What could be more appropriate on Valentine’s Day than an article about being in the red? Tom Raum of Associated Press published an alarming article Sunday on why US debt will keep growing even with recovery. It looks like there are some very difficult choices ahead for voters and their representatives. Current projections have our national debt exceeding our GDP within the next few years. In addition, the interest on that debt will be 80% of the federal budget within a decade.
Needless to say, if the government does not act on this problem, the financial markets certainly will at some point. For example, Reuters recently reported that some of China’s generals have called for using our debt as a weapon against us by having their government sell off U.S. Treasury bonds if we sell arms to Taiwan.
We do not profess to know all that is needed to solve this problem, although obviously we need to throttle back the government gravy train. As responsible voters, we need to contact our representatives to get them to take the budget problem seriously. But as investors, we need to have enough flexiblity in our investment policy to position our assets to protect them if our representatives don’t act.
