Thursday, July 14, 2011
- Some Debt Perspective
Obama is looking for permission to add 2.4 Trillion to our national debt over the next 16 months, and the media is treating that idea as if it’s the only ‘grownup’ option. This is genuinely nuts. We’re talking about borrowing an additional 150 Billion dollars per month until the election. If Obama were to be re-elected and keep that same pace of spending with no further increases, then we’re talking about an additional $30,000 in debt for every man, woman and child in America by the end of his term. Given his history, I think most people would call that a conservative estimate.
With that potential, and our present economic condition, I think it’s legitimate question to ask if America wouldn’t be better off over the long term simply defaulting on our debt today. It will be a painful process that will cause massive displacement. But in my opinion, I think it would considerably less destructive over the long view, than another Obama term.
How in the hell does he even manage to waste that kind of money? It reminds me of that movie from the 80’s Brewster’s Millions, where Richard Pryor played a minor league baseball player trying to claim his full inheritance by squandering 30 million in 30 days. He does things like buy rare stamps and use them to mail letters, and buys an iceberg to bring water to the Sahara.
The point is, the only way that any entity can go through that kind of cash is by destroying value, and massive waste. It isn’t possible for any entity no matter how enlightened, to spend that kind of cash thoughtfully. Government was never particularly careful about getting a return on the money it spends in the first place. And with it spending an ever larger portion of our GDP, it’s no wonder that we aren’t able to produce much economic growth.
That’s the real issue with the economy. That’s the real reason things are stagnating. For every dollar that the government spends, it’s taking an equivalent dollar from an entity that would spend it ‘better’. How do I define ‘better’? Well I define it as producing a return. If I spend a $1 and get back $2, I’ve done better than someone who spends a dollar and gets back $1.20.
The private sector is much better at delivering a return on the dollars it spends than the government is – even when the government is operating at its best. But that's mainly because the government isn’t trying to provide a return. The government is trying to meet the political goals of those in government. They’re shooting for "fairness" (taking from those who did well, and giving it to those who didn't), and reducing the gap between rich and poor. If the only way to do that is to make things worse for everyone, that's OK with them.
But even those are secondary goals. The thing the government really wants is more cash with which to buy votes.
If I’ve learned one thing in over 20 years on Wall Street it’s this: if you aren’t putting 100% of your effort into producing a return, then you aren’t going to get one. Any dilution of your goals all but assures failure. It doesn’t matter how smart you are, or how enlightened, or how noble your other goals. and if the government is failing to achieve economic growth, it's only because it’s too low a priority for it.
The Republicans seem to have awakened to the new world. They seem to understand that for them, the days of buying votes are over. But the Democrats still seem to believe that there will always be enough of other people’s money to keep the party going. Given how far we’ve had to go to bring ourselves to this precipice, I find that astounding. And I think it’s nothing but their detachment, and their broader disconnect from reality that allows them to.