We can claim "recovery" all we want just like you can in your personal life when you lose your job or have your income cut but continue to spend more and more using your credit card(s) as the means of obtaining the funds. But just as is the case when you do it, it's a lie when we do it as a nation as well.
The markets are of course powering higher on the back of this lie. The premise that market participants seem to be operating under is that either (1) we can maintain this forever, or (2) those who are "net long" (whether in the stock or bond markets) are "smart enough" to detect the impending recognition of the insolvency that is truthfully represented in these graphs and "jump out" before the inevitable collapse occurs.
History says that the first will never happen (in fact, it never has - at no time in history has a nation managed to pile on debt like this and then "come back" from it without a massive and ugly restructuring and retrenchment - or worse, an outright default and collapse) and that the number of people who are in fact wise enough to detect the end before it occurs and get out is in the single digit percentages.
That is, it is a near-certainty that if you're playing the market expecting to be "smart enough" to be in front of the disaster, and you're holding positions overnight, you're going to proved dramatically and ruinously wrong.
I have no expectation that our government will do the right thing voluntarily. Not now, not ever. Witness yesterday's deficit commission news conference in which the screaming and shouting over five percent budget cuts was witnessed - when the actual amount of adjustment necessary, when using realistic estimates and not ridiculously-rosy projections, is closer to forty percent.
To those who claim that this is impossible I will simply note that the government has literally doubled in size in less than a decade. A 40% reduction is less than that growth - that is, it takes us back to less than the year 2000 levels - yet we find a five percent reduction to be patently unacceptable.
No, folks, we will not do this voluntarily.
We'll do it the hard way.
That's my bet, that's how I'm positioned, and that's what I expect.
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