There’s been a singular view that has swept through the nation over the past few months since the debt debacle back in August.  Apparently the U.S. has too much debt.  The U.S. government currently has over $15 trillion in outstanding debt obligations.  Some view it as excessive, wanting it paid down to a reasonable level.  Others believe it should be eliminated entirely.

This isn’t the first time that the U.S. debt has become a political hot topic.  The last time was back in 1992, when then presidential hopeful, Ross Perot made eliminating the deficit a major campaign issue.  Clinton eventually was elected, signed the Deficit Reduction Act of 1993, and all was better.  For the most part, until you fast forward to today and it’s playing out again.

A Super Committee was set up to solve the debt problem.  It failed, not surprisingly.  Putting debt reduction as a major talking point in the next election cycle.  On a side note to the government, don’t name a committee “Super” if it’s bound to fail.  It tends to destroy all meaning of the word.  Anyways, the committee’s failure enacts forced spending cuts starting in 2013.  Being that far out, they’ll never see the light of day.  But enough about politics.

Another way of looking at this debt issue, there is currently about $15 trillion invested in U.S. debt.  Used as a safe haven for money, backed by the full faith and credit of the United States.  Which is the biggest argument that the debt level is fine for now.  Continue Reading…

The idea of a referendum deciding the fate of a debt bailout plan and a country is interesting.  But is there enough financial literacy for it?  If the voters are deciding their countries fate, their financial literacy should be called into question before a referendum is called.  Something that didn’t happen in Greece and the markets didn’t like it.  In a normal time, Greece would be just another country in the world with problems.  But these aren’t normal times.

If you’ve been paying attention to the European debt crisis lately, you’ll know that the Eurozone leaders came to an initial bailout agreement at the end of October.  This would prevent Greece from defaulting on its debt and put some additional backstops in place to protect other issues as well.  In a nutshell, if you own Greek debt you could plan on getting half of what you originally expected.  It looked like a good plan, the markets loved it, and we saw a nice one year return in the month of October because it seemed to be almost over.  So we thought.

Little did we know that to start November, Greece’s prime minister would put the Eurozone debt plan to a referendum after already approving it.  I believe it’s a political ploy to force the oppositions hand.  But for now Greece’s fate will be voted on by it’s citizens.

I wouldn’t have a problem with this if it were normal times.  A Greece default or not, really doesn’t matter to me in the grand scheme of things.  But as I said earlier these aren’t normal times.  If Greece defaults, it could be out of the Eurozone.  The Eurozone would need to redo the current debt plan.  Putting Italy’s and Spain’s debt issues in focus.  Which becomes a bigger problem.  Banks own much more Italian and Spanish debt than Greek debt. Continue Reading…