August 2, 2012

The Cancer of Debt and Deficits

The Cancer of Debt and Deficits - John Mauldin
“We are coming to the point in the United States when even the US government will no longer be able to borrow at very low long-term rates. That point is a few years off, and we have time to change paths; but as I have shown in previous letters, the longer we wait to get the deficit under control, the fewer choices we have and the more painful they are. NO country can run deficits the size we are currently running, along with unfunded deficits over four times the size of the economy and a growing overall debt burden, without consequences. At some point, investors in bonds will start wondering exactly what the process is by which they will be repaid. And what will the value of those future payments be?”

Comment: Debt is a cancer. Just as financial planners will tout the benefits of compounding when talking about savings and interest-bearing accounts, the same math holds true in the negative sense, i.e. the damage caused by the geometric progression of debt when it is allowed (or encouraged) to build over time.

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