When Bob Dylan released this song on his album of the same name in 1964, the world was at the beginning of a period of great upheaval. The nineteen sixties was a “game changer” and its imprint is still felt very much today. These were my teenage years when I knew little about life and less about managing money, but like a lot of people I could sense that things going forward would somehow be different than the past. I’m getting that same sense today.
I guess there’s no getting past the reality that we – meaning the United States – has been on a spending spree like a drunken sailor out on the town. The politicians have been able to “kick the can down the road”, but it’s time we need to start paying up. I understand it’s tough economic times, but all that’s really done is accelerate the problem.
Back in 1964, the national debt was about 55% of the gross national product. The number one song on the Billboard charts was “I Want To Hold Your Hand” by The Beatles. Today, the top Billboard hit is “Grenade” by Bruno Mars and the national Debt is 105% of the GNP. In other words, our musical tastes have taken a somewhat more violent overtone and as a nation we owe more than we earn.
So who cares that the U.S. national debt is $14 trillion dollars and shooting upward like a new Lady Gaga song? Basically, we all should care and care enough to do something about it.
The problem itself is pretty simple.
A family that spends more than it makes, puts itself in the position of losing the ability to ever pay back what it owes. It might keep up with debt service for a while, but if it keeps on borrowing to support its lifestyle or if interest rates rise, soon or later the family is going to go into default.
The United States Government is in pretty much the same position with one major exception. As most of you know, the legal system in this country frowns upon families setting up money printing operations in their basements or garages. This isn’t true of the Federal Government. They’re allowed to print as much as they want. You might think this solves the problem, but really only makes things worse – much worse. Dollar devaluation and hyper-inflation could easily add to the woes, making it even more difficult to pay off the debt.
Solving the problem comes down to two actions – cutting spending and raising taxes. You’ve heard all the rhetoric about all Americans “having to share” in the sacrifice. To a lot of Americans, this means to everyone else but them. Everyone has their sacred cow that is not just desirable, but necessary for life itself. We can be a selfish nation that will demand that politicians keep in place pet programs. Having the politicians dependent on the same people for their jobs is not exactly helpful to the situation.
So what’s an investor to do? Is it time to cash in our chips and put everything under the mattress?
The answer is no if for no better reason than the cash in the bedding will just erode in spending power as the dollar devalues. Instead like every other investment scenario look for where opportunities lie.
The stock market has been on an upward trend and there’s no reason not to ride it as long as there’s a favorable wind. If it really starts to turn, you can always pull out and go to cash or outright short the market. Being long term in the market doesn’t necessarily mean that you have to be in stocks every inch of the way.
You should also look at some floating interest rate investments. When interest rates move up, these will follow that trend.
If you’re looking to raise some cash for these investments, look no further than your munis. It’s going to be a long hard struggle for the states to get themselves out of their own holes. Witness Wisconsin. This is not going to be easy.
I understand that a lot of folks will say that the nation has faced a lot of problems before, but eventually has been able to keep on tickin’ like a Timex watch. I believe that, too. But it is time to get our collective heads out of the sand and face the pain and sacrifice coming down the road. Make no mistake – it will change so many things, including our investment strategies.
“You better start swimming or you’ll sink like a stone. The times they are a’changin’.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Glenn “Chip” Dahlke, a Senior Contributor to The Living Trust Network, has 30 years in the investment business. He is a Registered Representative of LPL Financial with Dahlke Financial Group. He is licensed to transact securities business with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY. Securities offered through LPL Financial. Member FNRA/SIPC. Contact him firstname.lastname@example.org or at his office in Lyme, CT at 860-434-4261