Time Value of Money
September 18, 2020
I am about halfway through an interesting book right now, Money for Nothing by Thomas Levenson, about the South Sea Company bubble of the early 1700s. Some readers may assume that we will tie that mania to the recent runup in technology shares in today’s market; however, that is not to be the case, though there are examples of great scientific thinkers (i.e.
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Spend Baby, Spend!
September 9, 2020
A friend asked me an interesting question the other day. “With interest rates so low right now, why do we care about the level of national debt? If we were paying 4% - 5% a year to borrow money, I would feel a lot worse than now when we are paying barely a tenth of that. Shouldn’t the current situation make it easier to pay off our borrowings?”
This article is not judging the need for the recent stimulus – we needed it. Instead the article is about long-term ramifications of debt if we do not develop a plan to mitigate its growth – or, perhaps, even pay it down. Theoretically, the last part of my friend’s question makes all the sense in the world… if the United States treated its debt like a home mortgage.
However, a portion of those mortgage payments is principle rather than interest only, i.e. after thirty years the mortgage borrower has no more debt. As you can see from the chart below, not only has the government not paid down its debt, but it has dramatically increased over time. (editor’s note: The U.S.
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