The start of a new bubble
The election is over. Has anything changed? The short answer is that it has not and that, had Mitt Romney won, it probably wouldn’t have either. All the problems that existed pre-election remain with us. Given the lack of politically possible and transformational ideas delivered up by the campaign, it’s likely to stay that way.
Take the US debt. I discuss this with Marc Faber in this week’s interview, but the key point is that the vast majority of American government expenditure (around 70%) is mandatory – the government is legally required to pay the likes of Medicare, for example. Add that spending to the interest on the US debt (also pretty non-negotiable) and the total already comes to more than America collects in tax revenue.
So, as Simon Black of the Sovereign Man newsletter puts it, even if America were to cut out 100% of its discretionary spending (the military and so on), the country would still “be in the hole by a quarter of a trillion dollars”. That’s a number that is going to keep rising: America’s dodgy demographics mean that every day 10,000 new people start receiving some kind of mandatory payment.
View the latest issue of MoneyWeek magazine online now:
MoneyWeek subscriber? Log in