Monday, February 1, 2010

Hey, Big Spender

From G W Bush's Feb. 2001 budget proposal (lower line) vs. actual spending with proposed for next fiscal year (upper line) . . .
Click on graph for more detail.
Remember Democratic cries of anguish when presidents Reagan, Bush 41 and Bush 43 ran big deficits?
These cries now emanate from the other guys.
Simply, I think that matters are excessive, want to sell Treasuries on price strength and feel that gold is becoming fundamentally a more and more important hedge against the obvious threat of inflation.
The government is increasingly dependent on low borrowing rates. Thus the preference for liquidity. You never know when you have to flee a currency.
It may not be a surprise that on this budget (deficit) announcement day, gold is soaring. The problem is that not all deficits are equal. A deficit to win WW II and thus dominate the world economically and militarily has a far greater payback than one to provide improved healthcare and retirement income (Medicare and Social Security) for old people.
I'm all for old people, having two of them as parents, having treated thousands of them as a physician and hoping to become one myself, but doing so has a negative multiplier effect. This is deficit spending that is not responsive to the Laffer effect.
The portion of the Obama budget that may have a real multiplier effect, such as support for green technology, is relatively small. Most is the same old stuff. The same is true for the stock market and the economy. Tired, boring, pumped up.
When the next New Thing is here to energize a major secular bull market--autos, radios and mass production in the 1920s, Baby Boom-sparked growth in the 1950s, and tech in the 1990s, it won't be subtle. Deep discount retailers may be profitable investments, but signs of a secular bull they are definitely not.
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