Debt matters

Bloomberg’s Tom Keene is an economist disguised as a broadcaster. He understands sovereign debt, which he calls “full faith and credit,” a term that reminds us of the promise behind a nation’s debt.

A late night Monopoly lesson from my dad was a debt signal. He was ready to call it quits when he began to mortgage his property. He received a little cash but he received less rental income. It turned the tide my way, which made me happy. It hastened the end of the game, which made him happy.

In a September 30 article, financial analyst Ross Hendricks wrote a helpful article sub-titled, “The speculative excess in today’s market shares no precedent.” Debt matters, whether it’s an over-leveraged investor or a nation that can “print money” to pay for its prior expenditures.

As we go through an unnecessarily juvenile season of political posturing over our national government’s financial integrity, I refuse to think of it as a “good guys” vs “bad guys” polarization, but rather a group of “blind guys” trying to repair a transmission while refusing to help each other.

From “The Most Dangerous Stock Market Ever,” by Ross Hendricks, The Ross Report, September 30, 2021 (The article, along with 800+ comments, is available at Seeking Alpha.)

4 thoughts on “Debt matters”

  1. Ted, your topic today is so prescient for me. I am a science and engineering person in my training and mentality, much to my wife’s chagrin, and I have a simple-minded understanding of federal debt. I use as a model my personal debt. I worked hard to get 100% out of long-term debt in my 50s. It meant foregoing many material things up to that point, but the feeling of being free of car payments and a mortgage was amazing and remains so!

    I have tried to read some of the articles written by progressive economists, many of whom argue that national debt doesn’t matter anymore. And, they go on to give the reasons why. It makes no sense to me. First of all, we make interest payments on the bonds that we issue to cover our debt, no matter who owns the bonds. We have been lucky that the Federal Reserve, in its quantitative easing, has artificially kept the interest rates almost zero for years now. That means there is no pain felt in servicing our debt. But, what happens when the foot is off the pedal and the interest rates rise even back to the normal level of 5-6%? Looming inflation will be the forcing function on this. Suddenly, the slice out of our federal budget that goes to service the debt will no longer be insignificant. It’s going to displace other national needs in the budget.

    The other thing is both parties are tax averse, but worse, the population in the U.S. has now become convinced that we don’t need to pay the taxes to cover the cost of all those things we want from our government. We just ignore the cost and push it out onto our grandchildren. There is something morally wrong with this picture. It more resembles a national immaturity in thinking. It’s like teaching our teenage children that to have that iPad they need to save or earn the money first. This is disturbing and as an octogenarian, I worry about the future.

    Finally, it’s not just the U.S., it is happening globally. That’s even more disturbing, and you don’t read much concern about it.

    Good column, Ted, and I didn’t mean to preempt you at all! You just hit one of my hot buttons. We agree on this one 100%.

    Like

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