Home About Archives RSS Feed

The Independent Investor: A Nation United in Debt

By Bill Schmick
iBerkshires columnist
About a month ago, the national debt topped $22 trillion for the first time. What's more, it only took a year to tack on another $1 trillion. Unless we do something soon, we could see those kinds of yearly borrowing double within the next decade.
 
Let's define U.S. debt as the sum of all outstanding debt owed by the federal government. Two-thirds of this debt is held by you and me. It is called public debt, while one-third is held by various inter-governmental departments and agencies such as Social Security and other trust funds.
 
We have the distinction of being the world's largest debtor, although the European Union is a close second. We now have more debt on our books than we produce in goods and services in a year. If you and I were in the same boat (and most of us are), we might have a problem repaying that debt in the future. If interest rates begin to rise, we might need to cut back on our spending just to make the monthly payments. As you might imagine, your debt and the government's have a lot in common. 
 
 Using the nation's debt practices as our model, we find that more and more Americans are accumulating debt. And, what's more, we are dying with that debt on our books. About 73 percent of Americans who die have unpaid debt that totals much more than their funeral expenses, according to Experian PLC, a large credit card reporting bureau; the average amount of that debt is about $62,000. 
 
As you might expect, unpaid mortgages account for 37 percent of those liabilities, followed by student loans (in many cases), while credit card debt is relatively small (after personal and auto loans). But if you ask the typical American if they believe they will be in debt their entire lives, only 30 percent would answer in the affirmative.
 
And like the nation, there are common threads between the causes of our personal debt and that of the nation. Most of us borrow when we have nowhere else to go in order to make ends meet. God forbid we stop spending. In the case of the nation, we borrow when the economy gets into trouble and keep borrowing until things are good again.
 
Historically, the largest percentage increase in our debt occurred under President Franklin Delano Roosevelt back in the 1930s and '40s to combat the Great Depression and the onset of World War II. It was President Obama who ran up the largest deficit dollar-wise in our history (in order to deal with the Financial Crisis). His predecessor, George W. Bush, came in second. Bush's spending can also be attributed to the Financial Crisis since it was his administration that spawned and presided over that calamity.
 
A second cause of our government indebtedness has been our borrowing from the Social Security Trust Fund. The politicians have been using the revenue from that fund to spend more and more for decades. To them, it has functioned as an interest-free loan, although at some point (2035) that situation is going to reverse, and those borrowings will have to be paid back to retirees.
 
Personally, many of us do the same thing with our credit cards. Many of us look at it as free money, although our borrowings are by no means interest-free, which ultimately ends up in so many of us going bankrupt.
 
America also has its equivalent credit lenders. China and Japan, for example, have been happy to lend to us, so we can keep buying their exports year after year. And like credit card companies, they will be receiving more and more interest in return for their loans to us. And like consumers, at some point, we could end up never paying off more than the monthly payments. Where will that stop? Unlike us, the federal government can always vote to raise the debt ceiling and borrow more and more, while if we borrow too much our credit is curtailed.
 
None of this should be news to readers. You hear about the out-of-control national debt all the time. But If you are anything like me, when economists throw around numbers like one and two trillion dollars, I lose interest. I simply can't wrap my head around figures that large.
 
As such, is it any wonder that there is a growing movement of ultra-liberal legislators who argue that we can continue to borrow as a nation like this, no matter how high the debt goes? It's "all-good," they say, as long as we can continue meeting our monthly payments, while keeping economic growth moderately strong and inflation low. Unfortunately, that is a pipe dream, in my opinion, and in my next column, I will tell you why.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

Write a comment - 0 Comments            

@theMarket: Stocks on Hold

By Bill Schmick
iBerkshires columnist
February delivered good gains for the markets. All the main averages were up, continuing January's climb toward the old highs. This week, momentum stalled a bit, indicating that investors need more good news to continue buying.
 
A China trade agreement (or lack thereof) still takes center stage. Despite the Washington, D.C., circus surrounding the testimony of Michael Cohen, the president's chief "fixer" for over a decade, traders largely ignored the hype.
 
At the same time (no accident in the scheduling), President Donald Trump hoped to take the spotlight off Cohen and back on him by meeting with Kim Jung-un in Hanoi for a second summit. Unfortunately, that meeting was such a bust that Trump left early without any progress at all. One wonders if the whole trip was just a publicity stunt to draw attention away from the Cohen testimony before Congress. Traders ignored that event as well.
 
What really kept the lid on the market was U.S. Trade representative John Lighthizer's comments before the House Ways and Means Committee on Wednesday. "Let me be clear," Lighthizer said, "Much still needs to be done both before an agreement is reached and, more importantly, after it is reached, if one is reached."
 
The trade rep went on to say that China needed to do more than just buy more of our trade goods, citing all the other concerns such as technology transfers and intellectual property theft.
 
None of the above should be new to my readers, since it is something I have been talking about for months. However, this dose of reality flies in the face of all the hype and hope that propelled the market averages to where they are today. And it has not been only our market that was bid up by the tweets and off-hand comments of the president in the last few weeks.
 
China saw its equity market gain 5 percent overnight earlier in the week, after gaining almost as much last week. Since then, the Shanghai averages have come back down to earth. They have given up a good amount of those gains. Here in the U.S., the averages are still hanging in there and finished the week up modestly.
 
Almost like clockwork, Larry Kudlow, the president's chief economic advisor, tried to talk the markets and the trade-deal prospects back up on Thursday morning. He has done this good cop/bad cop routine before and after comments by Lighthizer. After an initial flurry of algo-driven buys, the rally petered out. However, on Friday, after investors digested a better than expected 2018 fourth quarter GDP number of 2.6 percent, the markets were encouraged and finished up for the week.
 
But it remains the job of the maestro to reassure the markets if we hope to break out of this tight trading range on the S&P 500 Index. At this point, Trump and Trump alone can dispense the hope and Beetle Juice necessary to keep the markets climbing. It is no secret that the averages are overbought, extended, and due for a pullback of sorts. The "pain trade" this week was to short the markets anticipating that decline, which did not occur. As we enter a new month, there is an even chance that, instead of a decline, we continue this sideways action or, (if there is a breakthrough on trade), the potential to move even higher.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Write a comment - 0 Comments            
Page 2 of 2 1  2  

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Cultural Pittsfield This Week: Aug. 23-29
'Blinded by the Light': Guidance From Asbury Park
North Adams Hosts 9th Annual Motorama
Clarksburg Officials Approve Road Projects From $1M Borrowing
North Adams Airport to Approve RFP Next Month
Cheshire Faces Tough Decision With Trailer Park Roads
Gladys Knight, Roomful of Teeth, Gershwin Highlight Busy Week
'EforAll' Touches Down in Berkshire County
Pittsfield's Ward 6 Candidates Vow to Serve Constituents
Pittsfield Community Development Approves Two Marijuana Cultivator Site Plans

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (299)
Independent Investor (407)
Archives:
August 2019 (3)
August 2018 (4)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
December 2018 (4)
November 2018 (9)
October 2018 (5)
September 2018 (4)
Tags:
Oil Debt Retirement Japan Wall Street Commodities Crisis Europe Taxes Housing Bailout Markets Pullback Deficit Greece Election Rally Currency Economy Stimulus Federal Reserve Fiscal Cliff Jobs Congress Interest Rates Stocks Metals Banks Debt Ceiling Europe Energy Recession Euro Selloff Stock Market
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will We race to the Bottom?
@theMarket: Tariff Threat Unsettles Markets
The Independent Investor: Brexit: The Never-Ending Story
@theMarket: All Eyes on the Fed
The Independent Investor: Make Vietnam Great Again?
The Independent Investor: Paid Family & Medical Leave Overdue
@theMarket: Looking Ahead
The Independent Investor: Home Equity Can Pay for Long-Term Care
@theMarket: G-20 Weighs on Stocks
The Independent Investor: Reverse Mortgages