The reason for this is that we felt we were being repetitive with the primary theme we found ourselves writing about since this blog’s inception in 2007. That theme is that government spends too much money, is too intrusive in its regulation of business, and continues to abdicate its responsibility to "promote the general welfare", instead attempting to "provide for the general welfare" of citizens of the United States. Simply, it has been, and continues to be, too BIG!
It had been our view that administrations from both major political parties had contributed to a massive increase in government over many decades with a few respites here and there -- Reagan tried, but spent a lot in the effort to win the Cold War; Clinton and a Republican Congress post-1994 balanced the budget, albeit only briefly. Yet, for all practical purposes, the spending has been relentless. In the fourth quarter of 1989, US Government debt stood at $2.9 Trillion; by Q4 2007 it was $9.2T; Q4 of 2019: $23.2T; and by Q4 2024 it hit $36.2T! (US Fed Bank of St. Louis).
A full assessment of the growth in debt would be misleading if we did not consider the asset side of the balance sheet. A quick look at US total gross assets in Q4 2007, according to Federal Reserve data, shows roughly $190T in total gross assets in the US; a debt to asset level of 4.8%. By Q4 2024, the total gross assets in the US reached roughly $200T; a debt to asset ratio of over 18%. Notwithstanding that asset values in 2007 were bloated due to a richly valued real estate market, it is notable how much debt levels have grown versus asset values over the last 15-plus years.
We have long been believers that the level of U.S. national debt was not as important as economic growth, the idea being that if the economy grows fast enough, it can absorb higher levels of debt service. However, the acceleration in deficit spending in recent years (we may have forgotten to mention that the government has been running fiscal deficits since the mid-1990s) has coincided with a growth rate in the economy, post-2008, that has only grown 2% per year as opposed to the average 3% in the years since WWII. Any doubt that government spending crowds out private investment and leads to lower growth need look no further than that record of sluggish growth. It is as if the US were trying to copy the European Union in how to stultify economic growth. They have been growing at those lower levels since WWII.
The real issue, as we previously stated, is the growth of debt. More specifically, the rapid increase in government spending—and consequently, debt—has weighed on the economy. This remains the primary issue.
So, what has changed? What is the reason to resurrect the "blog"?
It's the hissy fit we are currently seeing in markets, particularly the market for high growth businesses (our income-oriented business have held up well), that has garnered attention and prompted the return to intermittent blogging.
We have spoken of the "hissy fit" in markets multiple times before, such as in this blog post here.
Just to recap, the hissy fit is defined as the market acting like a petulant child that is mad because their parents say it's time for bed. Or, in this case, the market that doesn't want to take the medicine of cuts in spending and a reduction in the size of government for fear of what it may temporarily do to the economy. The new administration that came into power in January of 2025, fueled by the "DOGE", or Department of Government Efficiency (perhaps an oxymoron), is on a mission to reinvent government. And we say "go for it"! By the way, we have been in a growth recession for over fifteen years, so maybe we should try something different!
For sure, the tariffs that the Trump Administration has ushered in are another reason for the recent sell-off. We have historically been against tariffs due to the disruption they can cause for businesses that do business globally. That said, we understand the myriad reasons the Administration wants to use tariffs to spur global actors, who have not necessarily been acting in good faith with the United States, to change their ways. Why do our first world trading partners charge us tariffs at all? There are various issues involved in the tariff debate that would require a much more extensive post on its own merit. Suffice as to say that it is causing consternation in the short run, but we believe it will sort itself out over time. In fact, there have been some suggestions to use tariffs in lieu of the income tax to finance the government (the way the US did up until 1913). To this,we say again "go for it!"
Even more important than tariffs is the need for the extension of the 2017 tax cuts that are due to expire this year. It is crucial that those cuts get extended, or better yet, made permanent—and soon. This may be the issue that is causing the most amount of uncertainty and angst in the market.
Lastly, we would argue that the weak economic growth of the last fifteen or more years was primed by horrible policy dating back almost 25 years now. We said it at the time and we still believe that the over-regulation in the wake of the dot.com bubble (Sarbannes-Oxley, Regulation FD), 9/11 (Patriot Act), the 2008-9 Financial Crisis (Dodd-Frank) and virtually everything about the way the U.S. government (and others around the world) reacted to COVID in 2020 and beyond, has resulted in the 21st century being characterized by significant constraints on business formation that impede real innovation from getting proper capitalization. We point yet again to the "8000 to 4000 problem" (roughly the shrinkage in the number of public companies) over that same 25-year period. We can think of very little that better encapsulates the ramifications of this terrible policy we have witnessed for a quarter century!
And now, perhaps for the first time in decades (some of our lifetimes), we may actually have a chance to right the ship. It may be painful for a while, and the hissy fit may continue, but it must be tried. When the communities around Washington DC are some of the richest in the world, a region which produces virtually nothing, there is a problem. Could it be there is corruption in DC?
We have spoken for some time about the fact that we believe the best path to long-term wealth accumulation is the ownership of well-run businesses in front of fertile growth fields, through multiple market and economic cycles.In today’s volatile world, we adhere to that concept more than ever. We have always believed that and stuck to it even when we saw silly government policies. Now, we see the potential for real policy adjustment that could get us back to 3% growth and beyond. It can unleash the innovative, entrepreneurial American spirit like nothing since the 1980s with advancements in computer processing (artificial intelligence) unleashing ever more efficient business processes and functions, advancement in medicine extending the productive lives of the citizenry, and industrial automation freeing up humans to work on more and more technological advancement.
We have an opportunity here to change course in a major way. It will be choppy, but we believe it will be worth the wait.
