A petition to sell Montana for $1 trillion is gaining traction on Change.org.
Canada might like to own Montana since it is right next door and has lots of beavers. And the United States could use the money. A trillion dollars would be a nice start in reducing our national debt which has risen to $22 trillion. At about $100,000 a beaver, Montana is a bargain.
But before we sell off Big Sky Country, hear me out. We don’t need to do it.
In fact, the United States is wealthier than it has ever been in history.
The problem is, we’re all thinking about the nation’s finances incorrectly. Here’s an example. Stop me if you’ve heard this one before:
If the deficit keeps increasing, our Government will run out of money. At some point, China and Japan will stop funding our deficits. And if deficit levels get high enough, the Government will become insolvent. The interest on the public debt will crowd out all other public spending and investments. Our children will end up with a lower standard of living because all future tax payments will just go to paying the interest on the national debt. Therefore, politicians have to cut entitlement spending and raise taxes. But, alas, it’s probably too late already. The Baby Boomers will spend what’s remaining of the Social Security trust fund and there will be nothing left for future generations.
It’s all very scary and worrisome.
But it’s all completely wrong.
Everyone believes this because very few people teach economics correctly. So everyone falls back on their own experience…balancing a household budget. If you’ve ever had to balance your checkbook, you know you can’t spend more money than you earn for very long. If you don’t balance your checkbook, you will eventually go bankrupt.
I believed this household analogy for 40 years. And I am a professional money manager. I have a lot of time to think about boring things.
After the Great Recession of 2008, I thought Federal Reserve Chairman Ben Bernanke’s “Quantitative Easing” (or “QE” in finance lingo), would send us into a death spiral. I forecast hyperinflation, a lower dollar, a permanently impaired US economy. Depression. Destruction. Death.
None of those things happened. In fact, the exact opposite actually occurred.
Instead of hyperinflation, we suffered from deflation.
Instead of a lower dollar, the dollar rose to 15-year highs.
Instead of an impaired economy, the US grew slowly but still outperformed every major world economy except China.
Everything I thought would happen was wrong.
Yet, here we are, 10 years after the Great Recession, looking to hawk one of our nation’s great states, Montana, to our neighbors in the north.
It’s time to update our economic understanding.
Our government finances are, in fact, not like a household.
The United States is not about to go bankrupt.
And our children’s future is only limited by our own backward thinking about our country’s finances.
In the next series of posts, I will attempt to explain why everything you know about money is wrong.