March 29, 2009
It's becoming apparent that there are a lot of bullish expectations out
there. Money poured into mutual funds last week, with more than $2 billion
invested in emerging markets fund: Emerging-market equity funds receive big inflows.
sense at least a temporary market pullback:
Stocks ahead of
will sell tomorrow what little I've recently bought.) After
all, the market has risen more than 20% in the past three weeks. Beyond
that, there's a shoot-out at the OK corral shaping up. Most economists and
financial advisors--at least, those who are accessible to me--are calling
for the economy to turn up in the latter part of this year, and are
claiming that the March 9th low was the
low for this year: Intense job destruction hasn't let up, gripping U.S. economy.
(Don't let the title fool you.) Meanwhile some economists and the founder
of the nation's largest hedge fund, Bridgewater Associates, are stating
that this a huge deflationary event, and that we aren't going back to
business as usual in 2010: The Market Mystique..
Paul Krugman has published the following articles this
Permanent Link to What’s our gold
Permanent Link to Golden fetters
Permanent Link to Golden Fetters II
Permanent Link to The magazine cover effect
The first three of these discuss the hobbling
psychological effect that trying to reconcile themselves with the gold
standard had on the world's political and economic movers and shakers
during the Great Depression. The fourth comment concerns that fact that a
picture of some economist--Dr. Krugman?--appears on the front cover of
Business Week this week, and that he's always considered appearing on the
front cover of Businessweek to be the "kiss of death".
It might be interesting to consider the magnitude at
the total U. S. debt, now approaching 400% of GDP (compared with
176% of GDP in 1929), now that the Chinese are no longer willing to let us
run our tab up any higher, and we have to think about paying down our
debt. The U. S. GDP currently stands at $14 trillion. Four times $14
trillion would be $56 trillion. The latest savings figure was 4%. If we
could save 4% of GDP each year and if GDP didn't increase over time, it
would take us 100 years to pay off a debt that's 400% of GDP. But of
course, GDP does
increase over time. By the time it's doubled twice, our indebtedness would
drop by a factor of four, bringing our debt-to-GDP percentage down to
100%. A debt-to-GDP percentage of 100% would be perfectly acceptable.
However, it will be many years (20 years?) before that can happen.