April 3, 2016 at 10:14 am #18477TimeClockParticipant
Appreciate you sharing your rationale that supports your allocation.
Concerning the national debt and unfunded liabilities, is there a point in time when the obligations will require action that will impact the market?April 3, 2016 at 4:20 pm #18479TS PaulParticipant
Lots of different issues raised in that very short question (most of them very politicized these days), but I will take a swing at the ones which spring immediately to mind:
– the very short answer, is that I don’t believe it will in this generation. And projections which go out for decades beyond that can’t take into account all of the dramatic, unforeseen changes which almost certainly impact the economy during that time.
– fiscal policy (government spending) will definitely impact the stock market over and over again for as long as we are a democracy. Typically what we will see is the legislative branch doing exactly the wrong thing at critical points in the business cycle, causing greater volatility than is necessary (cutting spending when the economy contracts which causes the economy to contract even more, and spending like a drunken sailor when the economy is expanding which causes the economy to overheat).
– the huge scary numbers for unfunded liabilities which get thrown around are based on projections which go out for decades. Even if they are completely accurate (which is questionable because they assume that costs will continue to grow at a continuous rate over decades and no major policy changes will be enacted or technical advances achieved which will impact those), those big numbers from the distant future are typically applied to today’s economy (which is a fraction of what it will be at that point in the future) and today’s population (which is presumably much smaller than that of the US in 75 or however many years in the future).
– the big money items when we talk about unfunded liabilities revolve around health care/health insurance. I can’t imagine that health care in the US will look like the current model in 20 years, much less further into the future. I suspect there will be major changes within our lifetime – whether we decouple health insurance from employment, go to a single payer plus system, find ways to limit the incentive to maximize profits from health providers, or some combination of those and other changes.
– as we look decades out into the future, the US’s extraordinarily large defense/national security budget means that the US has a very large amount of discretionary spending which can be diverted to other uses. Because these programs are so large, even a very small reallocation would completely change the math.
None of which is to say that the US (and many other governments) aren’t doing a lot of dumb things. But I tend to believe that the continuous growth of the US economy and meaningful changes to government programs will allow us to absorb what look like insurmountable fiscal problems without a complete meltdown in the future.
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