Public debt is a serious topic for discussion in today’s discourse, but that’s something that hasn’t changed in many years. Well-informed Americans have been discussing public debt, and fall into one of two separate categories: pessimists and optimists. As you can imagine, both sides present very different outlooks with regards to public debt. Examining these two points of view might help uncover a middle ground.
Beginning with the side that is pro debt, the question of why debt accumulation is a good thing can be boggling. Those who are pro debt believe that government has an obligation to do what it can to facilitate movement in the economy. That might include clearing a savings glut or ushering the country through a Depression. However, optimists also believe that excessive debts should face implicit default. That can have affects on credit rating and borrowing power. Imagine how investors might feel about a country that borrows excessively and fails to pay off its debts. Implicit defaults can also have a ripple effect on interest rates.
Those who are against public debt can take a somewhat extreme stance for the average person to understand. These people tend to argue that the government offers no service that is productive to private enterprise. In fact, they tend to assert that public debt burdens future generations and view public bondholders as impractical.
Is there a middle ground? That depends. A realist might contend that the government certainly does have a function. We need a military to defend our borders, police to keep our streets safe, fire departments to keep us safe from disasters. We need schools and hospitals. A middle ground can only occur in a constitutionally-limited government.
About the Author: Phineas Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phineas Upham website or LinkedIn page.