Greetings fellow travelers!
- From my economics training and my MBA to years spent reading financial statements in business, all signs pointed to rough times ahead.
- Not to mention the lessons of human psychology and how individuals and societies respond to incentives. “You mean we can spend all the money now and someone else will have to deal with it?”
Today I’ll share how I learned to stop worrying and love the debt.
Consider How Much Good Has Come From Debt Spending
America’s economy is the world’s largest, and our material wealth is staggering. With just four percent of the world’s population, we consume 16% of the world’s energy and generate 12% of the world’s waste.
We are living in times of plenty that would have been unimaginable a few generations ago. And we have our ability to incur debt to thank for much of it. We can effectively borrow and spend any amount we want.
So no matter what comes, we have to acknowledge that we’ve been benefitting from boom times for many years.
We’re In Excellent Company
What do the countries on the following list have in common, besides reminding us of our ABCs?
Austria, Brazil, China, Denmark, Ecuador, France, Germany, Hungary, Iran, Japan, Kuwait, Lebanon, Mexico, the Netherlands, Portugal, Russia, Sweden, Thailand, the United Kingdom, Venezuela, Yugoslavia, and Zambia?
They’ve all suffered a sovereign debt crisis resulting in either a debt restructuring or a default. And there are many more countries I could have listed.
You’d take less time listing the countries that have not experienced a debt crisis.
What’s interesting about this list, besides how comprehensive it is? With a few exceptions, all these countries are doing just fine notwithstanding their debt crises.
You will hear breathless reports that the U.S. defaulting on its debt would have catastrophic consequences. Is that really the case?
- History suggests that the consequences would not be so dire.
- And that even if they were, we’d be just fine again in a few years.
- In fact, given the unique position of the U.S., we may be better positioned to deal with a debt crisis than any other country.
We’re In An Enviably Strong Position
The U.S. economy is the biggest in the world. Our military is also the most formidable.
Say we default on our debt. What can we safely expect all of our debtors to do in response?
Seriously, what are their choices? Will they try to dictate terms to us? Will they not trade anymore with the United States?
The U.S. can do whatever the heck it wants, now and for the foreseeable future.
Here’s What I Recommend The United States Do
Counterintuitively, we should continue aggressively incurring debt. Crank up the printing press!
This will have the benefit of making the U.S. literally too big to fail on the global stage.
Other countries will accept our eventual debt restructuring without so much as a whimper because they’ll have no choice. Otherwise, we’ll take the entire global economy down with us.
In cranking up our spending, we should prioritize two types of investments:
- Infrastructure projects that have a long lifetime
- Military spending
When the inevitable debt crisis comes to the United States, we will go through a period of being temporarily unable to borrow from third parties quite so easily.
We can weather this awkwardness just fine so long as we’ve invested in our infrastructure such that we can coast for a while.
And provided we’ve invested in keeping our military absolutely world-class, no other country will get any fancy ideas about taking advantage of our temporarily weakened state.
This is how I’ve learned to stop worrying and love the debt.
PS — Astute readers will recognize in my title an homage to the movie Dr. Strangelove. Unlike the warmongers depicted in that classic movie, you don't need to be crazy to start loving America’s debt.
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