Dueling Crises

Back in the ‘70s there was a hit song entitled “Dueling Banjos.” What we’re seeing here are dueling crises.

In Europe the monetary union that led to so many gains from trade is being challenged because they adopted a single currency without creating the necessary institutions to make it workable. But its short-run problem is political: German voters who have benefited from the Euro still don’t like it, because they feel like they’re being taxed to pay for spendthrift regimes in Greece, Ireland, and Portugal. Without German support these governments will run out of money.

America has a long-run budget problem, but our current issue is also political: not enough lawmakers can agree on a lowest-common-denominator plan to stave-off a liquidity crisis at the U.S. Treasury. Without Congressional assent the Treasury will run out of cash and some of its bills will not be paid.

Technology advances; resources are abundant; there’s plenty of labor around. But the developed world is hamstrung by crises of its own design: political gridlock, long-term fiscal imbalance, and short-term liquidity needs. These are not fundamental weaknesses, so I remain optimistic about the long-term prospects for the global economy. But these short-term issues can drive you crazy.

The “Dueling Banjos” song was part of the movie “Deliverance.” Let’s hope we can figure out our deliverance from these self-inflicted struggles.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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For the movie clip, click on this link: http://bit.ly/2Lx7HX

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