The Biggest Risk – And Greatest Reward – Facing Your Portfolio Today
by Alexander Green, Investment U Chief Investment Strategist
Friday, January 25, 2013: Issue #1956
Virtually every American knows Uncle Sam is carrying a gargantuan debt and that we face sharply higher deficits in the future. What you may not know is how bad the situation really is, how much worse it will soon become, how widespread the problem around the world, and how little will be done about it anytime soon.
The consequences are substantial. Everyone knows what eventually happens to an individual who takes on more debt than he can afford: personal bankruptcy. We also know what happens when a company takes on more debt than it can service: corporate bankruptcy. But in the years ahead, we are going to see something most Americans have never experienced or imagined: national bankruptcies.
Greece is at the front of the line. But there are other countries hobbling along behind them and some of the names may surprise you.
This will have far-ranging consequences for global economic growth and the performance of world financial markets. Indeed, this crisis of spending in the public sector of the world’s leading democracies is the single greatest threat facing your portfolio today.
In the next few minutes, you may find my depiction of the problem more than a little depressing. But stick with me. I am not a gloom-and-doomer. Indeed, I intend to reveal something in my next few columns that trumps our ailing public sector problems and represents a titanic investment opportunity. So hear me out.
The Tip of the Iceberg
Let’s start at the beginning…
The U.S. national debt is currently $16.5 trillion. (Both political parties concede it will grow by trillions more over the next few years.) The current debt is so large it doesn’t mean much to the average citizen. So let me put it in perspective. Today’s debt is equal to $145,875 per taxpayer.
Unfortunately, this is only the tip of the iceberg. U.S. unfunded liabilities for Social Security, Medicare, Medicaid and the Prescription Drug Benefit are more than $122.4 trillion. That is equal to $1,084,065 per taxpayer. In other words, if you are an American taxpayer, your personal share of the national debt and current unfunded entitlement liabilities amounts to over $1.2 million.
(Will that be check or cash?)
And you will owe more tomorrow… and the day after. That is why some of us snicker when well-meaning but uninformed folks say we just need to chip in and pay a little more in taxes and everything will be ok.
Republicans can blame Obama and Democrats can blame George W. all they want. The truth is both parties have acted with gross irresponsibility and while whoever is president is complicit – since he signs legislation into law – the real blame falls on Congress. It is the first branch of government and the center of real power. Congress writes the laws, levies taxes, and authorizes the borrowing of money.
Not surprisingly, surveys show that Americans are deeply dissatisfied with Congress. The Gallup organization recently found that 90% of us disapprove of the way Congress is handling its job. (No word what planet the other 10% are living on.) A New York Times/CBS News poll found that 80% of Americans believe members of Congress are more interested in serving special interests than the people they represent.
Yet senators and House members know something most Americans don’t: It doesn’t matter what voters say, or how long they vent, or how much they curse, or what they tell pollsters. It only matters whether and how they vote.
Forty percent of eligible voters in the United States don’t cast a ballot. According to a 2012 study from the Institute for Democracy and Electoral Assistance, the United States ranks No. 120 of the 169 countries for which data exists for voter turnout. That puts us just beneath the Dominican Republic, where the annual GDP per capita is $9,450.
If just a small percentage of these Americans exercised their right to vote, election results might be dramatically affected. But they don’t vote, can’t be bothered, and most of them never will. This is a long-standing reality, not a new one.
But let’s also look at the folks who do turn out, the angry 90% who are disgusted with how Congress is handling its business. Turns out that – for all their huffing and puffing – they mellow out considerably when they get to the polls. Even in 2012 – when our approval of Congress was near an all-time low – 91% of incumbents were re-elected.
This is no anomaly. Only rarely are less than 90% of House members or 80% of senators re-elected. Despite their abysmal record, members of Congress enjoy some of the best job security in America. Apparently, most Americans loathe Congress but believe their guy (or gal) is doing a swell job.
We can yack all day about the advantages of incumbency: money, power, name recognition, etc. But that’s mostly a bunch of hooey. Surveys regularly show that less than a third of citizens can recall the name of their representative and even fewer remember anything he or she has done for the district.
So the first thing to tell voters incensed about the job Congress is doing is this: Despite their negligence and fiscal irresponsibility, we keep sending the same clowns back to the Hill.
This is only the first part of the problem, however. In my next three columns, I’ll outline why this won’t change, how this increases the chances of financial instability in the future and, perhaps most surprising of all, why this is actually creating one of the biggest investment opportunities of your lifetime.
Stay tuned…
Good Investing,
Alex
The Biggest Risk - And Greatest Reward - Facing Your Portfolio Today,Any investment contains risk. Please see our disclaimer.
8 Responses to “The Biggest Risk – And Greatest Reward – Facing Your Portfolio Today”
Comments
By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.
Check out our selection of daily investment research:
 |
 |
Point taken, Alex.
However, I am with P.J.O’Rourke in saying don’t vote it only encourages ‘em. Really now, if Romney had been elected, would things be materially different? I think not. We’re served up tweedle-dum and tweedle-dee to vote for and given the inability of third parties to have any impact, change is not on the horizon. Now, if the Republicans could implode, and a real party emerge, that might have possibilities. Until then, I’m not voting.
Reply
Congress and especially the Senate are plain disgraceful, and have been for a long time. But we keep sending them back to work with a President that is intent and determined to destroy the USA.
Reply
1. I don’t know why we keep getting these references to Social Security and Medicare as unfunded entitlements. I put a huge amount of money into both of these all the years I was working.I am now retired and I am still contributing to both so how can they be unfunded and how can they be “entitlements”. That makes it sound like my SS money is just feeding at the public tit.
2. Most people I know who actually vote don’t really pay any attention to what their representatives do or don’t do. They vote according to what their church tells them or their union or they vote one of the two major parties because that’s what their parents were and it’s way too hard for anyone to think for themselves… or think at all.
Reply
Alex,
Unless you are planning to start a third party, or promote one of the fringe parties that already exist, I don’t see how voting is going to make any real difference. As a friend of mine put it, “The Democratic and Republican parties are two wings of the same vulture.”
It’s the old false-choice dilemma. You must choose between A and B, but the existing organization controls who A and B are, at least to the point that they ensure that either would be satisfactory to the powers that be.
And even for those who really would like to do better, the system that has evolved in Washington ensures that anyone who seriously tries to make real changes will be marginalized and probably will lose the next election because he or she will not have the support of the institution, much less the war chest needed to compete.
Sorry, but I don’t see voting as worth the effort, although I keep voting Libertarian or Constitution party, hoping they may rise above the status of fringe. I don’t really expect it to work, but it’s better than supporting the status quo.
Reply
RE: The Biggest Risk and Greatest Reward Facing Your Portfolio Today
Nicely written, Mr. Green.
Reply
I’m 86 and have voted in every election, at this point I believe that only making much more money will enable my family to have the life that I have enjoyed—which is why I joined the Inner Circle this year. My country is in spiral that is terrible to watch.—regards.
Reply
Add “None of the Above” to the ballot. If NoA wins… current candidates are eliminated and only new candidates may run for election held 6 months later.
Reply
this is great and very sad at the same time.
you should run this in every major news paper, news website in the country every day for a month prior to every election. maybe it will wake people up.
Reply