May 17, 2012
A methadone clinic is a medical facility that heroin or other opiate addicts go to break the cycle of addiction. I've never been to one but I've seen the Hollywood portrayal and it isn't something to aspire to. But if someone is to find themselves in such a situation the clinic is apparently a far safer way to break the deadly physical addiction.
"Why, pray tell Brennan, are you sharing this strange information with me?" - Astute Brighton Securities' Blog reader.
For pecuniary reasons my dear reader. Abused debt is quite similar to a drug. Debt to a spender is as drugs are to an addict, enabling something that could not otherwise be. In that way it could be argued that our Congress has been addicted for generations. But the sounds of the Pied Pipers' bugle can be heard across the developed world. Here too the size of our national debt and its growth trajectory cannot last forever. If something cannot go on forever then it will not go on forever. Either we proactively do something about it or, like Greece, eventually the bugle will turn to us and call our children's prosperous future away. We do have more time than some of our European brethren. (Ironically, the Pied Piper is German folk lore and the Germans are probably the role model here.)
The Faustian bargain of debt for consumption has not worked to create prosperous economic conditions. Indeed it has begun to turn in on itself by sapping the confidence of businesses large and small who are justifiably nervous that this situation will end badly. The importance of such confidence cannot be understated in a free market economy. It is the glue that keeps the entire system together. The national debt is effectively a giant storm cloud that keeps our ships at bay and our economic growth anemic. Our debt alone will reach 100% of GDP this year, a situation where economic studies show begins to tax GDP growth rates to the tune of 1% per year. And it is growing north of $1,000,000,000,000.00 annually.
There must be a plausible end to this debt spiral of death. Like a methadone clinic offers an avenue to independence from opiates, we need to find a way to eliminate our dependence on debt.
Brennan R. Redmond, CFA Vice President
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities)