Email of the day (2)
Comment of the Day

April 30 2012

Commentary by David Fuller

Email of the day (2)

On the US budget deficit:
"Since my message about the 10 year projected US budget, my accountant sent me his observations: When Clinton left office, the debt to GDP ratio was just above 45%. Now it's over 100%. From 2000 to 2012, revenues are up roughly 40%; expenses have more than doubled. Some other fun stuff I found... In 1867 after the civil war debt/GDP was 32%, in 1919 after WWI, it was 35%. In 1929, it had dropped down to 16%. Immediately after WWII, it was 122% following the depression and a major war. In 1981, it was back down to 32%. Now it's over 100%, but the difference is that in 1946 the components of our spending were very different. There will be no peacetime dividend to reap. We have made promises far beyond our ability to deliver. The rate of growth in the debt is astronomical, and even major tax hikes coupled with significant benefit cuts will likely only slow down the growth of the debt, as Mr. Obama's own optimistic numbers attest. Yikes!"

David Fuller's view Thanks for the history on an important subject that has often been discussed by Fullermoney and almost everywhere else. It is extremely worrying, particularly regarding the purchasing power of currencies in debt-ridden countries.

The best solution to any government debt problem is for countries to grow their way out of it. However, this is extremely difficult, particularly if household debt is also high. Austerity in the form of budget cuts reduces expenditure but not necessarily the debt, if it also cuts into earnings and growth as we are currently seeing in Europe. Historically, countries in this debt trap have devalued and / or defaulted on a portion of their debt.

This is the reason for avoiding the government paper of heavily indebted countries; for owning some gold, and for buying Autonomies and other shares which are profiting from global growth and paying dividends in excess of 10-year government bond yields.

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