“You can't always get what you want. But if you try sometime, you might find, you get what you need” The Rolling Stones
Good morning,
I hope the Canadian readers enjoyed the extended weekend! First and foremost, our thoughts are with the thousands of people who have been affected by the devastating wildfires in Alberta, we are thinking about all you out there in the west.
Outside of Canada, the debt ceiling is dominating today’s headlines. As of this morning, Speaker of the House Kevin McCarthy has gone on record as saying that the limit on the US government’s borrowing must be raised this week to avert a default. The meeting last night ended with optimism, but the political game theory is ever more fascinating. While it hasn’t resulted in significant volatility beyond certain segments of the U.S. government bond market, it remains a near-term risk demanding swift resolution. Our bigger concern is that the U.S. is on a path of ever-higher debt and deficits, raising questions about the sustainability of its financial standing.
In this week’s morning musing, I wanted to ensure I take time to discuss the U.S. debt ceiling, and I’ll also visit the illusive word satisfaction, and explore what it means to be intrinsically satisfied.
“Somehow, someway, gotta raise the roof”
Flo Rida
The U.S. Debt Ceiling
The self-imposed U.S. debt ceiling, established in 1917, sets a legally defined limit on how much the U.S. government can borrow to pay its bills. This limit has been reached and raised over one hundred times. The debt ceiling often makes its way into the news when passing the required legislation is expected to be more difficult, typically when there is a divided government. This is the case today, with Congress divided between the Republicans who control the House of Representatives and the Democrats who control the Senate. The Republicans are citing a need for budget renegotiation before considering any increase to the debt limit. Meanwhile, the Democrats began negotiations with a firm “No” on any budget concessions, but there have been some signs of potential compromise and progress in recent days. The debt limit was technically reached earlier this year, but extraordinary measures have pushed the hard deadline to early June, according to Treasury Department estimates.
In my view, the likelihood of failing to reach a deal and consequently defaulting on the debt is relatively small. However, it is worth remembering the potential cost of the path to satisfaction. During the last major standoff in 2011, the negotiations between the Democrats and Republicans ran so close to the deadline that the U.S. credit rating was downgraded for the first time in the country’s history by Standard and Poor’s. The focus on the debt ceiling has revived some of our longer-term concerns about U.S fiscal health. More specifically, U.S. debt continues to grow due to spending that dramatically outpaces its revenue – a situation called a deficit. The Congressional Budget Office estimates that the country’s deficit will nearly double over the next decade, increasing from $1.5 trillion to $2.9 trillion.
The U.S. is facing a dilemma similar to that of other countries. It has options to improve its deficit position, but we are seeing little political will to do so. Among the possible solutions are tax hikes, its main source of revenue. But the bigger opportunity lies with its expenditures, which tend to fall into three categories; interest payments on outstanding debts, discretionary spending in areas like defense and education, and spending on programs such as Social Security and Medicare. Given an ageing population, the U.S.’s future commitments to these entitlement programs are projected to rise meaningfully unless structural changes are made. Unfortunately, comments from both the Democratic and Republican parties suggest entitlement reform is off the table. In other words, few political leaders are willing to tackle the root cause of the country’s deficit and debt challenges.
All that to say, we do expect the debt ceiling issue to be resolved one way or another over the days and weeks to come. Though it may come down to the wire, as it has many times before. We don’t expect our longer-term concern to be addressed any time soon. While it’s unlikely to have significant implications for portfolios over the next few years, it’s an issue we remain mindful of given the implications on the country’s credit rating, the role of the U.S. dollar, the competitiveness of the country, and its long-term economic trajectory. These considerations will influence our asset allocation and portfolio positioning over time, we are monitoring the global debt dependance situation closely and are positioned well as each side tries to achieve a level of satisfaction.
Satisfaction
“I cant get no, satisfaction”
The Rolling Stones
Mick jagger’s satisfaction dilemma—and ours—starts with a rudimentary formula: Satisfaction = getting what you want.
As most readers know, I’m a admirer of Boston’s The Atlantic Magazine, and thoroughly enjoy writer Arthur C. Brooks. In his book, From Strength to Strength: Finding Success, Happiness, and Deep Purpose in the Second Half of Life, Brooks suggests that the Stones’ song should really have been titled “(I Can’t Keep No) Satisfaction.” It’s almost as if our brains are programmed to prevent us from enjoying anything for very long. In fact, they are.
The term homeostasis was introduced in 1926 by a physiologist named Walter B. Cannon, who showed in his book The Wisdom of the Body that we have built-in mechanisms to regulate our temperature, as well as our levels of oxygen, water, salt, sugar, protein, fat, and calcium. But the concept applies much more broadly than that: To survive, all living systems tend to maintain stable conditions as best they can.
Homeostasis keeps us alive and healthy. But it also explains why drugs and alcohol work as they do, as opposed to how we wish they would. While that first dose of a new recreational substance might give you great pleasure, your previously naive brain quickly learns to sense an assault on its equilibrium and fights back by neutralizing the effect of the entering drug, making it impossible to get the first feeling back. As the Bucknell University neuroscientist Judith Grisel explains brilliantly in her book, Never Enough: The Neuroscience and Experience of Addiction, addiction is in part a byproduct of homeostasis: As the brain becomes used to continual drug-induced production of dopamine—the neurotransmitter of pleasure, which plays a large role in nearly all addictive behaviors—it steeply curtails ordinary production, making another hit necessary simply to feel normal.
The same set of principles works on our emotions. When you get an emotional shock—good or bad—your brain wants to re-equilibrate, making it hard to stay on the high or low for very long. This is especially true when it comes to positive emotions, for primordial reasons that we’ll get into shortly. It’s why, when you achieve conventional, acquisitive success, you can never get enough. If you base your sense of self-worth on success—money, power, prestige—you will run from victory to victory, initially to keep feeling good, and then to avoid feeling awful. .”
The unending race against the headwinds of homeostasis has a name: the “hedonic treadmill.” No matter how fast we run, we never arrive. “At home I dream that at Naples, at Rome, I can be intoxicated with beauty, and lose my sadness,” Ralph Waldo Emerson wrote in his 1841 essay, “SelfReliance.” “I pack my trunk, embrace my friends, embark on the sea, and at last wake up in Naples, and there beside me is the stern fact, the sad self, unrelenting, identical, that I fled from.”
“There are two ways to get enough. One is to continue to accumulate more and more. The other is to desire less.”
G.K. Chesterton
In truth, our formula, Satisfaction = getting what you want, leaves out one key component. To be more accurate, it should be Satisfaction = what you have ÷ what you want
All of our evolutionary and biological imperatives focus us on increasing the numerator—our haves. But the more significant action is in the denominator—our wants. The modern world is made up of clever ways to make our wants explode without us realizing it. Even the Dalai Lama, arguably the world’s most enlightened man, admits to it. “Sometimes I visit supermarkets,” he says in The Art of Happiness. “I really love to see supermarkets, because I can see so many beautiful things. So, when I look at all these different articles, I develop a feeling of desire, and my initial impulse might be, ‘Oh, I want this; I want that.’ ”
The secret to satisfaction is not to increase our haves….that will never work (or at least, it will never last). That is the treadmill formula, not the satisfaction formula. The secret is to manage our wants. By managing what we want instead of what we have, we give ourselves a chance to lead more satisfied lives.
As we head into the week, know that we are actively monitoring the global treadmill of the debt ceiling topic for you. This week, take some time to reflect on what satisfaction means to you and how, perhaps, you can slightly alter your perspective and your own formula to appreciate the world around you, and focus your energy on the exciting expedition ahead.
“Happiness is not a goal...it's a by-product of a life well lived”
Eleanor Roosevelt
Be well and enjoy the moments
Derek