Obama's long term tax on growth...

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How the UK mortgaged its future

In the context of the forthcoming election, the fiscal deficit dominates the political discourse, writes Deutsche Bank's Paul Wharton

The oldest slogan in the Western political economy is “seisachtheia”. Roughly translated, it means “the cancellation of debts”.  Some 2,500 years since it was first used by indigent farmers, it remains a topical and emotive message. Ironically, the term owes its existence to a previous Greek financial crisis.

In the context of the forthcoming election, the fiscal deficit dominates the political discourse – and with good reason. Since 1987 the UK has taken on debt at unprecedented levels. As the recent financial crisis unfolded, the private sector proved unable to sustain the absolute volume of debt incurred. The public sector stepped in. What we need to ask now is whether the public purse can sustain this volume of debt – and, if so, for how long.

How long can America sustain Obama's massive growing debt?

Debt accelerates growth and is fundamental to capital formation; but that capital must be productive, otherwise increased investment leads directly to diminishing returns.

We have just had our very own Asian crisis, and therein lies a clue as to where investors should be looking.

What is striking is the divergence between the debt burden of developed markets versus emerging markets. In the 12 years since the 1998 Asian crisis sovereign risk has been transformed. It is with the West, not the East.

Deutsche Bank research paints a disturbing trend in developed economies, with aggregate public debt rising inexorably as a percentage of GDP. This is a long-term tax on growth. By contrast, debt levels in emerging markets are already much lower than in the West and are forecast to go lower still.

This divergence shows up in the competing growth rates, with EMs growing at 6% and we in the West struggling to maintain 2%.

The key lesson for investors is this debt constraint will limit growth in the UK for many years to come. What is equally clear is the emerging economies learned their lessons the hard way in 1998 – and it is to these economies that we should look for growth, for they possess the balance-sheet strength to fund it.

Does the Obama administration have the balance-sheet strength to fund a prosperous future for America? 

Will Obama's debt leave Americans destitute?  In perpetual debt?  Slave to foreign masters?

more here - http://www.investmentweek.co.uk/investment-week/feature/1603806/how-uk-mortgaged-future