Antebellum

"Gonna come a time when we all gonna have to ante up. Ante up and kick in like men. LIKE MEN!"
--Sgt Major John Rawlins (Glory)

Rumors throughout the weekend that Greece might exit the EU. Nothing 'real' yet, but Greek debt spreads continue to widen...

The situation does present a reminder as to what has transpired over the past couple of years. Debt and leverage on private balance sheets has been shifted to the public sector. The debt has not gone away. It has been socialized.

Many people are waxing poetic about the improved balance sheets and strong cash positions of many corporations. But that improvement has come at the expense of the citizenry. As government takes on debt previously held by private companies and individuals, the spectre of higher taxes and a depreciating currency become realized.

The US is now lugging federal-level debt nearly equal to GDP. Reinhart & Rogoff (2009) found that debt:GDP of 90% is generally the point of no return. We passed that warning sign a while back.

Bulls argue that the off loading of risk to government is bullish for stocks. Perhaps that turns out to be the case.

Bears counter that risk has merely changed hands temporarily. Corporations will ultimately pay. Companies will be targets of future govt tax campaigns. Plus, citizens will have less disposable income to buy goods and services because they are on the hook for future govt debt liabilities as well.

While special interests sometimes benefit from political favor, the magnitude of our debt problem suggests that all will need to ante up.

References

Reinhart, C.M. & Rogoff, K.S. 2009. This time is different: Eight centuries of financial folly. Princeton, NJ: Princeton University Press.