Tax Reform or No Reform This Gap Needs to Narrow
CAMS Weekly View from the Corner – Week ending 11/3/2017
November 6, 2017
Tax reform discussions seem to be picking up in earnest as it appears the push for said reforms are more front-and-center. As this public process has unfolded I’ve heard snippets at times of government debt levels.
On a personal note, via the analyst within me, I find my ears perking up anytime I hear the topic of debt in general and government debt in particular brought up in narratives or conversations. I share this from the perspective of said analyst within me – while simultaneously wearing my citizen hat – who has watched with concern, if not horror, as debt levels have unfolded in recent decades.
What has troubled me most, particularly over the last decade-plus, has been the collective disinterest on this topic. With this shared you may appreciate why my attention is caught upon hearing any discussion on the topic.
The bottom line is that debt growth rates have exceeded economic growth rates for some time. I invite the head-of-household within you to digest this and ponder what the long-term viability of your household would be if you were running your finances under a similar relationship. Prognosis is not good may be your quick conclusion.
To illustrate this relationship the above chart dates back to Q1 of 1966. The blue line represents our accumulated Federal Public Debt while the red line depicts our Nominal Gross Domestic Product (GDP).
Both are indexed to 100 as a starting point back to 1966. Simply speaking, they were given an equal starting point to “run a race” dating back to 1966. Sadly, the clear “winner” has been the rate of growth of debt consistently exceeding that of GDP. As the chart speaks for itself it becomes clear that in the mid-1980’s we began a different societal relationship than what we had experienced previously.
It gets worse. In addition to our accumulated Federal Government Debt our Unfunded Liabilities (future promises made of which there are no funds set aside for) are estimated in the $100 Trillion area which far exceeds our $20 Trillion of accumulated Federal Government Debt. Furthermore, this does not address county, city and state debt levels across our nation. All told, our “public household” if you will, is awash in debt.
On the debt side the best we can expect is for the rate of growth to slow. With this, in order to see this gap close we must see stronger economic growth – a consistent message emanating from these Weekly Views. Said stronger economic growth going forward is essential in order to support already attained levels of debt as well as various market valuation levels. I wish you well…
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
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