Deficits Forever

The comments below are an edited and abridged synopsis of an article by John Mauldin

Debt isn’t forever but can definitely seem like it is, and that feeling is a clue you have too much debt. Wisely used, debt helps build income-generating assets that pay for themselves. The payments are manageable because you’re also getting something else of value.

Deficits Forever - BullionBuzz - Nick's Top Six
Close-up of a pink piggy bank with a vintage hourglass in front , concept of money and passing time

On a national level, though, we’re not investing in the future. We use debt to fund routine government services, long-promised benefits like Social Security and interest on all of it at the highest rates in decades.

Anyone who has ever been over their head in debt can testify how paralyzing it is. You become ultra-cautious, unwilling to take risks because even a small mistake can be catastrophic. The same can happen (and has happened) to entire countries when the government gets over its head. Sovereign defaults, or the fear of them, lead to austerity for everyone.

The US has so far avoided that fate because it has unique advantages: The largest economy, the global reserve currency, military strength. Even so, it faces limits. No one is going to foreclose on the US Treasury, but they will become less willing to lend it more cash.

Long before then, the debt will suppress economic activity enough to force the changes voters and politicians have been unwilling to make. The latest federal budget data will tell us how much time we have.

Up for discussion: Mandatory madness; who holds the debt; and spending growth.

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