The purpose of this essay is to put the latest crisis in the context of longer-term debt trends in the US and to attempt some predictions in respect to the US economy and financial markets.
It’s amazing how fast things change. Within a relatively short period of time, ideas once inhabiting the realm of absurd, fringe, or pure fiction have now gained enough influence to draw the attention of congressional hearings, news reports, and, to my latest surprise, the front cover of a prominent research publication read by major institutions, central banks, and governments around the world.
On rare occasions I make specific, near-term market predictions, most recently in Q3 last year, when I called for a modest equity market correction. As it happened, only a tiny correction occurred, followed by a large subsequent rally taking the S&P500 index to 1,550 this week.
Overnight markets were a nonevent and the early going saw the indices flopping around unchanged, though they spent most of the time slightly lower in totally dull trading, especially considering the epic run that has taken place thus far.
Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset on Uncle Sam's balance sheet?
Listening to our top politician in Washington this week was reminiscent of Chicken Little’s apocalyptic warning, “The sky is falling.” In daily appearances the loss of 2.5% of the federal budget has been lamented, implying catastrophic consequences.
There was a major battle that took place in the United States in November of 2012, but it wasn't fought between the Republicans and the Democrats. The result was an overwhelming victory – because only one side showed up for the fight. For the most part, the other side didn't even realize that a battle was being fought.