MAGS1
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Well said. We (and other countries) have a spending problem. And as you say, thereās plenty of blame to go around. To blame any single person or even party is laughable, they all are guilty. I keep seeing people pushing for tax cuts, taxes are too high, etc. I donāt disagree with that sentiment at all, HOWEVER, any cuts to taxes must be met with GREATER cuts to spending to have a positive effect. Otherwise you are adding to the debt (not making any spending cuts) or just treading water (spending cut = tax cuts). We saw that in the prior administration. Tax cuts were passed but there were no meaningful spending cuts to go with it, those cuts have been adding to the deficit. Just further proof you need both sides of the equation in order for it to work as intended.In my initial post, I highlighted several tells I believe are pointing towards our next economic decline. If I could summarize those matters in one word, it would be, "complacent." I believe we've become complacent towards several big picture, financial tipping points which will negatively impact the economy going forward.
One concern is the amount of debt the US has been accumulating, both within the GOV and the population as a whole. I'll go into a bit more detail on the topic in this post, focusing on GOV debt.
This recent article highlights the current rate at which the US GOV is indebting itself: $1T every 100 days. $10B a day. Roughly $.5B every hour or $7M a minute.
https://www.cnbc.com/2024/03/01/the...ising-by-1-trillion-about-every-100-days.html
The following links contain some easily-digestible charts which help quantify the amount of spending and where it goes.
https://www.cbo.gov/publication/58888
https://www.gao.gov/americas-fiscal-future
https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
For a historical perspective, the last time we balanced the US federal budget was 2001. Before that: 1969. Times past, governments would deficit spend during unique and trying times: wars, natural disasters, recessions, etc.
Deficit spending during economic downturns is generally accepted as a net positive. Unfortunately, the US and other countries have accepted continuous deficit spending as the norm.
Friendly reminder: no politics please. With the exception of the period of 1998-2001, the US has been overspending for the last 55 years. We've been artificially stimulating the economy for decades. There's plenty of blame to go around.
With the previous links helping to quantify the scale of the problem, I thought I'd spend the remainder of this post detailing how the federal debt pile impacts the economy and our investments.
When the federal government needs money to pay bills, it creates financial debentures of differing maturities: Treasury Bills (one month to one year), Notes (two to 10 years) and Bonds (20-30 years) . The time to maturity and notional interest paid are two attributes by the GOV before offering them to bidders.
Buyers review what's for sale and associated risks to determine what they think is a fair price. If a buyer underpays at auction, the effective yield is greater to the investor, the money received less to the government. If the buyer overpays, the yield is less with the government receiving more.
As the government sells more and more debt, the risk of not paying it back increases. Buyers demand a better yield and bid even lower. The government receives less and less while effectively paying more for the same loan/s.
Over time, the "debt bomb" reaches a point of critical mass, creating a runaway effect where more-and-more revenue generation is focused on servicing debt. It's akin to taking out a loan with a loan shark. You can't make your payment this week, so that payment goes to the principle, which then increases future payments, making any of it even more difficult to pay back.
To sell more debt, the government has to offer ever more attractive yields. Doing so has a knock-on effect, forcing other entities offering their debt to increase their yields to remain competitive.
Throughout the economy, individuals, businesses and the government pay more in interest on their loans. Money which could have been spent buying a new car, opening a new product line or offering healthcare is re-directed towards interest payments. Less economic output. Fewer jobs. Less returns on investments.
Many feel we're already there or approaching this outcome now. It's my belief that we should not expect as great of economic output in the US as we have had before. The condition is one of an financial impairment with no foreseeable relief.
Times past, many would table ideas on how to fix the problem. No one openly discusses the issue now; repairing it would require significant changes to our standard of living. As an exercise, attempt to find $1T in savings towards balancing the federal budget. You can't do it without significantly affecting the population and economy. And the $1T doesn't begin paying the debt down either; it simply balances the budget and slows down the rate of debt growth.
Other governments have adopted austerity programs, as a way to reign in spending. I'd encourage anyone to google that term and read what they have done, as a precursor to what I think will happen in the US.
To make matters more urgent, many of the social services (Medicare, Medicaid and Social Security) are soon to begin paying out more than they receive. The effect will be reduced disbursements throughout the health care system (currently 20% of US GDP) and Social Security (projected cuts in monthly checks: 25-30%). Millions of people and a significant sector of the economy will be immediately impacted, while the GOV is already over-extended.
And there's the additional concern of any upcoming economic slowdowns, prime time for even greater amounts of economic stimulus, which unfortunately is a no-win situation. We've done nothing before, at the start of the Great Depression. But if we do something, even temporarily, it will add to the existing problem.
It took us a long time to get here. It's going to take a long time to turn things around. No quick fixes. No easy outs. Pundits purporting how simple it is to correct these issues are not telling the truth. If it was so easy, someone would have already fixed it and taken credit.
Consider and plan accordingly.
As you say, it took a long time to get here and there is no easy fix. Touching spending programs are political death sentences, yet they need to be addressed. And Iām not talking just SS and Medicare (even though they are among the largest). Trying not to get too political here but maybe if Congress had term limits, they wouldnāt be so afraid about reelection and just tackle the issues. They know itās a problem, they just donāt want to touch them for fear of not getting reelected. We need leaders that arenāt afraid to tell the people exactly how it is. Weāre a mess, things need to change or else it will be a lot worse thank taking some of these programs away (or reducing/restructuring them).
There have to be hundreds of government spending programs that are either redundant or just not necessary, I unfortunately donāt have the time to research all of them. Reducing or eliminating a lot of those would go a long way though.
As to personal/household debt, yes consumers have a spending problem too. However, as state/local municipalities keep increasing various taxes to pay for local government programs, new buildings, roads, schools, etc., that financial burden falls on the taxpayers (and thatās not even including the federal level). Wages are not keeping up with inflation let alone any tax increases, be it sales tax, property tax, etc. So, at least to a certain degree, some of it is beyond a personās control. Now, they could spend less on non-essential items but even the basic essentials are becoming unaffordable for those in lower and middle earning jobs or those on fixed incomes.
I think most of us know the problems, government officials included, but itās difficult to take services away from those that have become dependent on them. Heck, even those that donāt use them donāt want some of them to go away, for fear that they might need them down the road. The government should provide certain services IMO, but itās gotten so large in scope that itās extremely difficult to reverse. At least without some short term pain.
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