10/17/09

Government deficits, spending, the dollar, and inflation

Deficits. They represent the transfer of wealth from us to the bondholders. The outcome is that we get poorer and they get richer.

Spending and inflation. The main driver of inflation is government spending (click on the chart to enlarge it). By definition government spending is unproductive and strains our resources. It uses resources that could have been used more efficiently by the private sector.

The dollar. The dollar reflects the competitive differential between us and the rest of the world. If our country becomes unattractive because we become poorer, government regulations strangle the private initiative, the educational system is unsatisfactory, then investors sell dollars to buy the currencies needed to invest in friendlier countries. You earn a strong dollar. You do not "talk it up", as they say on the business channels.

To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

Disclaimer. No material here constitutes "investment advice" nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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