a little bit more debt?
Ask
Venezuela. Or ask Greece. Or ask your neighbor who just had his vehicle removed
from his driveway.
There is
more to the story. Lately, people are writing stories about how the large debt
makes it impossible for our government to save the day when we finally go into
a recession. As you know, I don’t yet buy this recession crap but it is possible
that we could experience some very slow growth sometime in the near future.
The worry now is that if we are already deeply in debt, the government won’t be
able borrow more. Their hands will be tied. They will be out of bullets.
But do
you really believe all those goons are going to sit around on their hands as
the US goes off into a recession?
Of course
not. Those same goons will borrow even more. They will ride in on their white stallions and save the damsel in distress (apologies to my feminist and
vegan friends). You can borrow bullets and you can borrow money. They will just
borrow more. And then they will spend.
But there
will be a difference this time. At some point, if you cannot pay for the borrowed bullets, no one will lend you more bullets. Maybe they will lend them but the price will
be much higher. Either way, debtors who want more and more debt will find it
more difficult to borrow. The Ds will blame the Rs and the Rs will blame
the Ds and so we will spend endless hours in bars and cocktail parties blaming each
other.
Notice that the process won't be fun. For example, foreigners might stop lending to us. That means the stock and bond markets will fall and interest rates will rise. It also means that the value of the dollar will fall. The falling dollar might be helpful for export sales but it will mean higher inflation rates and it will be a further reason for foreign money to go elsewhere. During a recession, you definitely don't want stock prices to fall, interest rates to rise, and investors to sell their US assets in a panic.
That's a horrible scenario. Luckily, the parties can blame each other and no one will have to accept the blame. All this could be avoided by a little prudence. Pay attention to debt. You don't have to bring it to zero tomorrow, but you certainly should try to stop piling up mountains of new debt. And save a little JD for your next party too.
Dear LSD. A balanced budget would be a good start but D.C. gridlock would effectively shoot down that proposal. Also, the whacko lib left would oppose it on the groundz it would tend to favor DJT’s administration (hm-m-m-m-m, didn’t the libs’ fav POTUS horny WJC balance the budget?). Though a balanced budget and deficit reduction are desirable goals the libz and the likes of their revered Bill Maher would rather a recession and lust for a U.S. debt default just to git DJT out’a 1600 PA Avenue. Best to stock up on cases of JD.
ReplyDeleteBTW, down here in the depths we never run out of ammo fer our Wham-0 dihydrogen monoxide pistols.
This debt stuff is no longer the result of one party's bad decisions. Neither party is really suggesting we reduce debt. And we kinda get what we deserve. Most voters would not tolerate whatever tough love might be necessary to endure a policy to reduce debt. I see no political constituency demanding good government. So we get what we deserve.
DeleteDoober: The question of whether the debt should get so large is a good question to debate. But I must disagree with you on another issue. For better or worse, we will never run out of bullets. Everybody wants our debt BECAUSE we are not Greece or Venezuela. And please do not confuse the US of A with Joe Shmowe who owes $. The US of A has the ability to do things that Joe does not. We just, apparently, choose not to do so. Silly US of A
ReplyDeleteYour optimism is refreshing and we will call on it when the US enters a recession. The US economy is not always the darling of the world. It is legitimate to think of times when people vacate US financial markets for other choices. Luckily today we are the second ugliest boy at the dance. But when we become the ugliest, watch out. As for Joe Shmowe -- these principles are general. Too much debt causes trouble. The US is risking its future by having too much debt....just like Joe.
DeleteProfessor Davidson: Can you give an example of when people were more interested in owning debt instead of USA debt? I am not necessarily disagreeing with your concern about the debt. I forgot all my Macro. It probably had something to do with Waud (OBM) and Philbrook (OBM, too)
ReplyDeleteI am spit balling since I am heading out the door now but such things have happened before. Look at times when our stock market fell. The Great Depression might be one example. In the last recession it was at first thought it was mostly a US housing affair and wouldn't spread. During that time the US stock market took a big skid. Later the other country markets also slid but the beginning saw mostly the US markets declining. Back in the early 80s after the turbulent 70s and when the Japanese seemed to be ahead of us on autos I think that didn't help either.
DeleteI am glad you are out the door. Say hello for me. But you did not answer. I will take your answer as an "I don't know for now."
ReplyDeleteReread my last reply. I believe I did answer telling you some examples when I thought people rejected US financial assets in favor of foreign ones.
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