A brief post on the debt crisis

July 27, 2011

I am not a financial sophisticate, and this sort of thing is not the usual topic of this blog, but I have been thinking off and on about the debt crisis while sipping Mai Tais the last couple of weeks.

First of all, it is clear to me that this is not a true financial crisis.  The United States of America is not anywhere close to being insolvent.  This is a political crisis manufactured by both sides, each seeing an opportunity to solidify their political fortunes in the upcoming election season (that said, I do believe the freshman Tea Party Republicans are sincere in their position – I do not believe there is anything sincere in the positions of the old line Republicans, nor the Rockefeller Republican wing of the Democratic Party represented by President Obama).

Now, given that the United States is not insolvent, it seems to me that a technical default and a ratings downgrade would represent an outstanding opportunity for the individual investor.   A downgrade means higher yields on US bills and bonds, but the unquestioned solvency of the nation means that the security behind them remains the same.  I understand that the big institutional investors have different interests – they are more concerned with capital appreciation than with yields – but this represents a tremendous opportunity for Main Street investors.

As an aside, I am also fascinated to see the latest evolution of the Republican Party.  All of my life, the GOP has slowly been becoming less and less  country club and Wall Street and more and more populist and rural.  In the present episode, we see the populist wing really flexing its muscles and giving the finger to the Wall Street wing, which has traditionally been one of the most important power centers of the GOP.  The times, they are a-changing.


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