01-28-2019, 10:26 AM
(01-26-2019, 11:24 AM)fenders53 Wrote: I didn't check your link yet, but FED spending is VERY alarming IMO. Basically a bunch of debt that nobody is ever actually going to pay back. It isn't going to end well. Consumer debt is going to be a problem as well when jobs get scarce, which they inevitably will at some point. Remember the mid 90's when the deficit for $4T and the sky was falling? It was a huge campaign issue. They corrected it for a year or two then right back to normal. I'm not so sure our economy wouldn't crash immediately if they went back to anything close to a balanced budget overnight. Everything is juiced with free money right now.
Adjusted for inflation, the debt is now roughly 3 times higher than it was in the mid 90s ($4 in 1995 dollars is $6.69 today). To me the key indicator is the debt/GDP ratio, which is now topping 100%. Deficit spending is fine, so long as the borrowed funds create a higher rate of return than the rate of investment (infrastructure investment comes to mind). Corporations with an EBITDA/Debt ratio of 1:1 carry investment-grade credit ratings all the time. The U.S. is also in a superior position to corporations, as it issues the global reserve currency in which its debt is denominated. Also, over time with population growth and inflation, the real value of presently-incurred debt diminishes.
There is probably a point at which debt incurred reaches such high levels that the bond market goes crazy, but we don't appear to be anywhere near that point (especially if using other developed economies such as Japan as a guide). Frankly, if the U.S. were being judged by corporate standards, it would be viewed as foolish if it had not greatly expanded the debt during the past decade, during a period of prolonged economic expansion and historically low interest rates.
Whether the borrowed funds were spent wisely is another matter . . .