Q: What is your view on the leverage in the economy?I think this example itself deserves its own mental model (although I'm having trouble giving it a proper name). But as I was reading this, I thought of another similar case. Let's say a foreign company offered to make a large factory investment in a developing country. Now at first, the country would praise the opportunity for bringing more production and job opportunities into their country. But as time goes on, children will start to wonder why some of the value of their labor is going to these companies abroad. Eventually, tensions build and the original rationale is lost, leading the people to demand nationalization of the factory.
A: We are currently an enormous debtor to the rest of the world. The danger is that our children and their children will not want to pay this debt, or said another way, will reject the costs that servicing this debt will impose on society. Let's say that during the Revolutionary War, the colonists were offered a choice: instead of fighting a bloody war that will cost thousands of lives, you can simply agree to pay King George 5% of total national income for perpetuity in exchange for full independence and political freedom. Now to the colonists this would have been a great deal, potentially having their lives spared and gaining freedom for only 5%/year. Decades later their children may not think it's as good a deal but will still have heard stories from their parents and will probably pay the fee. But eventually, three or four generations down the line, enough Americans will forget the original rationale for the deal and will in some way demand a change in terms - possibly go to war with England again to halt the payments. The danger today is that future generations of Americans will be unwilling to continue paying for today's spending and force political action with potentially negative consequences.
I don't know what the call this tendency, but I experienced it for myself through my investment in Harvest. It appears destined to keep coming up in the future.