Anthony Peters, SwissInvest Strategist
The invention of the iPad has transformed my life in that I can now quite easily watch the TV news while in the bathroom shaving my chin and brushing my teeth. This morning I once again heard one of those clever American economists reassuring us that austerity doesn’t work – as proven by Spain and Greece – and that all must be done to sustain the nascent signs of economic growth in the US.
Briefly looking straight past the deficit and focusing on the eye-watering increase in the Federal debt mountain, I wondered whether instead of going on a diet, I too should just keep on eating?
Passing debt from the private sector to the public sector hasn’t made it go away, it just means that it is now also owned by those who had previously not incurred any.
Left, right and centre we are being bombarded with reminders of the threats to overall health caused by obesity and with endless warnings of the strains excess fat places on the heart, the liver, the kidneys, the spleen and all organs in between. And yet, these leading economists and writers can look at an economy which spent years gorging itself on unsustainable and unaffordable plates full of entitlements, consumption and credit and conclude that the best thing we can do is to find out how we can generally keep the feast going.
I do have to agree with Dennis Gartman that both corporate and domestic balance sheets are in the best shape that they have been in for decades but we know that the slowdown in both demand and output which this deleveraging should have brought with it was limited by an increase in public sector expenditure by way of a socialisation of debt. Passing debt from the private sector to the public sector hasn’t made it go away, it just means that it is now also owned by those who had previously not incurred any.
We’re all in this together
In the same way in which modern road traffic has made all of us occasional law breakers and thus, strictly speaking, part of the criminal class, so the socialisation of debt has transformed even the most cautious managers of domestic finances and net savers into debtors too. According to the famous US Debt Clock, the per capita share of the national debt is $52,136 and the share per tax payer is $145,638. The question which interests me is whether aggregate public and private sector indebtedness has shifted up, down or remained unchanged in both current dollar and in proportion to GDP terms since the crisis began. Does anyone have the answer please?
So, yesterday, while the spotty nosed equity geeks were busily buying the living daylights out of anything listed on any exchange anywhere in the world, the more pensive, the IMF and the principal ratings agencies included, were wondering what the legislation which Congress had passed actually brought to the party and the consensus view appears to have been “not a lot”. Today, the 113th Congress assumes legislative power – the vote yesterday was effected by the outgoing lame duck 112th Congress – and this one seems to be even more ideologically polarised than the previous one was.
By this morning it has already become common currency that the next “cliff” is going to be the Federal debt ceiling. Treasury has let it be known that it can bat on for several more months – I think March 29th is the cut off date – but the horse trading will again continue until the very last minute.
But is this as unhealthy as it all appears to be? I believe not, for the debate as to the whichness of the why is being carried out loudly and in public. The ideological clash between the “sustain at all cost” and the “shrink to fit” lobbies is out there for all to hear and to take part in. Compare that with the underhanded way in which core ideological discussion is being kept under wraps in many parts of Europe where even centre right governments such as the ones here in the UK or in Germany who would never dare to thump their fist on the table and declare that we simply cannot afford what we never really could afford and that everything, and I mean everything, which the government spends money on needs to be totally rethought.
Had corporate directors played as hard and fast with their shareholders money as our elected representatives in general and our governments in particular had during the pre-crisis years, then they would now be banged up for fraud and grand larceny. Instead, the clapped out finance ministers get put out to grass on fat, inflation-proofed pensions, offered cushy jobs in international agencies and write books justifying their near criminal activities.
Meanwhile, Joe, Hans, Jean, Giovanni and Juan Sixpack are being groomed for a rise in taxation, a cut in benefits and a reduction in services while being assured by the suits in the capital that things are getting better all the time.
Yes, my epiphany tells me that dieting doesn’t work and that eating more is the only way out.
Anyone free for lunch?