Harry S. Dent | Monday, December 17, 2012 >>
It’s time to get real.
Here’s what we need done to get this once-great country back on track:
- We have to address runaway government deficits and debt levels.
- We have to restructure private debt, which is $38 trillion (that’s 2.4 times as high as government debt).
- We have to free up cash flow in businesses and households to regenerate our economy in a decade of slowing demographic trends.
- We need to create more jobs to boost that cash flow.
- We have to radically restructure entitlements like Medicare/Medicaid and Social Security in line with our longer life expectancies.
And there is one simple solution that could achieve all that in one fell swoop…
It’s not continued irresponsible spending.
It’s not unlimited quantitative easing.
It’s far simpler, much longer-term… and just one word…
Yes. It’s THAT simple, now more than ever before because this decade, like the 1930s, will see the lowest long-term interest rates. This makes financing longer-term infrastructure investments far more affordable and profitable than any time in our history.
Such investments will create jobs and, yes, some additional debt as well, but they will pay this off in spades for decades to come. Ultimately, they’ll serve to reduce our government debt… just like they’ve done in the past…
In the 1930’s Great Depression, Franklin D. Roosevelt created massive public works projects to create jobs. He built dams, power plants, roads, you name it. This may have been a desperate approach to stimulate the worst economy in the last century, but it was a brilliant and effective one.
The government may not have realized it at the time, but it was investing in long-term profit streams at the lowest long-term interest rates of the period.
While we certainly don’t advocate wild and reckless debt accumulation, as Rodney wrote in a past Survive & Prosper issue entitled “When the Fed Offers Free Money… Take It,” credit is a powerful tool in one’s financial arsenal when used wisely.
This is key here:
Major infrastructures from water and wastewater to roads, electricity, education and hi-tech information networks pay off for decades to come by reducing the costs of everything and increasing the productivity of everyone.
AND lower interest rates make a huge difference in the profitability of such infrastructures!
Plus building the infrastructure creates jobs and people with work have more money to pay down their debts and spend. With less pressure from debt and more cash on hand, businesses get more traffic through their doors… regenerating our economy during the decline of the Baby Boomers.
Building the infrastructure even addresses the issue of reigning in government deficits and spending…
It’s like fighting fire with fire. Any borrowing done to build infrastructure will be at historic low rates (between 1% and 4% compared to the 16% of the ’80s). The resultant long-term returns would ultimately help reduce the public debt burden.
Wham! There are four out of five of our biggest problems solved.
We need to vote for and support longer-term investments in infrastructures… not only those that need repairing after decades of neglect but also those that create capacities for further development and growth.
We face slowing demographic growth in the decades ahead. So what better way to reduce the impact of this on our economy than to enable higher productivity through better basic infrastructures and hi-tech information networks? The more productive we can be, the longer we can work and the later we can retire. And that puts us onto the path of solving our entitlements crisis as well.
Five out of five.
Now THAT would be a fiscally responsible, longer-term solution!
Ahead of the Curve with Adam O’Dell
Harry and I are definitely on the same page when it comes to investing in infrastructure assets and securities – we love them.