Excellent piece from Symmetry Capital that I found in Seeking Alpha:
|"And policymakers -- not to mention most members of the electorate, including analysts and the media -- continue to commit two fundamental errors regarding fiscal policy:|
1. They believe that all deficit spending must be financed with interest bearing debt, thus competing with the private sector for scarce financial resources. However, judging by current Treasury rates, there's still plenty of room for expanded federal borrowing. And there's a symbiosis between federal deficits and repair of balance sheets in the financial sector, as evidenced by the perfect quarters turned in by several major investment banks recently. Politically, that relationship is almost nauseating, as it's doing very little to relieve distressed households -- but it nevertheless makes apparent the dynamic between public sector fiscal deficits and private sector balance sheet relief.
2. They also believe implicitly that the US is on a gold or similar standard, where fiscal and monetary policies are constrained by the supply of some exogenous factor, and governments can thus literally "run out of money." Governments can't run out of money, as it is 'created' by nothing more than digital ledger entries. In other words, government (today, via operations of the quasi-private Fed) is the sole creator and supplier of high powered money. Thus, the only constraint on money creation is inflation and a loss of confidence in the currency, and at the moment, those forces are emphatically not in play. This too is symptomatic of Japanese Disease..."
"The fears of incumbent politicians like Cooper are certainly understandable, but they're borne of either ignorance about how these things work, or self-preservation. Either way, it smacks of lousy political leadership.
Given that Republicans are likely to benefit in November, we'd expect the trend towards fiscal conservatism to intensify."
Read the entire article here.