How America Is Shooting Itself in the Foot When It Comes to Government Debt

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America’s total government debt is rapidly approaching $17.0 trillion. While the budget deficit has dropped over the past year, it’s still in the hundreds of billions of dollars.

This doesn’t even include unfunded government debt liabilities, but let’s stick with just the massive $17.0 trillion government debt.

What some investors might not be aware of is that we are, yet again, embarking on another round of bickering by our so-called leaders in Washington. It now appears that House Republicans, specifically members of the Tea Party caucus, have caused a bill, which would allow the government to spend after September 30, to be cancelled—a move that could lead to a government shutdown.

Officially, America will run out of money at the end of September, unless the U.S. government debt ceiling is raised—yet again.

The big hurdle is the new healthcare plan, the Affordable Care Act. There has been much heated debate over this new healthcare initiative, with both small and large business owners worried about the impact the new regulations will have on the bottom line. With the budget deficit continuing to add to our nation’s government debt levels, the last thing we need is the politicians in Washington putting up additional hurdles considering our relatively weak economic recovery.

Unfortunately, investors will begin to see more bickering among politicians at the federal level, as each side tries to gain favor from the nation’s voters. While both sides talk about doing what’s best for America, they seem to be forgetting that actions speak louder than words. Frankly, regardless of who’s in power, it appears the U.S. is incapable of not running a budget deficit, as our government debt has grown massively over the past several decades.

Now, with the economic recovery as fragile as it is, we are going to get plenty of news coverage of this childish behavior from our politicians in Washington. It seems that both parties are focused only on the very short term—or as the old saying goes, they’re kicking the can down the road.

Has either party really put together a legitimate long-term plan to reduce the budget deficit as well as the government debt total? Since politicians are focused on getting elected over the next couple of years, real long-term, multi-decade planning is extremely difficult—meaning the budget deficit and government debt issue have been pushed to the back burner.

What does this mean for your investments?

Luckily, America is not alone in having inept politicians who make strategic errors. If you think American politicians are inept, take a look at some of Europe’s leaders.

In spite of the hurdles placed before American businesses, it is the energy and creativity of our citizens that have allowed the U.S. to remain a force to be reckoned with. America is still a leader in technological innovation in a variety of fields, even with Washington as an anchor on growth levels.

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If Washington can actually begin reducing our budget deficit and show the world even the slightest possibility that our government debt levels might begin to decline, this would lend a significant amount of legitimacy to our financial system, including the U.S. dollar.

At this time, in absolute terms, there really seems to be no light at the end of the tunnel. However, in relative terms, both the budget deficit and government debt are not as bad as those of some other nations. For example, Japan is in far worse shape than America. On a relative basis, I foresee far greater weakness for the Japanese currency, the yen, versus the U.S. dollar, since the Bank of Japan is taking on a much bigger level of monetary stimulus than the Federal Reserve. The nation has a higher level of government debt and it’s facing a huge demographic problem, as the population in that nation will continue to shrink significantly over the next 50 years.

One has to remember when making investments that the world is a global place, and we need to focus on relative returns, not just absolutes. And for the health of America, aside from getting our budget deficit under control, we need to limit the hurdles that are preventing economic growth, including those that are preventing the expansion of businesses.

This article How America Is Shooting Itself in the Foot When It Comes to Government Debt was originally published at Investment Contrarinas

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