Margaret Thatcher has been widely quoted for saying, “The problem with socialism is that you eventually run out of other people’s money.” Now we have a real-time test of the validity of that statement as France and Britain face the consequences of an unsustainable level of social spending.
Britain is dealing with an explosive increase in welfare spending. France is discovering that maintaining the long-standing annual 5% budget shortfall is starting to concern lenders.
The pressing question for investors is whether it is possible for political leaders to rein in spending on ever-expanding welfare states. So far, the answer appears to be no, increasing the chances that countries Iike Britain and France are inching toward a financial reckoning.
Investors may want to consider that chronic deficit spending may have unexpected consequences. Some of the possible issues may include higher interest rates, inflation, weakening currency, and slowing growth. It might be helpful to review portfolio strategies with your advisor(s).
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
