Why Government Debt Blows Up

Here is a link from the Daily Reckoning of Australia, showing why government debt blows up. It has a liberal dose of Bastiat (pun intended), and it draws some interesting parallels between Japan and the United States.

I suggest that you read the whole thing. (It’s not that long, you whiners!) But here’s an interesting excerpt to pique your interest:

What really happens is this: the private sector gets too deeply in debt (thanks largely to the Fed’s artificially low rates and EZ money policies). Then, it panics. It cuts spending. Lenders – who over-extended credit – should go broke.

Instead, the feds bail them out, shifting the public’s real resources to failed businesses and incompetent managers. The bad debt is transferred to the public. Then, the private sector… attempting to build up savings and improve its financial health… puts its money in the safest possible place – government bonds! Still more debt, in other words.

The government takes the money and gives it to its favourite sectors… its clients… its pets… its campaign contributors and vote-getters. The public would be appalled if it realised how its savings were being thrown around. But it wants safety above all. And it believes the feds will be good for the money; they always have been. After all, if you can’t trust the government, who can you trust?

Who can you trust indeed? I’m not in the business of giving investment advice, but I’d suggest tangible assets. Check out the article to see what the stock market has done relative to tangible assets over the last 15 years or so. It will either shock you or depress you, or possibly both.

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