Quantum Pranx

ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

It’s the Deficits, Stupid!

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by Tom McCafferty
Posted originally in Rick’s Picks April 18, 2011

RECENTLY, I WAS ASKED WHY I WASN’T AS BULLISH AS SOME OF MY FELLOW TRADERS. The market has gotten off to a respectable start for the year and I didn’t seem as excited as some of our group. Short-term, I was as mostly long, but long-term I was Smokey the Bear.

These guys demanded to know why I was so low key. My answer of course was:  “It’s all the deficits, stupid!” More definitively, it is all the obstacles that may prevent the United States of America from tackling the problems, i.e.:

•   Bipartisanship—I don’t think this country has been so divided since the Revolution or the Civil War. Nothing gets done as all the politicians, special interest groups and powerful unions fight for their special interest and neglect the best interest of the overall population.

•   The sheer size of government—you know you are in trouble when twice as many people work for the various levels of government than work in manufacturing, farming, fishing, forestry, mining and utilities combined. You know you’re in trouble when the salaries and retirement benefits of public “servants” are more lucrative that those producing the gross domestic product. Fifty years ago, these numbers were reversed.

•   Education—why do less than half our high school students flunk out before graduation?  Why is higher education not delivering the promise of a brighter future for our young people? Why do we believe the more money we throw at the problem the better the outcome will be, when that has repeatedly failed? Why do we measure the quality of education, not by the results, by the amount of dollars spent per child? Why do we let the teacher’s unions run the show?

•   Entitlements—Medicare and Social Security are broke and broken. It is just financial masturbation to fund the SS Trust Fund with IOUs from a government that is so in debt it risks losing its AAA bond rating. We are no longer self-dependent. No one wants to take responsibility for themselves anymore.

•   Federal Budget—it’s a joke to even call it a budget. We spend more in our Defense Department than any other nation in the world. Actually more than the top spenders combined. Funny… I really don’t feel any safer. I’m sure I’d be safer in many other countries that refuse to police the world and interfere in every crisis.

•   Trade deficit—over the last 30+ years, the US has had only one year with a positive trade deficit number. How long can that continue?

•    Weak employment numbers—employment just does seem to improve, while major firms release increasing profits, why? The better firms produce more and more of their goods and services overseas because the US in not a competitive labor market and the foreign markets are more attractive because they are growing faster.

•    Fiat currency—in all the history of the world, none has survived. I’m worried history will win out again this time.

Anyway, that’s unfortunately how I see things at the moment. At one time, this country had the strength, the leaders and the will power to face and overcome all these obstacles. I’m not so sure it does anymore. We may be heading to where the United Kingdom went following WWI and WWII—a second-rate “nation of shopkeepers” supporting an army of politically supported vampires sucking the last drop of blood out of the economy. What’s next … deflation? Run away inflation? We need change!

Tom McCafferty is author of numerous books about trading, including one of the very best primers available on the put-and-call game, Options Demystified.

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