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
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By | 2014-09-04T15:26:49+00:00 November 28th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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