Goldman on The Coming Financial Repression
Must Read
Housekeeping: written in 3 sections this is must read if one is concerned about how the US will manage its growing and unsustainable debt. Founders can access PDF here
Keep an open mind, or get financially repressed
Intro: In a report dated May 22nd Goldman Sachs laid out in clinical, objective economic terms a very harsh reality surrounding the sustainability of our current deficit path. What follows is our analysis of that report followed by a more clinical breakdown of the same report.
However the precision of what Goldman says about our deficit’s sustainability, and the implications gleaned from it were quite logical and foreboding. The report overall is a quantified historical lesson in how nations react to deficits. Hope, denial, repression, panic, and finally belt tightening.
Finally, this type of analysis almost always becomes a jumping point for investment ideas at Banks. We thus very broadly try to anticipate what those will be in the last section.
Analysis Sections: (1400 words)
Report Bottom Line
The Operative Paragraphs
Given Full Employment the deficit is too high. Given this deficit, rates must rise…
Deficits should shrink when not in a recession, not grow…
As a measure of economic health, Debt to GDP will rise considerably because of this…
Greater productivity, and faster GDP growth would lessen this risk…
History says it must get worse before it gets better…
Debt Reduction Can be achieved one of two ways…
Why They Will Default to Financial Repression…
The Report
The Investment Themes
1- Report Bottom Line
The report screams two things.
It is Goldman’s clinical opinion the US deficit and current spending is an unsustainable situation…
It will get much worse before it gets any better based on historical human behavior