Limits

Everyone’s telling our new president to spend, spend, spend. They may well be right. But there are limits.

Eighty years ago Keynes noted that additional government spending, funded by debt, can change the economy’s direction. But that assumes people don’t know or care where the money comes from. That is, if the government borrows from the future to spend more today, Keynes assumes that people won’t adapt their behavior

But the beauty and curse of our society is that we do know where the money is coming from: we’re borrowing it from future growth. Interest on these loans needs to be paid, and the loans will need to be renewed as they come due. If we borrow a modest amount to get through a rough patch, people probably will spend the proceeds. But if the government borrows massively, I suspect that the expectation of higher future taxes will frustrate Washington’s best laid plans.

The New England moral is, if you lend your teenager money to buy gas, spot a twenty—don’t hand over the credit card. Because you may not be able to afford that bill.

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

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Leave a Reply

Your email address will not be published. Required fields are marked *