The ominous ticking of the US economy is deafening. While job loss numbers are down, home values are up, and the stock market is soaring … we have been living in an economy of distortion and a recovery of smoke, mirrors and misrepresentation.
There has been a lot of discussion about the US Debt on television, talk shows, financial channels, and even around the water cooler. With good reason, $19 trillion is a staggering number, and we are approaching it at a furious pace. Have we learned nothing from Greece, Cyprus, Ireland, Spain and Japan? Debt at this level is unsustainable. But what does that mean exactly? It means that the cost of maintaining the debt is greater than the incoming revenue available to pay for it. It means that something has to give … interest rates, tax rates, inflation, essential services, and economic growth.
Debt is our albatross. It hangs around the neck of the federal government, the states, the municipalities, our public pension systems, our health and social services, and the personal accounts of private citizens across the country. So how much total debt can we handle? What’s too much? Where is the point of no return? Some argue that an 80% public debt to GDP ratio is the snapping point. That is where the camel’s back collapses, and it is currently where America now stands.
Quantitative Easing is our addiction. We are not a country that likes to tighten our belt, and we find talk of austerity a form of economic profanity. As a result, the Federal Government has given us a warm blanket and a head rub for the better part of five years. They have tucked us in and read us bedtime stories about stimulus and loose monetary policy as billions of dollars have been printed and floated into the markets barely before the ink dries. This has kept stock prices artificially high. But when the book is closed and the easing stops … there will be no fairytale ending. Many 401K balances will simply evaporate and retirement portfolios will substantially contract. In the world of Pollyanna Politics, Quantitative Easing gets votes, buys time, and creates a false euphoria. It does not, however, solve problems.
On America’s already troubled voyage, The Affordable Care Act is the iceberg up ahead. With many of its provisions just a few months from implementation, it is causing disruption, confusion, and economic chaos. Small businesses are scrambling to either reduce staff or convert more of their workforce to part-time status in an effort to side-step burdensome, new federal insurance requirements. Others are forced to hire benefits experts just to navigate the paperwork. No one really knows how many employees will lose insurance currently provided by their company, how many will be dumped into the new exchanges, how many will pay the fine, or how high costs will go. If the young opt out and only the old go in, premiums could soar to levels never seen before.
As the ticking of the debt clock, the weaning of QE, and the protracted arrival of The Affordable Care Act all accelerate … we know that a correction, a settlement, and a reckoning will be at hand. The Federal Government simply cannot play with fiscal fire without burning the economy. And they cannot assemble monetary incendiary devices without being prepared for them to explode.
If we have learned anything over these past few years of recession, downturn, and sluggish growth … it’s that we must invest in something solid, tangible and detonation-proof!