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Can Europe get out of its sovereign debt crisis by adding more debt? No. Can Europe grow its way out of its current debt problem? No. It will have a difficult time growing its economy at all next year.
To make matters worse, they have a banking system that is leveraged three times higher than the U. S. banking system. But, we’re not sure because of the lack of transparency in the banking system. For example, they do not have to mark their “toxic” bonds to actual, current market prices. They can price them just about where they want. The rules were changed to keep the banks from becoming insolvent. Just like the U.S.
But unlike the U.S., they cannot do what we did to keep the banks solvent. Their government structure and the limited power of their central banking system prohibit it. This could change with new legislation but it would take time and they would have to overcome the opposition from Germany. Germany has already experienced hyperinflation caused by runaway money printing (i.e., in 1923, Germany’s inflation rate was running at 10,000% per year.)
We all know what happened to Greece recently and the moral hazard of that “agreement.” If Greece could get a 50% reduction on $200 billion of debt and additional money to spend, why wouldn’t every other country be entitled to the same?
The result of that agreement has institutional investors selling European debt as fast as they can and are now coming after Italy; next will be Spain, then France.
Italy has $2.7 trillion dollars of debt and they and must rollover $300 billion of it within the next year. They do not have the money to finance this, if they could find buyers, at an interest rate over 5.5%. Last week they sold $3 billion with an interest rate of 6.1%.
As this unfolds, major banks will have to take enormous losses. Estimates are that U.S. banks have a $600 to $750 billion dollar exposure to European banks. This could cause serious problems for American banks.
I do not know exactly how this “debt crisis scenario” will unfold over the next two weeks, two months or two years. Will the ECB get the authority to print money so they can kick the can down the road a bit longer? There is, also, severe pressure on Germany to go along and let the ECB print. Germany will have to foot much of the bill.
Therefore, the end game it seems is either default or inflate their way out of this debt crisis.
Regardless of exactly how it unfolds, I think the banks are due for a serious correction. What is in question is the timing. We may be unable to prevent this European debt crisis from happening, but there are ways to preserve your capital or profit if you know what’s likely to happen ahead of time and can position investments appropriately.
Showing posts with label cut spending jim Zitek. Show all posts
Showing posts with label cut spending jim Zitek. Show all posts
Monday, November 21, 2011
Monday, July 18, 2011
Moody's Has It Absolutely Wrong
July 18, 2011
There will be a market reaction to passing or not passing the debt limit. But it is time to start thinking about this problem as adults rather than as political party advocates. Moody’s comments the past few days are a prime example.
Moody’s, the credit agency has stated they are likely to downgrade America’s AAA credit rating if the debt limit is not raised.
Today, Moody’s stated that America should get rid of the debt limit ceiling altogether because it gives them a reason to downgrade our credit rating. This is not only illogical; it’s symptomatic of the way politicians, economists and pundits think. They almost always attack the symptom rather than the cause.
What Moody’s should be saying is that the Congress needs to pass a law that forces politicians to reduce the debit ceiling by some percent every year until our budget is balanced. Our problem is not the current debt ceiling. Our problem is that our budget is not balanced and on an unsustainable path upward.
There are two major reasons we spend too much.
One, the party out of office attacks the party in office for spending too much and the party in power defends the spending. When election results change, so do the positions of the parties. Congress has raised the debt ceiling 140 times since it was enacted in 1917.
By the way, the debt ceiling was created by President Wilson in order to pacify the opposition that he would not spend too much on WWI.
Two, we refuse to debate the cause of our problems. We only debate the amount of money we will spend on the symptom. For example:
1.Why does America with 5% of the world’s population spend about as much as the rest of the world does on defense? Is America responsible for most of the world? If it’s to protect democracy, why doesn’t Switzerland spend more?
2.Why hasn’t poverty been eliminated after trillions have been spent on the poor? Is poverty simply a percent of the population? Are the government and the population an enabler? Is our education system failing us? Etc. etc.
3.Why do we worry about the consumer price index (CPI)? It is only a symptom. Inflation is not a manipulated, mathematical index; it’s the increase in money supply. Should we be increasing the money supply?
I could give you a thousand examples but I think you got the idea. We need to change the way we think. Once we identify the real cause of the problem, we should be able to get consensus on how much to spend solving the problem.
By the way, America has defaulted on our debt five times starting in 1776. Also, the Federal Reserve can buy bonds to fund the government forever and never have to default on the “Public” debt (public debt is what we are talking about.)
There will be a market reaction to passing or not passing the debt limit. But it is time to start thinking about this problem as adults rather than as political party advocates. Moody’s comments the past few days are a prime example.
Moody’s, the credit agency has stated they are likely to downgrade America’s AAA credit rating if the debt limit is not raised.
Today, Moody’s stated that America should get rid of the debt limit ceiling altogether because it gives them a reason to downgrade our credit rating. This is not only illogical; it’s symptomatic of the way politicians, economists and pundits think. They almost always attack the symptom rather than the cause.
What Moody’s should be saying is that the Congress needs to pass a law that forces politicians to reduce the debit ceiling by some percent every year until our budget is balanced. Our problem is not the current debt ceiling. Our problem is that our budget is not balanced and on an unsustainable path upward.
There are two major reasons we spend too much.
One, the party out of office attacks the party in office for spending too much and the party in power defends the spending. When election results change, so do the positions of the parties. Congress has raised the debt ceiling 140 times since it was enacted in 1917.
By the way, the debt ceiling was created by President Wilson in order to pacify the opposition that he would not spend too much on WWI.
Two, we refuse to debate the cause of our problems. We only debate the amount of money we will spend on the symptom. For example:
1.Why does America with 5% of the world’s population spend about as much as the rest of the world does on defense? Is America responsible for most of the world? If it’s to protect democracy, why doesn’t Switzerland spend more?
2.Why hasn’t poverty been eliminated after trillions have been spent on the poor? Is poverty simply a percent of the population? Are the government and the population an enabler? Is our education system failing us? Etc. etc.
3.Why do we worry about the consumer price index (CPI)? It is only a symptom. Inflation is not a manipulated, mathematical index; it’s the increase in money supply. Should we be increasing the money supply?
I could give you a thousand examples but I think you got the idea. We need to change the way we think. Once we identify the real cause of the problem, we should be able to get consensus on how much to spend solving the problem.
By the way, America has defaulted on our debt five times starting in 1776. Also, the Federal Reserve can buy bonds to fund the government forever and never have to default on the “Public” debt (public debt is what we are talking about.)
Tuesday, March 15, 2011
Will The Government Continue To Pump Money Into The Economy?
I spent most of last week in Auburn, Alabama at the Austrian Scholars Conference where I listened to 40 presentations on various aspects of the economy from Austrian (or Capitalist) economists. It was excellent. I thought I would share one of my "take home" ideas on government spending (fiscal and monetary).
I think the government will continue to pump money into the economy (financial system) to keep it afloat. Most of the "growth" in GDP growth is from the government and the amount of GDP growth per dollar spent is declining. I am assuming that if the economy were really turning around based on private investment and spending, the government would stop injecting borrowed money into the system.
There is a lot of talk about the election of "Tea Party" legislators and their willingness to reduce spending and begin to get government budget under control. I don't think that will happen. The Republicans are proposing a $60 billion reduction in spending (1.6%) and the Democrats have countered with $6 billion in cuts.
Neither amount is significant and the focus is on cutting a few dollars out of the budget. However, the focus should be on the cause of overspending not just the symptoms of it. Why are we overspending? Why are we willing to borrow 43 cents of every dollar we spend? For what purpose? For whose benefit?
For example: Why are we spending $800 billion a year on "defense" which is 50% of what the world spends on defense? Why have we politicized science: one administration spends billions on programs to get us to Mars (Bush) and the next administration (Obama) shuts down those programs (wasting that money, education, etc.) and then redirects billions on satellites to monitor global warming instead? Why do we have a government (both administrations) that spends hundreds of billions to bail out banks with taxpayer money when these banks could have saved themselves? These are the kinds of questions we need answered before we are going to get serious about priorities and cost reductions.
Therefore, I expect to see one or more of the following: Quantitative Easing III (the Fed printing more money) and or the Fed keeping interest rates low for a much longer time (well into 2012) and/or more "stimulus" programs (we haven't solved our problems yet.) This of course has implications for both business and investment planning.
I think the government will continue to pump money into the economy (financial system) to keep it afloat. Most of the "growth" in GDP growth is from the government and the amount of GDP growth per dollar spent is declining. I am assuming that if the economy were really turning around based on private investment and spending, the government would stop injecting borrowed money into the system.
There is a lot of talk about the election of "Tea Party" legislators and their willingness to reduce spending and begin to get government budget under control. I don't think that will happen. The Republicans are proposing a $60 billion reduction in spending (1.6%) and the Democrats have countered with $6 billion in cuts.
Neither amount is significant and the focus is on cutting a few dollars out of the budget. However, the focus should be on the cause of overspending not just the symptoms of it. Why are we overspending? Why are we willing to borrow 43 cents of every dollar we spend? For what purpose? For whose benefit?
For example: Why are we spending $800 billion a year on "defense" which is 50% of what the world spends on defense? Why have we politicized science: one administration spends billions on programs to get us to Mars (Bush) and the next administration (Obama) shuts down those programs (wasting that money, education, etc.) and then redirects billions on satellites to monitor global warming instead? Why do we have a government (both administrations) that spends hundreds of billions to bail out banks with taxpayer money when these banks could have saved themselves? These are the kinds of questions we need answered before we are going to get serious about priorities and cost reductions.
Therefore, I expect to see one or more of the following: Quantitative Easing III (the Fed printing more money) and or the Fed keeping interest rates low for a much longer time (well into 2012) and/or more "stimulus" programs (we haven't solved our problems yet.) This of course has implications for both business and investment planning.
Wednesday, March 2, 2011
What's Next For The Market?
Technically, the market is at an inflection point. According to the Dow Theorists, if the Dow breaks 11,823.7 if would signal a correction and even put the market into another bear market. While technical analysis can be correct sometimes, it can also be incorrect sometimes. If it always worked, you could buy the right algorithm, kick back and relax. But, on the other hand, many traders follow the Dow Theory and that alone could move the market for a while.
We do know that the markets are levitated due to government spending and require additional government spending to keep going. So far, talking about cutting government spending is just talk; nothing significant has actually happened. I suspect cuts, if any, will be minor (less than the $1.5 trillion needed to get us a balanced budget.) Therefore, for the moment, I assume overspending and quantitative easing will continue, maybe for years.
also, Fed Chairman Bernanke has the stock market targeted as one of him main objectives. He wants the market to go higher so “animal spirits or greed” will kick in and take over so “real” consumer spending can take place. Therefore, If the market should sell off to 10,000 +/- (about a 15% drop), I think the government will intervene with both stimulus and more quantitative easing (printing money.) After all, it’s only 19 months to the next election…and voter pain will not be tolerated.
We do know that the markets are levitated due to government spending and require additional government spending to keep going. So far, talking about cutting government spending is just talk; nothing significant has actually happened. I suspect cuts, if any, will be minor (less than the $1.5 trillion needed to get us a balanced budget.) Therefore, for the moment, I assume overspending and quantitative easing will continue, maybe for years.
also, Fed Chairman Bernanke has the stock market targeted as one of him main objectives. He wants the market to go higher so “animal spirits or greed” will kick in and take over so “real” consumer spending can take place. Therefore, If the market should sell off to 10,000 +/- (about a 15% drop), I think the government will intervene with both stimulus and more quantitative easing (printing money.) After all, it’s only 19 months to the next election…and voter pain will not be tolerated.
Friday, February 4, 2011
Why Would the Market Shrug Off a Bad Jobs Report?
One reason could be statistics. There was an alarming plunge in the number of people in the labor market. People drop out for many reasons including going back to school, retired, have given up looking for a job, etc. So, in spite of only creating a net of 35,000 jobs last month, the unemployment rate dropped from 9.4 percent to 9.0 percent. That number sure sounds better.
Another reason might be conflicting surveys. The 35,000 jobs created is from the Payroll Survey which is a survey sent to businesses. This survey is where the government gets the number of jobs created which is reported each month. By the way, the margin of error here is 100,000 jobs. The other survey is the household survey which is a telephone survey. This survey is used to determine the percent of people employed/unemployed. This survey showed a jump in employment of 598,000 jobs which measured against a reduced labor force number resulted in a reduction in unemployment to 9.0 percent.
There are a lot of other statistics that could be analyzed, but the most compelling for me is the amount of new money being pumped into the economy by the Federal Reserve: over $100 billion per month and yet GDP is only rising (or “growing”) by about $40 billion per month. Where this money is going will be the subject of another post. But, this money is levitating the economy and Mr. Bernanke said in testimony last week that until the jobs situation turns around (not sure of his definition but it’s not 35,000 jobs per month) the Fed is going to continue to pump money into the economy. If so, GDP rises which filters into the capital markets. So, what’s a bad number or two?
Another reason might be conflicting surveys. The 35,000 jobs created is from the Payroll Survey which is a survey sent to businesses. This survey is where the government gets the number of jobs created which is reported each month. By the way, the margin of error here is 100,000 jobs. The other survey is the household survey which is a telephone survey. This survey is used to determine the percent of people employed/unemployed. This survey showed a jump in employment of 598,000 jobs which measured against a reduced labor force number resulted in a reduction in unemployment to 9.0 percent.
There are a lot of other statistics that could be analyzed, but the most compelling for me is the amount of new money being pumped into the economy by the Federal Reserve: over $100 billion per month and yet GDP is only rising (or “growing”) by about $40 billion per month. Where this money is going will be the subject of another post. But, this money is levitating the economy and Mr. Bernanke said in testimony last week that until the jobs situation turns around (not sure of his definition but it’s not 35,000 jobs per month) the Fed is going to continue to pump money into the economy. If so, GDP rises which filters into the capital markets. So, what’s a bad number or two?
Tuesday, January 25, 2011
Consumer Spending Jumps, But Where Did They Get The Money?
Economists recently increased their estimates for GDP growth in 2011 after retail sales jumped in December. Did wages jump, no. Did employment jump, no. So where did these consumers get the money?
I don’t think consumers got it from paying off old debts. The consumer debt to disposable income ratio has dropped from 15 percent to 13.96 percent over the past three years (but mostly due to reduced interest rates). The amount of debt remains very high. It has dropped 3.5% over the last two years, but it has only dropped from $13.92 trillion to $13.42 trillion (and much less home equity to offset that debt.)
So it’s pretty obvious consumers received this new money from the government. Maybe the new near $900 billion dollar, December stimulus program (tax cuts, payroll tax deduction, extended unemployment benefits, accelerated depreciation, etc.). Or the $100 billion dollar a month deficit we are financing. Or the monthly $75 billion dollar Quantitative Easing (economist talk for printing money) program under way by the Federal Reserve.
Much of this money will go to either propping up GDP or increasing GDP. Either way, it’s just like the stimulus program, it’s temporary. That is unless we get new, temporary, “investments” (political talk for spending) in the months ahead.
I don’t think consumers got it from paying off old debts. The consumer debt to disposable income ratio has dropped from 15 percent to 13.96 percent over the past three years (but mostly due to reduced interest rates). The amount of debt remains very high. It has dropped 3.5% over the last two years, but it has only dropped from $13.92 trillion to $13.42 trillion (and much less home equity to offset that debt.)
So it’s pretty obvious consumers received this new money from the government. Maybe the new near $900 billion dollar, December stimulus program (tax cuts, payroll tax deduction, extended unemployment benefits, accelerated depreciation, etc.). Or the $100 billion dollar a month deficit we are financing. Or the monthly $75 billion dollar Quantitative Easing (economist talk for printing money) program under way by the Federal Reserve.
Much of this money will go to either propping up GDP or increasing GDP. Either way, it’s just like the stimulus program, it’s temporary. That is unless we get new, temporary, “investments” (political talk for spending) in the months ahead.
Thursday, December 16, 2010
Are Bonds (Fixed Income) at a Tipping Point?
The heuristic is: Don’t fight the Fed.
On November 3, 2010 Federal Reserve Chairman Ben Bernanke made it official that the Fed would increase the money supply by $600 billion and buy Treasuries in an attempt to (his objectives):
1, Lower interest rates to help with home purchases, business loans, etc.
2. Lower the dollar to help exports by making U.S. exports cheaper
3. Increase commodity and equity prices giving a nudge to inflation
To date:
1. The ten year Treasury has moved up to 3.53 percent vs. 2.62 on November 3, (principal amount is down)
2. The dollar has been trending higher rather than lower
3. Commodity and stock prices are up (S&P500 up about 4%, gold is about the same price)
Not exactly what Chairman Bernanke had in mind, but it is early in this spending cycle. The data is certainly conflicting and with bonds selling off, we have to ask the question, Why?
1. Is it because people are beginning to fear coming inflation,
2. Is it because new money is driving up GDP and there is a growth scare (out of bonds and into stocks)
3. Is it end-of-year profit taking (bond prices peaked in October)?
I suspect we will see some clarification soon. What do you think?
On November 3, 2010 Federal Reserve Chairman Ben Bernanke made it official that the Fed would increase the money supply by $600 billion and buy Treasuries in an attempt to (his objectives):
1, Lower interest rates to help with home purchases, business loans, etc.
2. Lower the dollar to help exports by making U.S. exports cheaper
3. Increase commodity and equity prices giving a nudge to inflation
To date:
1. The ten year Treasury has moved up to 3.53 percent vs. 2.62 on November 3, (principal amount is down)
2. The dollar has been trending higher rather than lower
3. Commodity and stock prices are up (S&P500 up about 4%, gold is about the same price)
Not exactly what Chairman Bernanke had in mind, but it is early in this spending cycle. The data is certainly conflicting and with bonds selling off, we have to ask the question, Why?
1. Is it because people are beginning to fear coming inflation,
2. Is it because new money is driving up GDP and there is a growth scare (out of bonds and into stocks)
3. Is it end-of-year profit taking (bond prices peaked in October)?
I suspect we will see some clarification soon. What do you think?
Thursday, December 2, 2010
Do We Really, Really Want To Pay Off Our Debts?
November 30, 2010
Last year America spent $3.5 trillion, collected $ 2.3 in taxes, giving us a deficit of $1.1 trillion for the year. We are currently projected to have another $1.2 trillion dollar budget deficit in 2011 and for many years to come.
Our current “public” debt (amount the Treasury owes through note and bond sales) is $13.7 trillion (with a vote to raise this amount coming in the next few months.)
To pay off our debts, we would have to balance the budget (cut spending to the amount we receive in taxes) which would require cutting the current budget by $1.2 trillion or 31%; plus, $1 billion more to begin to make payments on the debt of $1 billion per year.
At a repayment rate of $1 billion per year (and maintain a balanced budget), we could pay off $1 trillion of the debt in only 1,000 years and the entire debt in only 14,000 years. (with a budget surplus of $1 billion per year)
I know this is simple math and doesn’t take into account the drop in GDP that would result from a drop in government spending or any reductions in taxes, or new wars or?
If we chose to pay off the debts by raising taxes, we would have to move all tax rates up by 48% if we adhered to budget projections. For example, the lowest tax rate, 10%, (income up to $16,750) would go to 58% and the top tax rate, 35% (income over $373,650) would have to move up to 83%. Assuming everyone paid, that would cover the deficit.
Here are three other possible choices we have:
1.Default (government reduces value of dollar significantly)
2.Inflate our way out of our debt (keep printing dollars, like we are doing now) until we can pay back the debt in near worthless dollars
3.Grow our way out of this problem by rapid GDP growth (but we would have to go back to a capitalist economy to get entrepreneurs, technology and productivity going again.)
Which choice do you think we will end up taking? Which choice are you preparing for?
Last year America spent $3.5 trillion, collected $ 2.3 in taxes, giving us a deficit of $1.1 trillion for the year. We are currently projected to have another $1.2 trillion dollar budget deficit in 2011 and for many years to come.
Our current “public” debt (amount the Treasury owes through note and bond sales) is $13.7 trillion (with a vote to raise this amount coming in the next few months.)
To pay off our debts, we would have to balance the budget (cut spending to the amount we receive in taxes) which would require cutting the current budget by $1.2 trillion or 31%; plus, $1 billion more to begin to make payments on the debt of $1 billion per year.
At a repayment rate of $1 billion per year (and maintain a balanced budget), we could pay off $1 trillion of the debt in only 1,000 years and the entire debt in only 14,000 years. (with a budget surplus of $1 billion per year)
I know this is simple math and doesn’t take into account the drop in GDP that would result from a drop in government spending or any reductions in taxes, or new wars or?
If we chose to pay off the debts by raising taxes, we would have to move all tax rates up by 48% if we adhered to budget projections. For example, the lowest tax rate, 10%, (income up to $16,750) would go to 58% and the top tax rate, 35% (income over $373,650) would have to move up to 83%. Assuming everyone paid, that would cover the deficit.
Here are three other possible choices we have:
1.Default (government reduces value of dollar significantly)
2.Inflate our way out of our debt (keep printing dollars, like we are doing now) until we can pay back the debt in near worthless dollars
3.Grow our way out of this problem by rapid GDP growth (but we would have to go back to a capitalist economy to get entrepreneurs, technology and productivity going again.)
Which choice do you think we will end up taking? Which choice are you preparing for?
Expect The Federal Reserve To Downgrade the Economy
November 22, 2010
On Tuesday, the Federal Reserve releases the minutes of last Federal Open Market Committee Meeting. We know they decided to begin QEII (Quantitative Easing, part two also called printing money.) Therefore, we can assume they felt the economy was either not improving enough or sliding backward. Consequently, we should expect the minutes to show that:
1.The economy will not grow at the 3.5 to 4% rate used in previous discussions
2.The unemployment rate (one of their mandates) will not improve as quickly as they thought
3.Price stability (there other mandate) or inflation will remain low for longer than they thought at the last meeting (because QEII is a lot of new money.)
Also, Bernanke recently talked about the need for more government stimulus. That’s got to give you confidence---confidence that our monetary managers intend to inflate our way out of our debts.
On Tuesday, the Federal Reserve releases the minutes of last Federal Open Market Committee Meeting. We know they decided to begin QEII (Quantitative Easing, part two also called printing money.) Therefore, we can assume they felt the economy was either not improving enough or sliding backward. Consequently, we should expect the minutes to show that:
1.The economy will not grow at the 3.5 to 4% rate used in previous discussions
2.The unemployment rate (one of their mandates) will not improve as quickly as they thought
3.Price stability (there other mandate) or inflation will remain low for longer than they thought at the last meeting (because QEII is a lot of new money.)
Also, Bernanke recently talked about the need for more government stimulus. That’s got to give you confidence---confidence that our monetary managers intend to inflate our way out of our debts.
Federal Reserve Says We Should Only Focus On The Benefits
November 3, 2010
The Federal Reserve today announced that it will create $600 billion to buy bonds over the next eight months ($75 billion of purchases per month.) Also, that we not worry about the extraneous things and focus instead on the benefits. These bond purchases will:
1, Lower interest rates to help with home purchases, business loans, etc.
2. Lower the dollar to help exports by making U.S. exports cheaper
3. Increase commodity and equity prices giving a nudge to inflation
I could give a list of reasons why this will not work, but I want to focus on two other major problems.
One, the Fed has blinders on. It is focused only on the “positives” and not the “negatives.” For example, lower interest rates could be a buying incentive if consumers wanted to spend. Evidently, a rate of 2.65% for ten years is too high. The Fed also needs to look at the people who are hurt by this policy. Savers, at these low rates, are being punished. We need savings so we can invest in growth.
Two, the Fed is only focused on short-term results. They may get some of the results they want; but long-term, the debasing of the dollar will reduce buying power and cause inflation.
The policy has been decided and will now be implemented. We have to determine how it will affect our business plans and our portfolios.
The Federal Reserve today announced that it will create $600 billion to buy bonds over the next eight months ($75 billion of purchases per month.) Also, that we not worry about the extraneous things and focus instead on the benefits. These bond purchases will:
1, Lower interest rates to help with home purchases, business loans, etc.
2. Lower the dollar to help exports by making U.S. exports cheaper
3. Increase commodity and equity prices giving a nudge to inflation
I could give a list of reasons why this will not work, but I want to focus on two other major problems.
One, the Fed has blinders on. It is focused only on the “positives” and not the “negatives.” For example, lower interest rates could be a buying incentive if consumers wanted to spend. Evidently, a rate of 2.65% for ten years is too high. The Fed also needs to look at the people who are hurt by this policy. Savers, at these low rates, are being punished. We need savings so we can invest in growth.
Two, the Fed is only focused on short-term results. They may get some of the results they want; but long-term, the debasing of the dollar will reduce buying power and cause inflation.
The policy has been decided and will now be implemented. We have to determine how it will affect our business plans and our portfolios.
Which Is More Important, Tuesday’s Election or Wednesday’s Fed Meeting?
November 1, 2010
Tuesday, Americans will decide whether we should continue spending at the current, yearly rate of $2.2 trillion of tax money plus another $1.5 trillion of borrowed money or whether we should reduce spending and shrink government. Research polls indicate the latter.
Wednesday, the Federal Reserve will meet to decide how much money they will print in an effort to keep interest rates artificially low, “re-inflate” the housing market and incentivize consumer spending. The trillions spent to date have not worked. There is no reason to believe this round of money printing will work either. However, many support it because they believe the “government” must do something.
The more important of the two days is Tuesday. Runaway fiscal policy is the more dangerous policy. The economy needs time, not more spending, to deleverage and get to equilibrium.
The markets at this point, may have priced in much of the election results (unless there is a surprise) and at least some of the expected $1 trillion in new money to be printed. Then, there will have to be a reassessment. Prepare and adjust your portfolios as required.
Tuesday, Americans will decide whether we should continue spending at the current, yearly rate of $2.2 trillion of tax money plus another $1.5 trillion of borrowed money or whether we should reduce spending and shrink government. Research polls indicate the latter.
Wednesday, the Federal Reserve will meet to decide how much money they will print in an effort to keep interest rates artificially low, “re-inflate” the housing market and incentivize consumer spending. The trillions spent to date have not worked. There is no reason to believe this round of money printing will work either. However, many support it because they believe the “government” must do something.
The more important of the two days is Tuesday. Runaway fiscal policy is the more dangerous policy. The economy needs time, not more spending, to deleverage and get to equilibrium.
The markets at this point, may have priced in much of the election results (unless there is a surprise) and at least some of the expected $1 trillion in new money to be printed. Then, there will have to be a reassessment. Prepare and adjust your portfolios as required.
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