John Bogle on the Future of U.S.
I’m a big admirer of investing legend John Bogle. Whenever I see an interview of him, I read it. Fortune had one recently and there was one question and answer I’d like to highlight.
The immediate concern for most investors is the subprime market, but over the long term what do you see as the biggest challenges facing the U.S. economy? - BEN LERMAN, CHICAGO
Externally, we are faced with $1.5 trillion already poured into Iraq and Afghanistan. So you have enormous expenditures in a corner of the world that is important to us, but it is very unwise to think we can bring democracy to a place that doesn’t share our values. There are also the challenges from low-cost production in China and India.
At home, we have a tremendous future financial problem with the federal deficit. We’ll have to take action on Social Security someday. Government spending has gotten to the point where we will have to either cut spending or raise taxes. Another problem is this deadlocked Congress. And I see the quality and caliber of our presidential nominees, and I am not impressed. It raises the question of whether this country is even able to run itself anymore.
Although he doesn’t get into it, he does nail the future problems of the U.S. The federal deficit in general and unfunded Social Security and Medicare liabilities in particular are the 800 pound gorilla in the room nobody wants to acknowledge.
And his last statement is killer: “It raises the question of whether this country is even able to run itself anymore.” Wow. Powerful stuff.
December 17th, 2007 at 1:39 pm
it is unfortunate that Ron Paul has to break records in order to get any press in this election at all.
most people i ask do not even know who the candidates are, except the main ones presented by the media.
we are in a sorry state, our economy, our policies, our tax system, the amount of free money we give away to people who dont work, the war, etc.
i echo Bogle on all this.
December 17th, 2007 at 3:17 pm
I think Bogle is on to something, but your interpretation is way off. Even Bogle qualifies his comment about Social Security, and puts more emphasis on out-of-control spending (Iraq War, anyone?) and our nonsensical trade policies with India and China.
Stop with the scaremongering over Social Security and Medicare. If those are the 800 pound gorilla, then the tax cuts for the wealthiest Americans are the 3200-pound elephant.
See: http://www.epi.org/content.cfm/webfeatures_snapshots_20070829
It worries me that all of the Republican candidates have favored making these tax cuts permanent. What happened to fiscal responsibility?
December 18th, 2007 at 6:03 am
@ brian - I don’t consider my comments “scaremongering,” but if you do that’s your opinion. I could do a whole lot more scaremongering on those topics. You are absolutely correct, though, that recent tax and spending (e.g. Medicare part D) bills have certainly made the situation worse. It’s a weird world indeed when the Democrats are pitching themselves as the party of fiscal responsibility.
December 19th, 2007 at 2:14 pm
stop the scaremongering over the national debt too.
nothing that bogle mentioned is shockingly revealing. he addresses things that any reasonably informed individual could say in an interview. it is the easy way out and that’s what i hate. how you solve the problems, more than “taking action on social security,” etc. is more enlightening.
$1.5 trillion on the wars? give me a break, whenever people like adding up numbers, they forget to deduct that the cost of the military operations if there is not a war. soldiers still get paid, etc, etc.
cut spending or raise taxes? what a cop out and an glaring DUH.
low cost production from China and India? yeah, completely forgets that u.s. manufacturing has continued to expand, and the fact that the standard of living in those countries will inevitably create inflation as a result of supply and demand. the same scary thoughts were brought about when korea and japan were on the rise too.
December 20th, 2007 at 11:47 am
@ Tim - Dude, the national debt is so large ($9 Trillion) that each and every person in the country owes $30,000. I hardly think saying ‘that’s a problem,’ is scaremongering.
People who don’t want to acknowledge the country’s long-term fiscal challenges inevitably call it ’scaremongering’ when someone raises the alarm.
December 21st, 2007 at 2:21 am
KMC, you have to temper the national debt figure in terms of GDP. standing alone, the national debt seems huge, but in terms of percentage of GDP it is not such a scary number. i remember all the scaremonger about how large our national debt was during the 80s, and nothing came of it. the national remains manageable and necessary. it isn’t grown burdensome in terms of our GDP.
it’s an election year, so there will be much more focus on the national debt, how much each person owes, etc, etc. it will all be scaremongering, because there are many more factors that account for our country’s economic viability than just its national debt.
December 25th, 2007 at 3:58 pm
The reason our national debt has been manageable is because there was never any loss of faith in the US economy, and it was largely driven by domestic lending. Now its changed, its driven by foreign lending and faith in the US economy is weakening, particularly with the strong economies in Europe and the weak dollar. For the deficit to become unsustainable foreign lenders don’t have to stop lending to us, they just have to start lending LESS. And in the treasury auctions over the last year and a half this is exactly what has been happening for the first time in history. Will it change? Maybe, fundamentally we’re still strong but we have some big structural problems we need to fix (as well as huge over spending issues that need to be resolved).
Now virtually every major American bank has a foreign government as their largest investor (e.g. Abu Dhabi, Saudi Arabia, China, Singapore). Most of this has happened over the last couple of months since bank balance sheets began to implode. A lot of people fear the fact that foreign governments now have such large ownership stakes in our banking system but ultimately I think its a good thing. They’ll be more inclined to provide liquidity going forward when we need it. The fact of the matter is that the sovereign wealth funds of countries in the Middle East and Asia now control the largest pools of cash and we need their help to sustain our markets.
December 26th, 2007 at 5:48 am
@ Festivus - You’re absolutely right in your analysis. Furthermore, on your point about banks and foreign investors, I think that situation is just a microcosm of the U.S. in general. I think U.S. families, banks, and federal government all suffer from the same affliction - they borrow and spend more than they make and use financial engineering and aggressive investments to try to make up the difference.