Hey Friends. Probably many of you are aware of the spectacular economic numbers that came out Friday and sent the stock market higher with the Nasdaq setting a record. Go here to read about the news.
It’s an interesting scenario to have a red-hot labor market with wages increasing while inflation is tame or even declining. Go here to read comments made by Warren Buffett.
While the strong numbers are welcome, it is my hope that legislators will seize the moment and become more fiscally responsible by reducing spending that goes beyond just balancing the budget but also creates surplus(es) that are put toward reducing national debt. However, you’ll have to look far and wide among our government overseers today to hear conversation about spending reduction/fiscal responsibility. Conversely, we do read about policy ideas intended to resolve economic challenges (like healthcare, for example) that would only serve to explode debt further. It concerns me that our greatest financial threat may be ourselves. Have we become a society that has adopted/accepted a limited vision that focuses on serving “this” generation rather than a vision for the next (and next and next…) generations? Fiscal responsibility is never easy but nonetheless essential!
The youth of today didn’t create our national debt crisis. But they are inheriting it. If I may be so bold, the embracing of socialist ideas, especially among many young people in America today, didn’t just happen overnight. Our nation has been spending like there’s no tomorrow for years because most of us don’t want to deny ourselves anything, much less sacrifice. This attitude that we can have it now whether we can afford it or not has created an entrenched culture of debt via deficit spending. Why wouldn’t many young people today believe that there’s enough money to pay for anything and everything? Maybe Venezuala can break its bonds of tyranny which will be good for its people. Maybe what’s happening there will awaken some in our nation that its time to become fiscally accountable rather than preaching socialistic doctrine.
The numbers this past week were pretty amazing. Again, economic events like this can be applauded — no arguing about that — but we have a burdensome debt load that can undo us economically. We all need to have our eyes wide open to this crisis.
See you next time.
Paul, great reminder about our growing national debt. US Debt was $10 trillion in 2008. We are now at $22 trillion in 2019. Our current path is unsustainable.
Thanks, Ethan. You have been telling people for a long time and each time you’re right — it is unsustainable!
Dr. Allen,
You are spot on – the reason I enjoy your posts so much. Unfortunately I think we only have to look around the world to know that for governments debt is the accepted way of doing business. It is so easy to spend other people’s money. Just look at the way most folks handle their own debt/credit decisions.
I doubt Venezuela will change anyone’s thinking here in the US about debt levels, or how this country should proceed politically.
The economic numbers were good. I’m linking a chart of the Industrial Production Index as it is a good leading indicator on market direction longer term. It seems to give a bit of a lead on whether there are serious problems ahead. The chart goes back 20 years and seems to lead market downturns by about 6-9 months.
https://www.screencast.com/t/t9ZD29sVeZ
Sincerely,
Julian
Thanks, Julian; and thanks always for your helpful comments. Thank you for the chart; reviewing history is a teacher in itself. Thanks!
Julian, I pondered your statement “Unfortunately I think we only have to look around the world to know that for governments debt is the accepted way of doing business.” That’s actually profound when you consider the implication. If the governments of the world are borrowing to conduct business, who are the real lenders? Economically, are we living in a world floating on paper?
I agree that the rising deficit created by overly aggressive tax cuts, and large military expenditures are going to catch up with the economy eventually. One other fact, often lost in the debate about health care is that the US has a per capital cost of medical care that is 2 1/2 to 3 times what is spent in Switzerland, Germany, France, Canada, Australia and the UK. Yet, out medical outcomes are no different or in some cases poorer than in those countries (e.g. infant mortality). The silver lining is that if we could cut out the enormous amount of over payment in US medical care we might be able to reduce healthcare costs that are a drag on our economy and an additional cost to workers. The other industrialized nations with lower costs have systems in place to negotiate lower prices on drugs and services, AND they don’t have a robust insurance industry that wants to continue to receive administrative payments for non-medical services. The health insurance industry is being operated more as a monopoly than a perfectly competitive market. Generally, when you have monopolistic pricing, a neoclassical economist would argue strongly for government intervention to regulate prices to the actual cost of production (e.g. utilities industry). I like owning shares in drug companies and insurers as long as the US government chooses to ignore economic reality when it comes to mispricing of health related services. My hope though is that eventually things change in this industry for the betterment of all Americans.
Thanks for the very thoughtful reply. I also favor a competitive market place as the best alternative to an overly costly healthcare system. We face some real hurdles but the clock is ticking on the necessary sacrifices needed to start paying down our mountain of debt. We have to move beyond just “talking” about the debt problem.