When will the machine stop?

[BoodaGazelle]

I just read this in an article, referring to the current budget deal in Congress:

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The federal deficit is set to exceed $1 trillion every year starting in 2022. According to the Congressional Budget Office, spending as a percentage of gross domestic product (GDP) rises to 21 percent this year, on track to 28 percent by 2049. Only three years (the war-time years of 1944 and 1945, as well as 2000) have had higher spending-to-GDP ratios. The federal debt held by the public will increase to 92 percent of the economy in 2029, up from 78 percent this year. Interest on the debt as a share of the economy will soon surpass defense spending.

This is an unsustainable fiscal path.

—————————————————————————————————————-

I always come back to the quote from the economist Herbert Stein: “If something cannot go on forever it will stop”.

If I were 80 or more, I probably would not worry too much, but since this forum is the “E” (early) crowd, many people are probably my age (63) or even younger.

I know the arguments about “the rules for government borrowing are different than for individuals”, etc., but what do people think about this?

More importantly, have you. or do you plan to soon, make changes to protect your assets from some type of financial collapse?

 

[Teacher Terry]

I tend not to worry about things outside of my control.

 

[marko]

I don't see any financial collapse any time soon. We're in the midst of one of the best economies on record.

Recessions come and go, corrections come and go but those are normal, healthy market actions--and buying opportunities--and quite removed from 'financial collapse'!

 

[GrayHare]

Whatever goes down the FIRE crowd will be monetarily ahead of the non-FIRE crowd.

 

[aja8888]

If I were 80 or more, I probably would not worry too much, but since this forum is the “E” (early) crowd, many people are probably my age (63) or even younger.

Some are a lot older than 63!

I know the arguments about “the rules for government borrowing are different than for individuals”, etc., but what do people think about this?

I don't watch the news or read this cr@p so I don't think about it.

More importantly, have you. or do you plan to soon, make changes to protect your assets from some type of financial collapse?

My plan is to move to Mars once Musk colonizes it.

Answers above in red...

 

[REWahoo]

When will the machine stop?

When Porky shows up.

 

[marko]

But let's not confuse a recession, large or small with "financial collapse" which many folks less savy might equate.

 

[Ronstar]

We're in the midst of one of the best economies on record.

Only because the “economy” doesn’t recognize debt and deficit among its contributing factors.

 

[BoodaGazelle]

Thanks to all for replying. I fully understand not worrying about things beyond your control, but I guess what I am hearing is that other than asset allocation, most of you do not consider things like the (article mentioned) national debt something to worry about.

 

[marko]

Only because the “economy” doesn’t recognize debt and deficit among its contributing factors.

Thanks to all for replying. I fully understand not worrying about things beyond your control, but I guess what I am hearing is that other than asset allocation, most of you do not consider things like the (article mentioned) national debt something to worry about.

People have been saying "Yes, but...." and adding qualifiers to the health of the economy for decades. I have one, primary measure, the one thing I care about: How my portfolio is doing over time.

For the past 30+ years, it's done quite well (thank you very much) through ups, downs, red/blue DC administrations, recessions, bull/bear markets, global cooling, global warming, large deficits and small ones, acid rain and oil shortages.

The past decade, and this current year in particular have been extraordinary. Will it keep up this pace? Likely not, but every month that I bank an extra percent is one more percent in the gravy column; I'm already 3 years ahead of where I expected to be.

For me, it's not so much about not worrying about things I can't control, but more not worrying about things I don't worry about.

 

[flyingaway]

Reading the previous posts makes me think about the subprime mortgage. Maybe people had the same answer: who cares about the mortgages?

My question is: If I do worry about the national debit, how could I do to protect myself? Buy gold?

 

[retired1]

Whatever goes down the FIRE crowd will be monetarily ahead of the non-FIRE crowd.

 

[VanWinkle]

Reading the previous posts makes me think about the subprime mortgage. Maybe people had the same answer: who cares about the mortgages?

My question is: If I do worry about the national debit, how could I do to protect myself? Buy gold?

According to all those gold commercials, that's the thing to do! But then they do have a vested interest in you buying precious metals much like a financial adviser that wants you to cash out your pension and let him invest it for you.

If this country goes bust, home grown veggies and livestock are probably your best bet.

 

[jazz4cash]

I’m 63 also and believe the debt issue can be kicked down the road long enough that I will not be affected too seriously. Unfortunately our kids and grandkids may have to pay for irresponsibility of prior generations. What’s truly scary is this new attitude of carelessness and lack of effort to even admit its a problem.

 

[Badger]

Reading the previous posts makes me think about the subprime mortgage. Maybe people had the same answer: who cares about the mortgages?

My question is: If I do worry about the national debit, how could I do to protect myself? Buy gold?

IF it gets so bad that you need gold then we already have one foot in the toilet toward collapse. Then the big question is who will you trade with and what will you buy with the gold? What you will trade for most would be food and few people will be willing to give theirs up.


Cheers!

 

[marko]

IF it gets so bad that you need gold then we already have one foot in the toilet toward collapse.

Yes. I would say both feet would be in the toilet by that point, and if so, we're all screwed. But I just don't see that happening in our lifetimes.

Financial collapse is one thing. Market cycles, recessions and corrections are another. I do believe that a true, massive 1929 type depression has been pretty much regulated out of existence; but let's remember that there were many (my grandfather being one) who made a fortune during that time. Not everyone was in a bread line.

What we should worry about are the professional and political fear mongers who will be running around screaming "financial collapse" at the next minor downturn, taking advantage of those less sophisticated for their own gain.

 

[RunningBum]

Whatever goes down the FIRE crowd will be monetarily ahead of the non-FIRE crowd.

Probably, but that's also what this thread is about, to see if there's a best way to position ourselves in case this happens:

More importantly, have you. or do you plan to soon, make changes to protect your assets from some type of financial collapse?

 

[joeea]

have you. or do you plan to soon, make changes to protect your assets from some type of financial collapse?

I have always had an asset allocation that I can live with.

Define what you mean by "financial collapse" to get more on-target answers. That term is too vague and means different things to different people. Have you lived through a financial collapse?

 

[BoodaGazelle]

I have thought about gold before, but I always come back to the idea that a gold coin, which costs over $1300, and which would presumably skyrocket from there in a SHTF scenario, would not really work to buy daily food, would it? (I guess with enough hyper-inflation it might...)



Rather than gold, I would look into pre-1965 silver coins.

 

[BoodaGazelle]

I have always had an asset allocation that I can live with.

Define what you mean by "financial collapse" to get more on-target answers. That term is too vague and means different things to different people. Have you lived through a financial collapse?

I was thinking about things like: U.S. default on debt, hyper-inflation, terrorist nukes, etc. Definitely more than an economic downturn, which, like most of us FIRE-ees, I think I can weather.

 

[Kabowest]

Answers above in red...

https://www.mars-one.com/faq/select...tronauts/what-are-the-qualifications-to-apply

 

[Senator]

I was thinking about things like: U.S. default on debt, hyper-inflation, terrorist nukes, etc. Definitely more than an economic downturn, which, like most of us FIRE-ees, I think I can weather.

I worry a lot more about society collapsing than any budget issues. The USA's system relies on people generally being honest and law abiding. Imagine a society that disobeys laws as a general matter, has no respect for police, and criminals do not have to fear getting caught or going to prison. You cannot lock up everyone, so small crimes like shoplifting, graffiti, burglary, etc. go un-prosecuted and common. Stealing from the 'Rich' is thought of as a good thing. Guns and bullets are the way to protect yourself.

USD can be printed, in any amount, at any time. The US will never default on the debt as long as we can print USD.

The Treasury auctions off the bonds, Goldman buys them, and the Fed buys them back at a premium. They are bought and sold on the open market, as required, and then repurchased. There will ALWAYS be someone to buy the bonds, as there is a premium associated with it. It may be China, it may be Goldman. It doesn't matter.

When the US dilutes the money by printing, the entire world pays. Many use the USD as their currency, many use the USD as a payment to other countries. That will not stop anytime soon. Other countries want the USD to be strong. No country want to have the strongest currency. If the Chinese Yuan became the currency of choice, it would decimate their manufacturing.

Most all other countries print money faster than the US. The theory of relativity is more important than actual nominal amounts.

The World is subsidized by the USD being strong. A strong USD makes foreign goods cheap. Other countries can sell to the USA much easier than the US can sell to other countries. Hence the large Trade Deficit.

The USA could simply discard most of the debt without issue. We owe it to ourselves. Even the SS IOUs can be discarded. The money for future obligations comes from the same place that paying the SS Trust fund back comes from.

Inflation is caused by too much money chasing too few goods. Not printing money. A $15 an hour minimum wage will cause more inflation than printing an extra trillion.

 

[pb4uski]

Whatever goes down the FIRE crowd will be monetarily ahead of the non-FIRE crowd.

I worry a lot more about society collapsing h ...any budget issues. ...

+1 but the FIRE crowd will be ahead only for as long as money has value.

I'm guessing that the increase in debt held by the public increasing from 78% now to 92% in the future is principally due to the wind down of the SS Trust Fund between now and 2034. IIRC the federal debt held by the SS Trust Fund is $3T or about 14% of total federal debt. As the SS Trust Fund redeems those special-issue bonds the general fund will need to issue public debt and use the proceeds to redeem them... with that money being used to pay promised SS benefits (until the special-issue bonds run out).

While I know some think gold is the answer I don't get that... if society declines to a point where money doesn't have value why would gold have value? I realize it always has but that doesn't have to be. I guess that we would decline into a barter economy but I don't see that happening.

That said, I saw the Ray Dalio interview on 60 Minutes last night and I agree that something needs to be done to revive the American Dream and narrow the wealth gap between the haves and the have nots for society to survive and thrive.

 

[ShokWaveRider]

How does US Debt Compare to other civilized countries? I think that may be a more important question. Based on the following, there is nowhere else to go!

US debt compared to other nations
The federal debt-to-GDP ratio is dependent on the nation’s fiscal policies and overall economic condition. The United States had a debt-to-GDP ratio of 106.0% as of 2015. As you can see in the above graph, Japan leads the nations with its rising debt-to-GDP ratio. The United States is in seventh place, according to data provided by the OECD (Organization for Economic Co-operation and Development) as of 2015.

Japan’s estimated gross debt is about twice its GDP held by households and the central bank. If you compare Japan’s debt to the US debt, Japan’s debt is mostly held by its citizens, about 90.0%. However, the US debt is a mixed bag of external creditors and its people. Greece, unlike Japan and the United States, is currently in a vulnerable position since it can print its currency to finance its debt to avoid defaulting on its loans.

 

[MichaelB]

This is a policy discussion so the thread was moved to the appropriate forum. Please watch out for the politics.