The Debt Roundtable - Now it's the Government's Turn

The 2007-2008 stock market correction changed the debt focus for corporations, individuals and government.  Corporations and individuals changed for the better, but the government has not.  In the graphs below – both provided by J.P. Morgan – you can see that both corporations and individuals have reduced their debt levels over the past 4 years to levels not seen in decades.  This is a good sign for the economy going forward.  Why?  Because individuals and companies can withstand any financial shock that may be out there as well as expand the economy by taking on more leverage.  Government, at all levels, however, is crowding out this benefit.

Politicians like to use the term “fair share” or “shared sacrifice” when looking at the Federal Government’s debt problem.  We agree with this concept and that is why we believe the sequestration needs to take place.  At the beginning of this year, every working person saw their taxes increase by 2% with the elimination of the payroll tax break.  As such, an individual making $50,000 a year now has $1,000 less in their annual take home pay.  Under the fair share mantra, the government and those on public assistance should also take a 2% haircut.  Is it fair to say to the average working Joe who is pulling the economic cart that he has to do with less, but those in the cart do not?  The disappointing thing is that the sequestration is just a drop in the bucket compared to what really needs to be done.

Why are politicians not using scare tactics about the Federal Reserve printing $85 billion A MONTH in new money through QE3 while they are using them to garner support to eliminate $85 billion a YEAR in cuts through sequestration?  What is sad about this whole discussion is that the real problems with our debt – the Social Security and Medicare system – aren’t even being discussed for cuts.  There are more fireworks to come.  By the way, the government runs out of money on March 27th.

Italian elections

We hope that European politicians – especially the elites in Brussels – take heed of what happened in Italy.  A start-up party – The Grillini’s (named after comedian Beppe Grillo) – won the majority of seats in the recent government election.  This is an uprising of ordinary citizens.  No one knows yet if they can come to a broad coalition to run Italy or if another election is needed.  The more important story is that the “ordinary” citizen is fed up with what is going on.  This is certainly a shot across the bow to a centralized Europe.  As we stated in our last market update, the Euro will collapse due to social pressures.  This might just be the beginning of the end.

Sincerely,

Your THOR Team