Deficit Spending
#1
Posted 06 February 2007 - 03:21 AM
#2
Posted 06 February 2007 - 03:32 AM
#3
Posted 06 February 2007 - 04:16 AM
My thinking is the gov't can not go into another spending spree before the USD considerably stabilizes.
Any spending spree from here will most likely crash the USD and all of the dollar based assets with it eventually. If they do, these slides usually happen within a few days after building up for a long time, like a earthquake fault waiting to unlock. The previous decline in the USD last year was a good example...
I think the best course of action would be to keep the war the way it is --if they really believe they must, but slow down the economy to destroy some more fiat currency and lower the rates eventually. This would best support the much needed housing. The employment is still strong, a slow down should not affect many, but it would give the strong USD and lower rates for a much longer and sustainable period...
The last thing US can sacrifice is its currency at this point, the country depends heavily on the foreign investment. This is the only reason Mr Bernanke is probably not even remotely mentionning about cutting the rates...
- kisa
dollar index is down 30% since 2000....if we drop another 20% in two yrs but indices continue to rally approx same, we get some inflation, but will it really affect things much as people will feel wealthy....
also, recession or not, safe to say we'll see more consolidation across the board which could float indices another yr or two as large caps continue buying spree and mergers continue at record levels...
Here's the givens: (nothing political please)
higher oil - Iraq is becoming civil war...per mainstream media.....like it or not, Iran involvement is inevitable. Supply disruption is inevitable in war or weather related incident like summer hurricane.
higher rates from higher inflation from higher oil and economic slowdown b/c of RE debacle. When considering rates going forward, an economic slowdown will be more than offset by inflation caused by $100 oil.
Assuming these are inevitable within a yr or two, (i don't see this ship slowing down much less turning around) its easy to see the case for a prolonged bear mkt.....but are there are possibilities for a continued bull with these situations which most can probably agree on regardless of or lack of political views.
anyone?
#4
Posted 06 February 2007 - 07:07 AM
Mark S Young
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#5
Posted 06 February 2007 - 10:59 AM
#6
Posted 06 February 2007 - 11:56 AM
Mark S Young
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#7
Posted 06 February 2007 - 01:33 PM
#8
Posted 06 February 2007 - 02:21 PM
Does HUGE borrowing to support the cost of our military engender prosperity is what I wonder. I guess we have been paying the large budget component of interest with deflated dollars to this point. But that deflation would seem to have a limit where our currency wouldn't be accepted anymore (bananna republic here we come)... If freedom isn't free, should military costs be "free", to be borne by grandchilren later........ What am I overlooking here?
---Out
In a word, "sometimes". As a general rule, ALL government spending is inefficient, and so uneconomic to some degree. At times, however, a burst of demand can trigger growth. Military spending is still costly.
What you're overlooking is that it's not the size of the debt that matters, it's the cost of carry that matters. A budget surplus is not an intrinsic good (though I'd love to see one without tax increases for a while). It certainly isn't worth raising taxes for. It may, however, be worth trimming military and domestic spending for.
But this is wandering into politics, despite my efforts to stick to sound economic theory. I'll let you have the last word, if you wish.
Mark
Mark S Young
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#9
Posted 06 February 2007 - 03:04 PM
#10
Posted 06 February 2007 - 04:13 PM
You have to maintain a high growth rate to justify increasing debt, otherwise your currency will crash and discount the value of the equity linked to the currency as if it is junk, no?
- kisa
Seems everyone is expecting a recession and bear mkt at some time. Everyone's seeing the same thing, deficits, declining dollar, war, inflation risk, oil shortages., housing...these things are a given...question is timing and combined effect on indices...
Just trying to make the case for mkt holding steady to up as these events unfold...
I'm starting to think we won't get a big selloff anytime soon...at least for a few mos...
on the other hand...i'm turning neutral from bearish....may be the top