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21 December 2012


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More than 50% of Fundsmith's money (£800M) is directly invested in the USA. Are the chosen companies as resilent to the present situation as they have been to other crises over the past 100 years? We investors all hope they are.

Terry Smith

Dezzie: We are less interested in where a company is headquartered or listed than in where it does business. Almost all of the companies that Fundsmith is invested in operate internationally if not globally. As for resilience, on average they were founded in 1902 so they survived two world wars and the Great Depression so we hope and expect they will survive the present difficulties.


I think we can debate "quasi" debt vs actual debt until we're blue in the face (I think there's a good argument to class inter-agency debt as actual debt...but PV'ing future expenditures is much more dubious). I'd also caution against using a "household" as an analog for the "government".
Firstly: households owe money to someone else outside the household but U.S. debt is largely owed to Americans themselves.
Secondly: households have to pay off their debt; governments do not.

In any event, I think there's an easier way to look at this problem: the objective is not suddenly to start running a budget surplus but rather to ensure that government debt as a share of GDP is going down rather than up. (I'll qualify that by saying one shouldn't expect to achieve that goal during a recession).

When looked at from this perspective, the gap you have to fill is considerably less than the USD 1 trillion that's being bandied about.

Terry Smith

Andrew: We don’t need to argue about quasi debt-America is in a precarious enough situation based upon its actual debt-but the idea that social security and healthcare liabilities are not part of the financial burden is a novel idea which will never catch on in the corporate sector which has to undertake accrual accounting. The analogy with households is good in my view. Traditionally individuals could not run core debt which was not repaid unlike government and corporations because they died and the governments and companies did not-they carried on indefinitely. But in the modern age it seems to have been accepted by banks and society that individuals can similarly run some core debt which is never repaid-that is exactly what an interest only mortgage is. As for who owns US government debt-there is a large and growing sum owned by the Federal Reserve which presumably you are counting as part of the American owned portion and I will count as financial legerdemain. If we exclude that a much larger portion is owned by foreign government entities. But overall if we can’t agree that America has a massive debt problem, we’ll just have to differ.

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