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When Wall Street Says Don't Worry About the National Debt, You Know it is Time to Worry.

An incredibly shoddy piece of research on the national debt problem has been posted by JP Morgan called "5 Myths about U.S. Government Debt." Check it out.

You won't believe your eyes when you read it.

First, in response to the threat of a U.S. debt default, JP Morgan says don't worry about a U.S. debt default because the federal government has the power to seize everything in the country to pay the debt.


Check out this quote: "One of the reasons the U.S. has been—and continues to be—a traditional safe haven for global investors is that investors know very well that the U.S. has nearly unlimited taxing power and a huge asset base. The federal government could—if needed—force liquidation of these assets to pay its entire stock of debt nearly 10 times over before defaulting."

How's that for your comfort level!

Don't worry about the federal debt. The government will seize everything in the country to pay it if it has to, Mr. Investor.

Problem solved.

Second, in response to the extraordinarily high levels of U.S. Debt, JP Morgan's crack analyst team uses false Debt-to-GDP numbers.

Instead of counting the entire national debt, including the debt held by the Social Security Trust Fund, JP Morgan's outstanding investigative team simply counts publicly held debt--about 3/4ths of the actual number. But they don't even have the honesty to tell you they're only only counting a portion of the debt!

Based on a count of only a portion of the actual debt they claim "the debt-to-GDP ratio stands at approximately 74%; an elevated level, but hardly a record." They continue by observing the CBO "projects only a slight increase in net debt as a percentage of GDP—from 74% in 2015 to 77% in 2025."

This is complete nonsense.

The actual total national debt to GDP ratio is over 100%, at nearly Greek-levels when the Greek crisis began in 2007. Check out the below accurate graph.

Also, check out this map (from the Economist) which depicts how the U.S. has sovereign debt loads generally only found among basket case countries around the world.

Third, JP Morgan's goof ball investment gurus assert without evidence that interest rates won't "explode" and claim we shouldn't worry about interest rate hikes anyway because "any rise in interest rates would almost assuredly be the result of a healthier economy and inflation expectation."

For reality, check out the pie chart below.

With interest rates at nearly half of historical levels. What happens to the budget if they "non-explosively" double to historical levels? Double the slice of the pie. Who gets hit? Don't worry, says JP Morgan.

Nothing to see here.

Fourth, JP Morgan says don't worry the debt problem can be fixed, the trick is "finding the political will and the level of compromise and collaboration that would be required to make progress."

No kidding!

That's just about the most brilliant statement of the obvious ever made. So, how do you find that "political will" when the current system hands unlimited credit cards to politicians and says, "knock yourself out?"

JP Morgan diverts to a small portion of the fiscal mess we face and says "raise taxes." Specifically, let's increase Medicare payroll taxes "2.9% to 3.6%." Easy peasy.... Wait, that's a 42% increase in the Medicare payroll tax and it only addresses a portion of the $70 to $210 trillion in unfunded liabilities from such entitlement programs! What about the other tens of trillions of dollars in unfunded programs?

That's the sound of crickets and fiscal wizardry, courtesy of JP Morgan.

Fifth, after saying, "there is nothing to see here" over and over, the fine fellows at JP Morgan hedge their bets, "nevertheless, investors should establish a plan to address a few manageable debt-related investment headwinds."

Gotta love legal team intervention!

Don't be fooled by Wall Street.

Visit for accurate analysis by real experts. Go to CFA Live and watch podcasts from Dr. Byron Schlomach, Dr. Sven Larson, and ASU senior economist Steve Slivinski.

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