IN my 40 years in the finance and investment game, the one cause of failure that was a constant throughout Australia and the nine overseas countries that I operated in, was debt.

This month the debt crisis in the USA really hit the headlines.

President Biden openly stated that he had only just averted a major financial catastrophe on a scale never previously anticipated.

That the President of the world’s largest economy should admit that, must send shivers through every human who knows how the system should work.

The shape and size of the dog we are discussing is mind blowing.

The USA has a population of some 334 million residents who need feeding, housing and health care expenditure from the Government’s budget.

Presently the USA has admitted to a Government debt of US$31.4 trillion. Because they would have been unable to pay any bills after mid-June, their parliament had been asked to come together on a bipartisan basis to approve of the nation’s borrowing power to be increased by an eye watering amount in order to avert a financial meltdown.

Please take a moment to think about what “a trillion” looks like.

It is one thousand billion and is written as US$1,000,000,000,000.

Chew on that number if you can then panic when you realise that this is the size of their debt.

Plus, they want to increase it.

Wow.

Nowhere is anyone saying that they need to reduce debt.

There is no positive thought about how or when they might even bring it down a bit, especially as interest rates are rising world wide.

No one is saying ‘How about living within your means?’ or ‘Only spend what your income will allow’.

What they said was ‘Guys, we have run out of money, I know how we will fix it – we will borrow even more’.

The decision they came to was not to increase their level of borrowing.

It would be interesting to know where they thought that kind of money was coming from and what the interest cost might have been.

They settled on allowing the nation to borrow whatever it needed in order to pay its bills for next two years with no limit, when one could assume that another election would take place and hopefully everyone might then forget about the level of debt.

Talk about kicking the debt further down the hill and leaving it to the next administration to do something about it.

I need to say that I have great affection for the American people.

I have many good friends over there, enjoy their country and have visited many times over the past years.

I have also done business with them for over 30 years.

But boy oh boy they are huge risk takers.

To my way of thinking it looks more like the discredited buy now and pay later scheme that our courts are saying is a recipe for financial failure for whoever gets involved with it .

It begs the question, if the only value of a currency is one’s confidence in it, and this ever fails, are we looking at another Argentina or one of those banana republics we read about?

Australia has tied its little canoe to the US sized aircraft carrier in order to secure our future, probably because there is no rational other choice due to our isolated location and what we all think could be unfolding for our security in the world.

However, this US debt situation is a troubling event.

If the USA can’t keep the confidence factor high, then heaven help all those nations tied to it.

The only way I can think of to resolve this issue is for more US currency to be printed in order to get their job done, in the hope that several other countries may well be doing the same.

As these currencies are devalued, we all retain our relative positions to each other. If the big guy goes down then there is no hope for the rest of us.

Just for interest’s sake, the world’s largest economies from the biggest downwards are USA, China, Japan, Germany, UK, India, France, Italy, Canada and South Korea. Australia runs at thirteen behind Russia and Brazil.

In many of these countries Governments are trying to provide their citizens with facilities they cant really afford to fund from income, so resort to the politically easy remedy of borrowing or printing more currency in the hope that no one really appreciates what the end looks like.

This also provides the short term remedy that all politicians are looking to achieve for their re-election chances in the next two to five years.

By John BLACKBOURN