Why This Debt Crisis Isn't Different

Adam Bold

There are worries in the marketplace, but many of the concerns are not new. One worry is that this time is different and the national debt is going to bankrupt the United States of America.

You've probably heard the saying: "Those who cannot remember history are doomed to repeat it." A recent Motley Fool article, written by Morgan Housel, features old quotes that sound very much like the things we're hearing now.

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Housel found this quote: "Reviewing the astronomical figures of our national debt and deficit financing, Mr. Lintz pointed out the crucial situation, which foreshadows national bankruptcy. 'We have come to the end of the road,' he warned, 'and must go back to the philosophy of our founding fathers. We must quit asking the government for handouts, cease non-essential spending, and pare down Federal expenditures.'"

Does that sound like anything you've heard lately? That quote is from the Jan. 16, 1951 edition of the Owosso Argus Press. Since then, the economy has grown, the stock market has risen, and we have persevered.

I've heard this: This time is different because so much damage has been done that we can't possibly recover. This country is going to collapse.

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From Housel: "Unless this nation's fiscal policy is brought under control and some sense of balance is maintained, we are truly headed not only for a short period of recovery from recession, but the very real danger of almost permanent recession gripping this nation." That's from March 2, 1983 in the Kentucky New Era. Obviously, we haven't been in continuous recession since 1983.

Here's another worry: China is going to own the U.S., and we'll become some third-rate economic power. In 1989, there were similar concerns, except then it wasn't China—it was Japan.

Housel used this quote in his article: "Nearly half the Japanese questioned in a poll released Monday believe Japan will overtake the United States as the most dominant economic power of the 21st century." That was from July 18, 1989 in The Rock Hill Herald. Guess what? Japan did not overtake the U.S. as the dominant economic power.

I've also heard: This time is different because the people in Washington, D.C. right now have no clue what they're doing.

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Here's the quote: "[This is not] an economic recovery, no matter what the president says. And after 20 months of Reaganomics—20 months during which Congress has gone along with almost every facet of the president's economic plan—it's about time for some results. Americans need jobs, and if the Reaganomics prescription won't provide them, it's time to change the medicine." That's from Oct. 1, 1982 in the Boca Raton News. As it turns out, Reaganomics worked. The U.S. has a big economy and makes a lot of stuff. It takes time for things to filter through our economy.

Here's the point: We make investment recommendations for our clients based on economics, not on fear-mongering or press chatter. During tough times, it always seems different when you're going through it because you're living it in real time.

But you should expect to have bumps in the road. Yes, there are real problems. But we have the gumption, training, and experience to get through these problems. The U.S. is still the dominant economic power in the world, and we should have confidence, not fear.

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If you worry about your investments, it's probably because we've been through two bear markets in the last 10 years, and you don't want to go through it again. Or it's because you don't have an investment plan and you're guessing and hoping your choices will work out. Or you're nervous because you don't have someone monitoring your investments. I understand all that.

Your investment plan and strategy should be appropriate for your level of risk. You should have an expert monitoring your investments and making changes when needed. That way you can sleep at night because you know that someone is actively watching your money.

Above all, don't let the gyrations in the market scare you and cause you to do something that's going to hurt you in the long run.

Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice with locations coast to coast. He's also host of The Mutual Fund Show, a call-in radio program broadcast across the country. Bold is author of the book The Bold Truth about Investing (April 2009). Bold is Chief Investment Officer of The Mutual Fund Research Center, an SEC-registered investment adviser, which provides mutual fund and asset allocation recommendations, and research to stores in The Mutual Fund Store system.

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