The National Debt threatens the United States
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years."
— Alexis de Tocqueville (1805-1859)
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years."
— Alexis de Tocqueville (1805-1859)
(1) The National Debt is now $140,000 for each person who pays taxes ($100,000 for every taxpayer, but not all tax filers actually pay). - March 2010 data.
(2) A 2010 report by economists from the University of Maryland and Harvard (Reinhart and Rogoff) that reviewed 200-years of economic data from 44 nations reached the ominous conclusion that (almost without exception) countries that are as highly indebted as the United States grow at a sub-par rate or incur recession.
(3) Moody’s Investors Service warned 3 February 2010 that the triple-A sovereign credit rating of the United States would come under pressure unless tougher actions were taken to tackle the US budget deficit. In Jan 2011 Moody’s said the U.S. government will have to arrest its explosive deficit growth if it's to have any hope of keeping its "Aaa" debt rating.
(4) Also in Jan 2011 the head of Standard & Poor's France said her firm could conceivably lower the outlook for the U.S. debt rating sometime in the future.
(5) A change in the rating would push interest rates higher, thus raising borrowing rates for the country and further exacerbating the already ballooning deficit. This could crush the economy.
(6) According to Credit Suisse (Mar 2009), total Debt (Government + Private) in the United States is more than 300% of GDP. At the time, this was the second highest Debt in the World - only Iceland had a higher total Debt to GDP ratio than the US.
(7) In 2010, the Democratic 111th Congress passed a landmark Health Care Bill estimated by the Congressional Budget Office to cost over a Trillion dollars over the next 10-years, without the slightest discussion of how to pay for it. The previous Bush administration (2001-2009) fought wars on 2-fronts and passed its own landmark health care bill (Medicare Prescription Drug, Improvement, and Modernization Act of 2003) without raising taxes while Vice President Dick Cheney (a former CEO of Halliburton Inc.) had the audacity to claim that “…deficits don’t matter…”
Neither the Tax-and-Spend-Democrats nor the Cut-Tax-and-Spend-Republicans, seem willing to solve the National Debt problem. It also appears that the voters are either uninformed; too lazy to write letters to their representatives; don't vote the issue; don’t care; or as Alexis de Tocqueville implied, they are happy collecting benefits for which they didn’t pay.
These facts lead me to conclude that the Great Recession of Dec 2007- Jun 2009 is nothing compared to the financial crisis that is looming in the future. While another major crisis is far from certain (actually, it’s not likely in the near term), suffice it to say that there are major problems facing our nation. As a result, it is likely that the Stock markets will not surpass its old highs, around 1560 on the S&P 500 (14,000 on the Dow) any time soon, even though we need only to go up another 20% to reach the previous highs.
The most recent Bear market lasted 16-years (1966-1982). The Bear market after the crash of 1929 lasted 25-years. The current Bear market that started in 2000 could easily continue until 2020.
Navigate the Stock Market has two specific recommendations:
(1) Personally, to protect your finances, be prepared to exit the Stock market so you won’t have to endure another round of losses in your portfolio when the next stock-market downturn occurs.
(2) For the country, write your representatives: As a Nation, we must end Federal deficits. WE NEED A CONSTITUTIONAL AMENDMENT REQUIRING A BALANCED BUDGET.
Meade
January 2011
