alstry (35.90)

When Morals and Investing Merge

May 20, 2010 – Comments (7)

This could be one of my most important blogs as we are now at the crossroads between the Industrial Age and the Digital Age.

In the past ten years....America and Americans have borrowed an incredible amount of money.....about $30 trillion dollars....more than was borrowed in the prior two hundred and 25 years since our nation's founding.

Borrowing and spending that money built lots of buildings/homes, purchased lots of goods, created many jobs, and built incredible wealth in the form of ownership of corporate, municipal, federal, and syndicated debt.

The ownership of this debt is seated in our banks, insurance companies, pension plans and investment accounts.  From a dollar standpoint, the debt is the primary asset class backing America's and American's wealth.

As many know, borrowing and spending can be intoxicating.  When such behavior becomes systemic and unprecedented in scale, a nation becomes dependent on borrowing and spending to survive economically.  If the nation is not borrowing enough, the system eventually crashes due to slowing cashflow as the outstanding debt becomes dependent on issuing new debt to be serviced.

Unfortunately.....once an economy becomes debt dependent, moral issues become blurred as each struggle to stake their claim to dwindling cashflow.

For example, should we allow government to borrow to pay for food stamps and unemployment benefits.  In the Great Depression, when the funds didn't exist, no such payments were made. 

Should we allow government to borrow to pay salaries of government employees?

Should we allow familes to borrow money to buy food or pay their mortgage?  What about purchasing a large screen TV?  When payments are missed, the credit card company nor courts distinguish the reason for the debt.....

Should we allow hospitals to borrow money to pay nurses and doctors?

What about families to borrow to pay for medical treatment?  If we don't let the families borrow, how will the hospital pay the staff?

What about the school districts to pay for teachers?  Or the cities and counties to pay for firemen and police officers?

In the end, when one is operating under a deficit, if they don't borrow they fail.  When the system is running a deficit, if credit is not available, the system fails.

The moral quesion now that we have reached this crossroad is who should we let borrow and how much? 

If we don't let the money losing public corportion borrow, its debt collapses and the pension/retirement funds suffer along with the employees and customers of that company.

If we don't let the family borrow, they lose their house and the neighborhood suffers as foreclosures increase.

If we don't let the government borrow, services shut down and massive numbers are fired and lose incomes resulting in lower tax receipts.

In the end, our entire economy, the wealth of our nation and its people is dependent on the continued borrowing by its citizens, corporations and governments. 

The moral problem comes in on who is permitted to borrow and how much?  In the past our nation prospered as a result of its productivity....in the past ten years, we have functioned primarily as a result of borrowing.

Once we cut off credit to housing and constructionn.....the industry basically imploded to levels not seen in 50 years when our population was much smaller.

Going forward, our nation, and much of the world faces a massive moral issue......who gets to borrow and how much.  Peoples lives will depend upon it.........how we as citizens confront the issue will mold our destiny collectively and individually as we enter the Digital Age.

Just as Alstrymous promised....it will be exciting........now the question is how will we resolve this moral issue.

Should we borrow money to wage war or feed the hungry of our nation?  Should we borrow money to fund other countries or take care of our own.....what if we don't have enough for either?

In the end of the Industrial Age....our prosperity became our debt.....now the moral and investing question is how will we allocate it going forward?