There are numerous experts, at home and abroad, that have gone on record saying Geithner’s plan to revive the US economy won’t work, and even worse, that it will make matters worse. We know that in the short term, the magic drug of monetizing our debt can pump up the stock market. But it’s like a false adrenalin rush. We need to ask ourselves in the larger picture, can US equities build an intermediate or longer term bull market based on the rationale of massive government deficit spending supported by a Fed that will print money to fund that deficit spending? Can it really be that the key competitive advantage of the US is a printing press? Make no mistake about it, monetization can positively influence economic and financial market outcomes for a time. We need to respect this fact. Greenspan proved this in spades during the late 1990’s pre-Y2K liquidity extravaganza in the US. As you’ll remember, the NASDAQ doubled. Of course the aftermath was none too pleasant, and continues as such to this day. As I mentioned above, I believe the key to navigating the investment environment ahead is to anticipate the unintended consequences of current government spending and Fed actions. Over the years it has been my experience that the most important drivers of asset prices are not the outcomes that can be seen and/or anticipated by the many, but rather the unseen outcomes that only the few dare anticipate. I recommend staying out of equities and investing in hard assets that will increase during the coming hyperinflation.
In case you believe the worse is over, here is a mathematical dose of reality:
The U.S. budget deficit surged in March as tax payments by companies and individuals dropped and the government spent more to rescue banks and revive the economy.
The excess of spending over revenue climbed to $192.3 billion, compared with a gap of $48.2 billion in the same month a year earlier. Spending increased to $321.2 billion, and revenue fell 28 percent to $129 billion.
The deficit six months into the 2009 fiscal year already exceeds the record set in the entire previous year. Rising job losses and plunging corporate profits are cutting into tax receipts, while the government commits billions of dollars to bolster an economy in its second year of a recession.
“It’s going to be real ugly,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “We have just seen a collapse in revenue, and expenditures are up. Given the bailouts and the stimulus packages, that is likely to continue.” Anderson projected the deficit will jump to almost $2 trillion this fiscal year.
Economists surveyed by Bloomberg News forecast a March deficit of $165 billion, according to the median estimate of 28 projections. Projections ranged from deficits of $137.3 billion to $200 billion.
During the first half of fiscal year that began Oct. 1, the country’s deficit swelled to a record $956.8 billion, compared with a $313 billion shortfall during the same period a year earlier.
Corporate tax receipts totaled $56.2 billion through March, down from $129.5 billion in the first half of fiscal 2008, the Treasury said. Individual income tax collections are down 15 percent so far this fiscal year to $429.7 billion compared with $503.5 billion in the year-earlier period.
The deficit in 2008 totaled a record $454.8 billion. The Congressional Budget Office estimated on March 20 that the gap will swell to $1.85 trillion this fiscal year.
Almost half of the $94.2 billion, or 41 percent, surge in government spending last month compared with March 2008 reflected cash infusions to Fannie Mae and Freddie Mac, the two biggest mortgage underwriters. Fannie Mae received $15.2 billion last month and Freddie Mac got $30.8 billion, the government said.
The government spent $2.9 billion last month on its Troubled Asset Relief Program, the plan aimed at aiding banks, bringing the fiscal year-to-date total to $293.4 billion.
President Barack Obama in February signed into law a $787 billion stimulus program that he pledged will preserve or create 3.5 million jobs. Since then, the administration has also committed funds to help U.S. automakers and to spur investors to buy real estate assets that are clogging banks’ balance sheets.
Obama has signed a $410 billion spending bill to provide funding for most government operations through Sept.30.
The U.S. House of Representatives and the Senate last week approved drafts of Obama’s 2010 budget that largely adhere to the administration’s priorities. The House approved a $3.55 trillion plan on April 2 that echoes Obama’s calls for revamping the health-care system, rewriting education policies and reining in global warming.
Obama said last week the U.S. needs to reduce its deficit after the economic crisis passes.
“Once we have stabilized the economy, we are going to have to bring these huge deficits down,” Obama told reporters April 2 in Baden-Baden, Germany.
In other categories, spending by the Social Security Administration rose 7.3 percent to $324.2 billion for the fiscal year to date; spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, climbed to $156.2 billion from $137.6 billion and spending by the Defense Department increased to $331.7 billion from $308 billion.