Wikipedia defines endangered species as a species having a very high risk of extinction in the near future.
The concept of fiscal responsibility seems to have been deserted by both parties, as evidenced by the complete absence from both parties’ pitches. Spending seems to be the order of the day. Consider, the annual deficit for the fiscal year ended last September was slightly less than $2 trillion, or 6.2% of GDP. That’s seven consecutive years of above 5%.
What happened? First a series of crises, coupled with rising pension and medical costs for an aging population, encouraged new debt. Second, financial markets didn’t revolt, robbing hawks of creditability. Third, freed from fear of debt and voter backlash, politicians discarded obligations to pay for their agendas of expanded government and lower taxes.
With fiscal hawks largely gone from positions of power, investors should wonder what might bring them back. Ever increasing debt is not sustainable. Lenders will revolt and seek increasing interest rates, which will result in interest expense overwhelming the country’s budget.
Now this might be a good time to repeat one of Ben Franklin’s most important observations. “When the people find that they can vote themselves money, that will herald the end of the republic.”
We plan to discuss the deteriorating budget crisis in France in a future blog.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
