Financial Market Commentary

Jeremy Grantham’s missives are always must-reads, and his most recent “I Like Ike: A Powerful Warning Ignored,” is no exception (download from gmo.com with free registration, or Zero Hedge without registration).

For those of you who found Grantham’s review of Eisenhower’s warnings to our country interesting, I thought you might also enjoy a quick tour through some of the writings of the ultimate founding father: George Washington. Given that our current Congress has such an interest in our founding fathers’ intentions — exemplified by their reading the Constitution in their first session of the year — I suggest that they also read Washington’s Farewell Address (1796) out loud one of these days, as it contains additional advice our political leaders would undoubtedly find useful, given our country’s current circumstances.

For those of you who in a hurry, here’s a synopsis of Washington’s advice on credit and taxation:

1. Use credit as sparingly as possible.
2. Cultivate peace, but when absolutely necessary, it’s permissible to borrow to defend the nation.
3. Work vigorously during peace time to retire any debt that accumulated during war.
4. Don’t expect the next generation to pick up the tab.
5. It’s the responsibility of both elected representatives and the general public to reinforce these principles.
6. Taxes are always inconvenient and unpleasant, but the public should cooperate when raising additional revenue through higher taxes becomes temporarily necessary.

For you fact-checkers out there, here are President Washington’s own words regarding credit and taxation:

As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible, avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it, avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertion in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear. The execution of these maxims belongs to your representatives, but it is necessary that public opinion should cooperate. To facilitate to them the performance of their duty, it is essential that you should practically bear in mind that towards the payment of debts there must be revenue; that to have revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant; that the intrinsic embarrassment, inseparable from the selection of the proper objects (which is always a choice of difficulties), ought to be a decisive motive for a candid construction of the conduct of the government in making it, and for a spirit of acquiescence in the measures for obtaining revenue, which the public exigencies may at any time dictate.

In my next post I will quote President Washington on the need to maintain national unity.