Fiscal Commission Draft Report
Bipartisan Commission Tries to Deal with Reality
There is a threshold where the total debt* of a nation exceeds its’ ability to service the interest and have a hope of paying off the principal but no one knows exactly where that is. By different accounting, the US government currently has an outstanding debt of between 60% and 90% of our annual economic output (GDP). For comparison sake, the headline problem child in this arena is Greece at 120% of GDP. For the US, current rates of annual deficit spending of nearly 10% of GDP are pushing us too close to Greece’s situation and that is the deadline Uncle Sam faces.
With Federal budget deficits that are now embedded in our economy rather than just part of economic cycles and other stubborn problems like health care costs per capita that are double those of any other nation on earth, it was very good news last week when the President’s bipartisan fiscal commission released their preliminary draft. The 24 page report is gathering attention and support even as many political leaders dismissed it out of hand. It has been patently very easy for an elected official (of either party) to vote to increase spending, but the fiscal condition of the country and mood of the electorate seems to have swung around to wanting to go in the direction of fiscal responsibility and the report has provided sound talking points for the public and policy makers to work with.
To summarize generally the document’s recommendations:
• Rollback the last decade’s growth of government, government waste and military spending
• Freeze the growth of government pay.
• Eliminate earmarks from the budget process
From an investment point of view, sound fiscal policy is overdue and absolutely required to provide the back drop for future investment success. The rock solid credit worthiness of the US is a huge advantage for our economy in terms of the cost of borrowing, buying imported goods like oil and attracting investment. If our national deficits are not addressed, we can expect a downgrade in our credit status sometime in the future that will be detrimental to our children’s financial security, our portfolios and the economy. After all, who emigrates to Greece to find financial opportunities?
* The debt referenced in this discussion is the debt of the US Federal government.
