The two most prominent [issues] are that the American dollar and economy are at a dangerous point in history.
Yesterday, I pointed out that “dangers” still exist from the 2008 financial collapse – the system has not completely healed leaving a hole in the lending system consumers and business depend on to purchase goods and build business. In the near term, this will have an impact on the economic recovery, but as I wrote yesterday, this hole is getting smaller as the cycle moves through its next phase. So, I dismiss this critical but ailing aspect of our economy as any reason to suggest our economy is at a “dangerous point in history,” and I dismiss that the U.S. dollar is at a dangerous point in history, as well, but I will examine this fear later this week.
Our economic recovery and the global economy are at a dangerous point in history, however. In the 245 years of the USA’s existence, the country has never defaulted on its debt. Congress after Congress has raised our debt ceiling when necessary, and it has been necessary for much of our existence. Our debt is one important aspect of our rise to economic greatness. Simply, for over two centuries investors around the globe have believed in the economic strength of America enough to invest their money in our bonds. Like any business, that money has helped us grow.
Now some argue loudly that the country is in danger because of its massive debt (and monetary policies), and if we do not cap our debt, the pending problems will be worse than if we simply rip the bandage off now. Yes, just rip it off and suffer the short-term pain because when the pain passes, we will be healthier. Imagine for a moment that you looked at your personal or business debt this way. Would it be financially healthy or even ethical to simply shut the door on paying your debt? Hardly, but this is the argument some elected officials are making – if we do not cap our debt, we will continue spending to our imminent demise.
Hogwash, plain and simple. Just go back to 1993 to hear the same, trite arguments, yet even in that hysterical moment, Congress raised the debt ceiling, as they did seven times in the flagrant spending era of the supposedly fiscally conservative Bush presidency. Nevertheless, fiscal conservatives continue to raise fear about our debt, but it never, ever, has brought us down. In fact, in 1993, not a single fiscally conservative Republican voted for the Budget Resolution Act that raised taxes and brought us an economic recovery that produced 22 million jobs and a budget surplus three years running. So much for our demise, and the fear of same.
Yes, our debt is bad, but it is not the worst in relative terms. Our debt after WWII was relatively higher, and look what happened in the 1950s and 1960s – the greatest expansion of middle-class wealth in the history of humans. My point is that if our politicians just bang their heads together, we can solve this “crisis.” But, if some persist in acting out the scenario of “shut it down to save it,” the country that is, then I agree we are at a dangerous point in economic history. If however, they get sensible, the economic and market future ahead is much brighter, even with the headwinds out there, and some of those winds are blowing from Europe and Asia, which I will discuss tomorrow.
Trade in the day – Invest in your life …