US The Odd-Nation Out at the G-20 Summit

While the rest of the world is preaching fiscal responsibility and vowing to slash government spending, the only country calling for a continuation of “borrow and spend” is the United States.  The Times of London reports that England is slashing government spending by up to 30% in some areas (with “only” 10% cuts in education and defense), but we hear no such talk of cutting spending by the administration. Only in the last week have we seen Congress become nervous about continuing the current spending, but there is little talk of actually cutting budgets. 

In defense of the administration, they are simply following good Keynesian economic theory that says when the economy falters you borrow to stimulate the economy until a recovery is firmly underway. Let your foot off the borrowing pedal too soon and the recovery will stall. However, European leaders are saying “enough” to the Keynesian model, and many economists think the Keynesian economics is going the way of socialism as another failed economic model.  

Recently, a portfolio manager of one investment company told me that getting Greece and Italy to live within their means will be easier than doing the same in the US.  He projected our national debt to GDP ratio will rise from 100% today to 300% by 2040, while Greece’s will fall to 100% and Italy’s will fall to 45%.  Another CIO told me this week, “I am short-term bullish on the US and long-term scared.”  The events of the G-20 leave little to the imagination as to why investors, business people, and money managers are all very, very nervous about the future of the US economy.

What can you do?  Don’t follow the lead of US politicians. Pay down your debt, start saving more, and spend less.  It’s really simple…unless you’re a US politician.