The Return of Cassandra

The sky is falling!

That’s what Chicken Little said to Turkey Lurkey after an acorn fell on his head. And that’s what I thought when I read David Stockman’s latest op-ed in Sunday’s New York Times. He says the economy is in a “Great Deformation” in which the Fed, as a rogue central bank, mindlessly mints money, mistaking growth in the currency for growth in the economy. It’s a bipartisan attack on deficit spending by Presidents Reagan, Bush I, Bush II, and Obama. It hearkens back to a golden age of balanced budgets and economic growth under Truman and Eisenhower.

The article is broad-ranging, criticizing fiscal policy, monetary policy, and crony capitalism. His argument seems to run: debt is bad, we have too much, so we need to renounce our deficit-loving ways, cut spending way, way back, and let the economy heal itself as it contracts. But debt is neither good nor bad; its assessment must be situational. Don Quixote tilted at windmills, too, but in the end it got him unhorsed.

Stockman was famous as Ronald Reagan’s budget director. He didn’t seem to understand the engines of economic growth back then, and it seems that he still doesn’t today. How sad.

Douglas R. Tengdin, CFA

Chief Investment Officer

[catetgory Global Market Update]

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