The Cancer of Debt and Deficits

John Mauldin's weekly letter a few back title The Cancer of Debt and Deficits was great insight to the debt crisis currently facing the US and in my mind the cowardly and defunct elected politicians that continue to do nothing about the situation instead of making the difficult but correct calls.

One thing that mutual fund mangers and politicians have in common is getting fired.  Case in point a fund manager is so concerned about short-term performance that they forget who is important their clients.  Instead of going with the best decisions they tend to go with the crowd or index themselves against a specific benchmark again not keeping in mind what the best strategy really is.  A politician is constantly consumed and worried about getting re-elected.  They're afraid to make the tough calls that might upset you the constituents even though it is the right decision for the country.  So at the end of the day the manager and politician have an A) fear of getting fired which prevents them from making the right decision and B) failing you the client or citizen by there lack of conviction to do what is best.

Although we measure both short-term and long-term performance at DWCM and the fund we manage we aren't afraid to make calls that go against the herd and we don't worry about getting fired.  We are focused on our strategies and objectives and doing what is right for the client.

With that said here are the key take aways via Mauldin's letter

• “As a businessman, I would rather pay higher taxes on profits than to have no profits at all. Just tell me the rules and I will figure out how to adjust. A Depression 2 would mean 20% unemployment (at least) and a real lost decade, with the Boomer generation trying to figure out how to deal with no money and no jobs and being old.
• The growing debt and the deficit is a deadly cancer on the economy. It will deliver a mortal blow to the economy if not dealt with. As I recently experienced in my family, it is better to deal with a cancer as soon as possible. Putting off treatment will not make the cancer go away by itself, and the cancer of our debt is clearly growing and malignant. It will soon overwhelm our national economic body. But dealing with a cancer is not without cost and pain, whether on a real personal level or a metaphorical national level.
• The hard reality is that the rich just don’t make enough to cover our current deficit. If we raised taxes to something like 60% on the top 10% of income earners, not just the 1%, we might get enough tax revenue, if the “rich” cooperated by making the same income they do now. That type of tax rate is just not politically feasible under any conceivable elected Congress.
• There is NO bipartisan compromise solution that will make any of us happy in its details, no matter what your political views. That is why it is called a compromise, and that is what is needed.
• Never let a good crisis go to waste. The tax code as it currently stands is just unworkable. There are too many special interests and it is too complex. It assumes government knows best how to allocate capital by all the “tax expenditures” (tax breaks) that are in it. Let’s use this crisis as a perfect time to radically reform the tax code.
• Income measures what you contribute to society and spending measures what you take from it.
• What society wants (and needs) is more income, as that grows tax revenues and general wealth. Consumption – what you get from society – is taxed. We don’t just need to tax millionaires more, we need more millionaires that we can tax. And you get that by encouraging growth in the economy.