US Budget Deficit to GDP Ratio Biggest Since WW2
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/jSGgBN1VJ5Y/17323Posted on Friday, May 29th, 2009 | In Market Commentary
The ratio of the US budget deficit to GDP is at the highest it’s been at any point since World War II. Except there are no Nazis to fight. The only war going on is Team Obama’s war against capitalism.
Governments like to ‘stimulate’ the economy; it makes them feel like they’re doing something. They also, quite rightly, believe it will help them win elections. What they don’t like to think about is the long-term consequences of their actions.
Stimulating the economy is relatively easy. The Treasury borrows money and sets up a $700 billion slush fund for “too big to fail” corporations. It calls it the TARP and does what it likes with the money with little or no oversight. The Treasury then borrows more money and sets up a separate $787 billion slush fund – this time for Democratic Party pet projects. This gets spun as an “economic recovery package.” And the government does what it likes with the money.
When all this borrowing starts to cause trouble in the Treasury markets, the Fed steps in and starts to print money to buy surplus government bonds. It calls it “quantitative easing” or “credit easing.” But it’s really just plain old dollar printing. The Fed also buys junk securities from banks in return for more funny money.
The problem is all this stimulation sets the economy up for inflation. The government is happy because all the money it’s borrowed out of an empty pocket can be paid back on the cheap. Banks and borrowers are happy too: inflation makes it easier for debtors to pay back their loans.
Inflation is only a problem if you have dollar savings and investments in dollar-denominated assets. It makes every dollar you hold worth less. A lot of readers have been writing to us asking for practical advice on how to deal with inflation. That’s why in today’s Notes, we want to discuss four ways you can protect your savings from this menace.
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