November 26th, 2012
Mr. Barack Obama
President, United States of America
c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Re: “Fiscal Cliff”
The United States of America is at an impasse. For many years, this country has maneuvered quite a path relative to the booming gross domestic product (GDP). And along the journey, the country managed to banter and borrow itself into a full economic mess. Notwithstanding, the GDP of your country is at its highest nominal value ever, now a hair over $15 trillion. But your country is also over $16 trillion in debt, making the very large elephant in the room a government debt-to-GDP ratio of 103% (notably the ratio’s worst level by a very substantial margin since the end of World War II). And, as so many are now keenly familiar, the world’s largest economy is plagued by budget deficits showing little promise of a more manageable debt burden in any decade to come.
It is actually an interesting footpath that has led you and your colleagues into such an insurmountable corner. After borrowing at previously unseen levels to steer through a great recession, both your party and the other side of the political coin became hyper-focused on the level of government debt outstanding. In an attempt to appease voters, you and other Democrats attacked the top income earners of your citizenship, promising higher taxes on the wealthy to pay off the burden. And for their part, Republicans pandered to their pulpit by preaching a strategy of lower expenses on most anything but defense.
The problem, herein, is really quite easy to discern. You and your governing counterparts are deeply immersed in a game of chicken (pun intended, respectfully). As children do when they play, both sides now wait nervously, hoping the other moves first — desperate to implement varying strategies to save the country by paying down the amount of money owed. Unfortunately, you are both gravely erroneous in your focus and the game itself has been mislabeled.
The problem facing your country is not the advertised, “how to reduce the size of government IOUs.” A prosperous future has little to do with finding an agreeable way to accommodate your country’s grim fixation with paying down said burden. Let’s be clear, this is not a game of chicken between two ideologically different governing entities, as politicians, media, and pundits would surmise. Rather, the very large problem facing you and your country is the ratio (of debt-to-GDP), not the mostly symbolic and meaningless debt level. Again, this is not an entertaining game of “chicken” — though such a fiasco seemed to greatly benefit rallying your base and television ratings. This is, quite simply, a game of Russian roulette you and others in D.C. are playing with the economic future of the country.
Fifth grade math suggests there is another way to reduce the ratio other than paying down the numerator. And, higher education mixed with even a little intellectual thought advises strongly that, if successful, your attempts to reduce the numerator will also result in a parallel reduction of the denominator — rendering the crafty ideas-to-date of you and those on Capitol Hill obsolete and a complete waste of time. (If you need a little real-time evidence of such, please phone or visit any one of 17 members of the Euro zone —– Germany, slowly starting to feel the impact of periphery austerity, included.) Mr. President, in the real world of government finance, the only way out of a harrowing ratio circumstance is by increasing the denominator (GDP).
GDP, finicky as it is, actually responds well to investments in infrastructure, low relative tax rates, foreign direct investment, and a commitment to education and innovation, to name a few. And GDP, fussy to no end, responds best to even a sliver of confidence; a vital change in sentiment that realistically could be sparked from D.C. by a focus on what matters, the ratio, rather than on what is popular, the debt level. To be frank, federal debt of $16 trillion, or $20 trillion (or more even) is nothing to fear when compared to GDP of $30-$35 trillion plus. You must increase the size of the economic pie, or fail blatantly in your futile attempts at numerator reduction. Mr. President, if the ratio does not change, nothing else will either.
Lastly, one might facetiously solicit you to take solace in the accomplishment of a campaign pledge — reaching across the aisle to create unity and bipartisanship. In light of tremendously heated fiscal debates, it seems both Democrats and Republicans have finally found common ground. Both parties are laser focused on debt reduction, albeit through varying tactics; both are completely united in a defective, misguided view of the actual problem. Our government stands together in its foolish aim at the wrong enemy. (Note: The last time such consensus was reached, elected officials — outside of you and a few others — led the United States into a war against a foe with no ties to 9/11 and no weapons of mass destruction. Perhaps this time the country can avoid warring with the completely wrong target and address the real issue at hand.)
It is now time your country forgets about the debt level and concentrates on that which is paramount: Growing toward a larger denominator and thus improving the ratio. This would mean doing what is proper even if unpopular. Lest, that evasive hope and change you spoke of so loudly is now knocking at the door. Are you, the commander-in-chief, brave enough to open it?
With much hope for your leadership and ultimate success,
Founder & CEO – CitrinGroup
Adjunct Faculty of Finance – Wayne State University
Jonathan Citrin is founder and CEO of CitrinGroup, an investment advisory firm in Birmingham, MI. He is an adjunct faculty of finance in the School of Business at Wayne State University, and a national speaker on financial theory.
Contact: 248-569-1100 or www.citringroup.com.