Growth vs Fiscal Deficit
In business growth is fed cash, through debt. Well, should a government do the same?
Let's talk about business first -
Debt, slightly more than optimum; managed without precision, turns chronic for a majority of the promoters. As an investor, we must focus on how much and how well is debt structured, irrespective of the title. Any uncomfortable changes as to how it is managed should trigger an exit (at least for me it does)
Let's talk about a government -
Unlike businesses, there is no insolvency of the government. Thank's to president Roosevelt, a government can now pay its debt by printing new money. So unlike businesses for a government, ill manage debt is not fatal in a smaller time frame.
Let's talk about you and me -
If the fiscal deficit widens and quantitative easing continues currency will lose its purchasing power. So, temporarily we will have cash in hand but it will not be enough to meet our needs. The K curve will widen and will widen faster - (the rich will get richer and the poor will get poorer, just quicker)
What can we do about it -
Interest and inflation act against consumers and in favour of investors. The K curve. So invest, especially in non-cash rewarding instruments as reinvestment risk will be higher. Use debt only to create assets, neither for expenses nor for work capital.
Governments globally are preferring a combination of fiscal deficit led growth to organic development. As individuals, we might not feel the impact of the same on personal finances but every penny everywhere is decaying at a rate never witnessed. So basically we are borrowing from our future generations.; PROBLEM is when economies like south Korea decide not to have babies there is no workforce left to pay for the elder once and the government can then default on its citizens.
Awareness and understanding are key ...
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