In our last blog, we discussed a taxi driver in Detroit with a broken meter running on fumes. We used this example to illutrate a changing world.
The Super Committee That is Intended to Bridge the Gap Between Democrats and Republicans
There is a committee made up of equal numbers of elected Republicans and Democrats in the USA, that was created out of the last budget impasse, and that committee is tasked with finding ways to reduce the US deficit by between $1.2 and $1.5 TRILLION.
That committee is hopelessly deadlocked by political ideology, and is announcing that it is unable to reach a compromise.
The Effect of That Stalemate?
The latest poll shows that a mere 8% of American voters believe that their elected officials are doing a good job. Small surprise (if you pardon me being facetious). The debt in the US is still rising. Onlookers say that the reduction has to be in the $3.5 TRILLION range, rather than the $1.5 TRILLION range. These figures are so large, that I have difficulty visualizing their magnitude. It is Monopoly Money. The numbers are so large as to be irrelevant.
There is one undeniable obvious fact. Debt is becoming a 4 letter word.
Investors Take Care – Debt is becoming a 4 letter word
Whatever happens to the US deficit, a major opportunity is coming for investors. If you have no debt, you are positioned to be buying valuable assets at fire sale prices.
The European Debt Crisis
Wall Street is busy trying to tell the Germans that they should loan more money in order to deal with the crisis of Greek and Italian debt. Put more money in the system so that everything will work smoothly.
Alan Greenspan’s Voodoo Economics Are Still Alive and Well
For the years that this destroyer (Alan Greenspan) of economies was in charge of the US Fed, his solution to every economic bump in the road, was to print money. PUT LIQUIDITY IN THE SYSTEM as everyone used to repeat.
It is true that for a full generation, there was no end of an economic cycle, and no new cycle starting. Every time the economy appeared to slow, Alan Greenspan flooded the market with money. These acts should have been considered Acts of Treason, but instead they were applauded. Today, we are all paying an enormous price for this foolishness perpetrated on us by Alan Greenspan..
The Solution to the European Debt Crisis
Now what caused the worldwide loss of confidence in debt, is being touted as the answer to the European economic crisis. It is not the answer. It never was a good answer, and it will never be a good answer.
What is Really Happening in Europe
Not surprisingly, there is a radical change in attitude going on. Similar to the mainstream America, debt is being regarded with suspicion.
The Germans are refusing to print money just so politicians throughout Europe can continue their free spending ways. Germany is taking a realistic approach. It is hard to give a compliment to a country that murdered so many millions in brutal cold blood, without compassion, and without any trace of humanity, yet in this instance they are absolutely correct.
They are saying to the debtor countries – “If you want to remain in the European economic and monetary union, fix your way of conduct”. Only then will we help you.
Values are changing. Borrowing used to be easy, but attitudes are changing. Now, more and more, worldwide, the attitude is that you must live within your means.
Investors Beware
Everyone needs to realize, that there is a new reality. Debt is a good thing, but only in measured quantities, and only in amounts that can be paid back, and only to be incurred for a good purpose. The next cycle is starting. There will be an upswing in values, and those courageous enough to ‘stay in the game’ will profit.
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