Many investors believe that one American political party spends more than the other, but the facts show that both political parties in the US overspend most of the time. Although the chart below illustrates US data, the same rings true in Canada regarding government spending. Except for a few years in the late 1990s under President Clinton, every year since 1990 government spending (red line) has been higher than government revenues (blue line) - this reality equals accumulated debt.

The good news is that when you measure the burden this accumulated debt has on a country, the best way to do that is by measuring the interest payments as a percentage of GDP, i.e. the size of the country’s economy. By this measure, and as shown by the chart below, the current US debt level is more manageable than it was in the mid-1980s and the 1990s, although we do suspect debts and payments will go higher with rising deficits. Think of it this way, your mortgage interest cost as a percentage of your personal income tells you if you can “handle the payment”.

Are we suggesting the government should spend more? No we are not, we are merely putting it in context. Is their debt a problem? Yes. Can government spending be better managed and restrained? The answer is yes as well, especially if governments repeat what they did in the late 1990s, reduce regulation and let the economy grow while reducing spending growth to be less than the growth rate of the economy so that we have balanced budgets and get the debt under control. What a concept, we'd vote for that!

Randy, Ian and Harrison

Charts source: scottgrannis.blogspot.com