The Game is OVER!

All games come to an end including the game of trying to jump-start the U.S. economy by using massive amount of federal government debt. As this debt accumulates, so does the interest on it. At a certain point this debt becomes unsustainable and a burden on the American taxpayer.

Those in power (namely politicians) will say that this time it is different. No it isn’t! Looking back at eight centuries of financial idiocy, the key marker that signals when the game is over happens when the ratio of government debt to GDP reaches 90%. Beyond that point financial instability and a loss of confidence by investors start to take over.

In addition, there will be a dramatic slowing of economic growth by at least one percentage point per year compounded. The ratio for the U.S. in now 92% and still exploding. Once this ratio reaches 100% of GDP (very soon), the United States will, most likely, lose its AAA credit rating. We will become another Greece with all the ramifications. The loss of our AAA credit rating will substantially raise interest rates throughout the economy. The biggest impact will fall on real estate prices—and you thought real estate prices have bottomed out.

If nothing is done to rein-in this excessive and wasteful debt explosion, the next recession will be long and deep. The only glue that holds the U.S. economic machine together is confidence. Take that away and watch out below.

My advice that I have for you is the saying on the bottom of my business card–”Liquidity Is King–Not Elvis.”

Be Solvent & Free,
Sanford Kahn