The Ten Trillion Dollar Gamble

The Coming Deficit Debacle and How to Invest Now

McGraw-Hill, 2011

15 min read

10 take-aways

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What's inside?

This book can help you make money and add to your peace of mind in challenging economic times.

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Recommendation

A timely book on personal finance with actionable advice is rare, but investment expert Russ Koesterich delivers specific guidance for investors. He jumps into the current debate on the US budget deficit and suggests ways to prepare your portfolio for an uncertain, “deficit-driven” future. Koesterich details which strategies, asset classes and instruments offer potential safe harbors and good returns amid the grim reality of structural deficit economics. getAbstract finds his discussion of the deficit informative and useful, though at times repetitive, and recommends his book to those who are weighing their options for wise actions in financially challenging times.

Summary

Facing Reality

The US budget deficit in fiscal year 2010 was $1.3 trillion. That amount represents approximately all the debt America amassed from its founding in 1776 until 1984. So, in one year, the country overspent by the equivalent of roughly 200 years of boom, bust and war. Experts predict that between 2010 and 2019, the US will add an annual average of $900 billion to its obligations.

Despite former vice president Richard Cheney’s 2002 comment, “Reagan proved that deficits don’t matter,” the truth is they do matter. While deficits are nothing new in the American economy, these staggering numbers will change the global economic climate and trigger more taxes, greater budget cuts, falling entitlement benefits and increased interest rates. The 2009 and 2010 deficits account for 10% of US GDP, the largest proportion since World War II. Granted, the outsized spending went toward stabilizing a sluggish economy, but the more debt a nation incurs, the higher the chances that it will have destabilizing effects.

The US’s total debt now stands at $14 trillion, an astonishing 90% of GDP. When indebtedness reaches such a high percentage of a nation’s output, further...

About the Author

Russ Koesterich is chief investment strategist for iShares and global head of investment strategy for BlackRock Scientific Active Equities.

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E. R. getAbstract 1 decade ago

One reader (thanks again, Mark) commented that you might ladder bonds (buy shorter and longer-dated issues) if you perhaps weren't going to hold them to final maturity, and that is so. However, you might also ladder as a deliberate strategy to protect your returns on a portfolio of bonds in a rising interest rate environment. The book details that scenario on pp 84-86, for those who want to know more. (E. Rauzin, getAbstract, Managing Editor)
E. R. getAbstract 1 decade ago

Thanks, Mark, for your informed comment. I'm checking it now with the writer and editor and we'll clarify quickly. We appreciate your eagle eye (E. Rauzn, getAbstract, Managing Editor)

Russ Koesterich