Last week, the Treasury Department announced that America’s budget deficit for the fiscal year ending September 30 will be roughly $500 billion, the smallest it’s been since 2008. This was hailed as good news in most quarters.
Considering that we’ve been running deficits closer to (or over) $1 trillion for the last five years, I suppose it is good news, relatively speaking. But I can’t buy into the optimism. For me, the fact that prominent people are praising our government for only spending $500 billion more than it is takes in is depressing–and scary. It’s a clear symptom of how warped our thinking on the issue has become.
There’s been no shortage of criticism of “Helicopter” Ben Bernanke’s aggressive quantitative easing policies. But you have to hand it to the man. He’s nothing if not determined. Against all odds and even the laws of financial physics, he’s accomplished his primary goal—juicing stock prices.
The problem is, as usual, most average investors are behind the curve.
Year-to-date, as the NY Times pointed out Sunday, more than $85 billion has been put into bond mutual funds compared to only $73 billion for stock funds. But buying bonds is not a wise strategy going forward. Thanks to Uncle Ben’s interventions and other factors, stocks are almost surely going to outperform bonds for the next three, five, maybe even ten years.
An unsurprising bit of news broke this past week–some highly respected experts screwed up.
A few years back economists Kenneth Rogoff and Carmen Reinhart claimed that countries with high debt loads suffered slow growth rates. Their research was used to justify draconian spending cuts in Europe. But it turns out Rogoff and Reinhart flubbed their numbers in a big way, and Keynesians like Paul Krugman have been having a grand old time gloating over it. But just because Roghoff and Reinhart were wrong doesn’t mean Krugman is right.
Every year, we spend more than a trillion dollars more than we take in. That’s a dire situation. But how we’re spending that borrowed money is the real crime. In short, old people are killing us. That’s right, I said it: if we don’t do something soon, grandma and grandpa are going to bleed us dry.