PAYGO

PAYGO (Pay As You Go) is a Federal budget rule requiring that new legislation, affecting revenues and spending on entitlement programs, taken as a whole, does not increase budget deficits.  That sounds constructive but, as we all know, the Federal budget continues to reflect deficit spending and the national debt continues to increase.

Endless deficit spending has, with varying degrees of intensity, been a continuing topic of discussion, on both sides of the aisle, with dire warnings and little or no serious effort to reverse course.

Maybe efforts to limit spending to expected income in Washington, might be more successful if some of the rest of us were more willing to earn first and spend second.  Recently released data from the Federal Reserve, indicates that U.S. consumers now owe more than $1.0 trillion on their credit cards, up 6.2% over the last 12 months and the highest level since January 2009.

Deficit spending, by consumers or governments, tends to increase demand, thereby improving corporate sales and earnings, which tends to be good news for investors.  Unfortunately, it will probably be difficult to sustain deficit spending indefinitely.  How will this affect investment strategies?  Investors should review possible long term consequences of increasing Federal and consumer debt with their advisor(s) and formulate an appropriate portfolio strategy.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®