The Height of Fiscal Irresponsibility

“When debt assets and liabilities reach the point that the amount of debt sold is greater than the amount of debt that buyers want to buy, central banks are faced with a choice: they either have to let interest rates rise to balance the supply and demand, which is crushing to debtors and the economy, or they have to print money and buy the debt, which is inflationary and encourages holders of the debt to sell the debt, which makes this debt imbalance worse.”

— Ray Dalio

I believe Ray Dalio has it completely right. It’s not surprising he’s a billionaire. And I bet he didn’t get to be a billionaire by taking in less money than he spent.

Call it a hunch.

For months now, we have endured the posturing and pontificating of the members of Congress as they debate whether to raise the debt ceiling.

Democrats want to do so with no strings attached. Republicans want to do so as long as there are cuts to spending money on programs they dislike.

Of course, this is not the first time we are seeing this play out. Seventy-eight times Congress has voted to raise the debt ceiling since 1960. It has been done twenty-nine times with a Democratic president in office, and it has been done forty-nine times with a Republican president at the helm.

Make no mistake, BOTH Democrats and Republicans love to spend money we don’t have. And whenever they start bumping up against the arbitrary debt ceiling they previously set for themselves, they BOTH vote to raise it so irresponsible fiscal spending can continue.

It reminds me of my time as a government employee…

My Time at Camp Greaves, ROK
From 1990 to 1992, during the first Gulf War, I was stationed at Camp Greaves, Republic of South Korea. We were the forward battalion for the 3rd Brigade of the 2nd Infantry Division, and our camp was just south of Panmunjom and about 50 miles north of Seoul. Our primary mission was to patrol the border between North and South Korea.

We had a fantastic group of soldiers who were extremely good at their jobs. Part of the reason for that was all the excellent training we were able to conduct with both blank rounds and with live fire exercises on various weapons ranges.

I was a First Lieutenant, and my job was the battalion’s adjutant – or personnel officer. As a result, I was a party to battalion-level planning… to include budget meetings.

Here, I learned things that would only make sense to me years later.

Whenever we discussed the budget, we never talked about saving money. In fact, it was quite the opposite. Our goal was to spend our allotted budget as quickly as humanly possible… for two reasons…

1. If we didn’t spend all our money, we wouldn’t get as much money in our budget the next year.

2. Once we spent all our money, we could request the money from other units in the 2nd Infantry Division that had not used all their funds.

To us, this made perfect sense. The more money we had, the more we could spend, the better prepared we were for potential future conflicts.

Three Ways to Make Money
When I came to work for Michael Checkan and Glen O. Kirsch in February of 1996, I learned a different lesson about budgets.

I was no longer in the world of an “endless” supply of funding like we thought was the case at Camp Greaves. In the world of private small businesses, we don’t have the capability of simply voting our debt limits higher when we incessantly overspend our income.

In the real world, when you spend more than you take in, you go out of business… period.

Very early on at Asset Strategies, Glen and Michael taught me there were only three ways to make money…

1. Increase sales

2. Increase margins

3. Decrease expenses

That’s it. There is no other way.

Congress… Are you listening?
Please send your Senators and Representatives a copy of this article. They are sadly in need of the lesson I learned years ago from Michael and Glen. They also desperately need to learn that money doesn’t grow on trees, and there is not an “endless” supply of it.

Just as Ray Dalio so aptly stated, when a country’s debt is no longer attractive to potential buyers, either interest rates go up and crush the economy, or the central bank inflates the currency and crushes the consumers.

In the short term, there is no doubt in my mind that Congress will eventually raise the debt ceiling. However, the only feasible long-term solution to our fiscal woes is for Congress to stop being politicians and to start being leaders.

Make a hard choice every now and then. Cut spending rather than continue to buy votes with borrowed money. Guide this country back to prosperity from where we are right now… the height of fiscal irresponsibility.

The country I vowed to defend over 35 years ago deserves better leaders.

Until those leaders emerge, I like holding real money – gold and silver. They are not managed, so they cannot be mismanaged.