After a brief Japan-earthquake-tsunami spike, the Vix index has settled back down, and equity markets are breathing a sigh of relief. The equity correction may last a bit longer, but for it to turn nasty would require some new ugly news. Meanwhile, I continue to believe that the market is still priced to a pessimistic view of the world, so that means it has the ability to withstand the occasional bout of nerves or data setback. The fact remains that the economy continues to expand, corporate profits are very strong, monetary policy is nonthreatening, there are plenty of idle resources that can quickly be put to use, and fiscal policy is beginning to reverse the productivity-robbing excesses of the past few years (i.e., if the government can cut back spending this will free up resources that the private sector can deploy more efficiently, thus boosting growth).
i.e. IF the government can cut back spending.
ReplyDeleteAnd therein lies the risk. Government is like the buddy who mooches off you and won't go away - except governMINT has a big club (IRS) and a big printing press and endless, and increasingly more mandatory appetites(read: entitlements.)
I really enjoy your blog and updates. Very clear thinking and analysis.
ReplyDeleteThanks, it's nice to be appreciated.
ReplyDeleteCut entitlements?
ReplyDeleteWe spend more than $100 billion annually in military veteran's benefits. That's about $333 per resident of the USA, or more than $1,300 for a family of four.
Who is going to propose a cut in these benefits, which are financed by income taxes?
The Tea Party? The R-Party? The Dems?
I choose this example only to highlight that every benefit has a group of die-hard supporters behind it, who think moral good is on their side.
I hate to say it, but we have to grow this economy, and run some inflation, and hold the line somehow on outlays for many years--actually, this worked in the 1990s.
Maybe we can do that again.