In BSW Blog, Economic Outlook, Portfolio Commentary

Summer in Boulder is fabulous.  The skies are blue, the mountains sparkle, the creeks rage, and the town develops a sleepier pace in the absence of 20,000 college students.  The season also brings one of Boulder’s finest events, the Colorado Shakespeare Festival, which began in 1958 and makes use of CU’s fabulous outdoor Mary Rippon Theater.  This is my fourteenth year attending the festival, which never fails to add some nuanced view on life, love, and human folly.  But you need not attend the Shakespeare festival to watch high drama (or comedy) these days, as more than enough is currently emanating from Washington DC.

When we are born, we cry that we are come

To this great stage of fools

-King Lear

The outdoor Mary Rippon Theater, home of the Colorado Shakespeare Festival.

Act III, Scene I of the Debt Debacle took place in Europe, mostly Greece, with a foreshadowing of scenes to come in Italy, Portugal, and Spain.  We moved on to Act III, Scene II of the Debt Debacle which takes place in Washington DC and is about to close on August 2nd.  I say “act” because the antics are, largely, just political theater.  The “debate” so far has largely consisted of each political party shallowly offering soliloquies on their principles while President Obama beseeches them to compromise.  BSW’s view is that this pointless posturing will continue up to the deadline, but that a compromise sufficient to “kick the can down the road” until the 2012 election cycle will likely be reached.  The underlying problem is that Washington, so used to feeding at the trough of free money – both from special interests and from seemingly limitless federal spending – has lost the ability perform its essential duty: to make decisions, especially difficult ones.

“O coward conscience, how dost thou afflict me!”

-King Richard III

Even if Congress succeeds in, once again, kicking the debt can down the road, there is no “immaculate solution” waiting ahead.  We pine for a quick, easy, and painless solution to our bloated budgets and debt-ridden balance sheets.  But as with any addiction (food, drugs, debt, etc.), the only proven remedy is disciplined effort exerted over time.  Having the world’s reserve currency is therefore both a blessing and a curse.  A blessing because we can continue to print money to support our unsustainable habits, and curse because it makes corrective action, or “eating our peas,” all the more unpalatable in comparison.

In a nutshell, the loose money and easy credit policies of governments around the world facilitated excessive consumer leverage via banks.  As consumers defaulted, the banks were on the hook for their borrowers debts.  The banks then foisted much, but not all, of their junk onto government balance sheets.  But as we’ve already seen in Europe, eventually there is no higher power to which the debts can be passed.  Europe has the will, but not the means to resolve their problems.  While the US has the means, but lacks the will . . .

Men at some time are masters of their fates;
The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings.

-Julius Caesar

-David Wolf, Chief Investment Officer

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