Saturday, July 4, 2015

Will America do a "Greece"? Most Definitely

This interesting piece by Jon Gabriel is the perfect visualization as well as simplistic explanation of the American debt problem that I've always had so much issues with.

It's an imperfect analogy but imagine the green is your salary, yellow is the amount you're spending over your salary and red is your credit card statement. 

Would you lend money to a country like this? I know I wouldn't lend a person or a company with a balance sheet like this any money. Just because it's a country doesn't change anything. I still ain't going to do it either.

One of the biggest problems that I see in "modern day" finance is the continually touting and distinction that "bonds are for safety, stocks are for risks". Notice the inverted commas. I disagree with that statement. Volatility is not the same as risk.

I can't be bothered to invest in something that will constantly have me playing "musical chairs". This is very different from re-evaluating a stock investment after recent bad quarters and their products and strategies. For a stock, your projected trajectory is up. For the American debt problem, the trajectory is already known, expected and forecasted to be way, way, way down.

Of course, you might be perfectly happy jumping into the stock market right now at nosebleed valuations since "the trend is your friend" and then at the first signs of an equity rumble, "fly to safety" into bonds at record low yields.You can do whatever you want, it's your own money.

I'm just telling you what I won't be doing with mine.


  1. Not only the USA looks like that. Japan is even worse and China has huge debt issues as well. And don't even get me started on some of the other European countries. Not too many governments left that know how to live within their means.
    My take is that all that paper money we currently honor and admire so much will loose lots of its value in the future.
    What is left? Gold and especially Silver come to my mind, as well as agricultural land.

    1. Hi Tacomob, I agree with you on that. Japan looks like the poster child for a country that would never be able to pay back its debt. I'm really anxious to see how and when all these issues finally get dealt with. Which governments do you think are managing this problem well?

      I think that besides precious metals, real estate and primary industries would hold up.

    2. Hi GMGH,
      Good question: For governments that are managing this problem better than average we do not have to look too far. Beyond that it is very hard. Maybe a few smaller commodity rich countries are doing a better job at the moment like Norway, Finland looks ok as well. Among the larger countries not too many, because they all followed the herd under the header of "staying competitive".

      I am very careful with real estate, because the demographics in many mature countries look very unfavorable for a longer-term appreciation or even conservation of values. Just not enough babies and older people tend to downsize not upsize.

      Primary Industries are good because they do have real assets on their balance sheets and their products are in demand like F&B.

  2. Perhaps confusing the state of a country's finances with the state of its companies?

    1. Hi Lizardo, while individual companies might not seem like they would be affected, I doubt they will remain unharmed if the US debt problem finally comes to realization.


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