The Debt is too D*** High
Politicians use the debt ceiling as an economic battleground. But in reality it is an imaginary line in the sand.
For starters, America has not always been in debt. In fact, we paid off our National Debt in 1836 during President Andrew Jackson’s term. How? A combination of duty tax revenue and public land sales.
But since 1836, the government has been on a spending spree. In some cases for good reason. We had two World Wars and the Great Depression. Our government was also in charge of creating the greatest country in the world. Yet at a certain point, things got out of control.
Today the U.S. has $28.43 trillion in debt. About ~130% of the country’s current GDP.
This is a problem.
Our country is running at a deficit. In a big way. The last time we had a budget surplus was during the Clinton Administration. But spending has skyrocketed since the 2008 Financial crisis.
I have one theory why politicians can’t come to an agreement. They believe we can spend our ways out of economic problems. And that the U.S. Dollar will remain the world’s reserve currency [Bitcoin is a serious threat here].
Now if you are worried about the U.S. government defaulting, don’t be. The debt ceiling has been raised or suspended 78 times since 1960 by political parties. No one wants to risk a new $3.5 trillion infrastructure at the last minute.
The Problems with Infrastructure Spending
Right now politicians are battling over a $3.5 trillion infrastructure bill. Spending is a serious problem in America. We have no accountability. Plus I don’t know how to track the $3.5 trillion being invested. Where are politicians spending the money? What is the return on investment? Why are tax rates increasing?
If it was up to me, I would only focus on two infrastructure programs: technology and transportation. It provides us with an offensive and defensive strategy. At the heart of this strategy is renewable energy. If we spent $1-2 trillion on solving America’s energy problem, we would maintain global leadership in a dominant sector [energy].
Here’s where I would invest:
- Technology: Invest heavily in telecommunications. We’re doing a great job with Space programs such as SpaceX’s Starlink satellites [affordable global broadband]. Now we need to invest heavily in cybersecurity and computing hardware.
- Transportation: This deserves the largest allocation of infrastructure dollars. It’s time for the second coming of the industrial revolution. We can invest heavily in five categories:
The spending problem is real in America. It needs to be solved today. All the small programs stuffed in the infrastructure bill are useless. The return on investment will be near zero for most. And any projects below $100 million can find alternative funding sources [venture capital]. The Federal government must focus on large projects.
How to hedge against inflation
Look, excessive spending will result in higher prices. First, the government is allocating big money towards infrastructure. So expect the ‘floor’ price for many goods to rise as $3.5 trillion enters the economy.
There are a few ways to prepare for inflation:
- Invest in Hypergrowth: companies growing top line at 50% per year;
- High free cash flow: direct investments in private businesses [mining is a good example, commodity prices tend to rise with inflation];
- Alternatives: Bitcoin and Ethereum are at the top of the list here. Uncorrelated assets are your best bet against bad economic times.
Hyper growth companies are tough to find for two reasons: 1) chasing growth is expensive and 2) it's tough to value companies that lose money to fund expansion.
Direct investments are illiquid but can generate serious cash when profitable. Think of an oil field continuously extracting resources from the ground. Your hedge is the price of oil rising with inflation, making your investment more profitable overtime.
Also, new alternative investments today provide liquidity and real value. In the last 12 months, Bitcoin and Ethereum have become mainstream. Major institutional investors are investing in crypto as an insurance instrument. It’s worth diving deep into the crypto rabbit hole. More on this in a later post.
So here are three ways to hedge against inflationary times. Let me know what you decide to do.