BUZ LIVINGSTON: Debt, deficits and demographics — our 3D dilemma
After all of the jacks are in the boxes and the clowns have all gone to bed, Congress will increase the debt ceiling.
On the other hand, Democrats negotiate ala the Chicago Cubs when they traded Lou Brock to the Cardinals. I cringe when I see Elvis Andrus steal another base for the Rangers and ponder how many games the Braves would win with him. Dumb trades remind me of Democratic bargaining acumen.
Locally, we have a few signs of a nascent recovery, muted but they are there — higher bed taxes and increased real estate sales.
George Santayana warned, “Those who fail to learn from the mistakes of their predecessors are destined to repeat them.” In the late 1930s, Roosevelt reduced spending and ushered in a severe recession inside The Great Depression. FDR’s apologists blame conservative pressure. On the other hand, he could have simply made a mistake; we all do.
In the 1990s, after a massive real estate bubble imploded (hint, hint), the Japanese backed off government spending. Data suggests economic conditions were improving in Japan before the Japanese government temporarily abandoned stimulus spending in an attempt to reduce the deficit. The Japanese have yet to recover.
Are we heading down the same path?
The idea that you only spend as much as you make defies reality. When you buy a home, you spend more than you earn. People borrow money all the time. When we replace our farm’s irrigation system, we will borrow money, more than we take in and that’s no big deal.
A South Georgia entrepreneur told me a key to his success was to borrow as much money as he could and to pay it back on time. Rates are insanely low; 30-year US Treasury bonds yield less than 4.3 percent. Several clients have refinanced their mortgages for 4.5 percent or lower.
Critics and pundits panned recent job numbers.
However, after dissecting the data, the private sector actually gained jobs. Conversely, government job numbers are lower. I disagree with those who claim government jobs don’t create wealth. Hogwash, just open your eyes.
The Intracoastal Waterway, built by the Corps of Engineers, certainly created jobs. Ride by Eglin, or should I say get stuck in traffic at Eglin’s gate. In Economics 101, we learn money multiplies as it circulates through an economy. To wit, a full-bird colonel celebrated his promotion by renting a vacation home on 83.
Last Friday, Anne Coulter appeared on Bill Maher’s show and, to her credit or like a broken clock, she is right occasionally. In particular, she correctly cited Republican disinclination to cut spending. Paul Ryan’s budget, passed with overwhelming GOP support, would mean a debt limit increase, oh yes it would.
Debt, deficits and demographics are causing dislocations through the American economy. No easy or simple solutions exist. Invest defensively and prepare for inflation.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.
