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The
Government Bubble
By
Steve Saville The
Speculative Investor
June
16, 2009
Below
is an excerpt from a commentary originally posted at www.speculative-investor.com
on 7th June 2009.
It is clear that a concerted effort is being made to replace the
ruptured private-sector debt bubble with a government debt bubble,
although the effort is generally not labeled as such. Moreover, the
dramatic increase in government debt that we are seeing is really
just a symptom of expanding government. In the case of the US, for
example, GW Bush presided over a rapid expansion of government power
and the trend has accelerated under Obama.
As an aside, although President Obama is sometimes referred to as
the new FDR he is probably more like President Herbert Hoover than
President FD Roosevelt. We say this because Hoover -- despite the
way he is often portrayed -- was a strong believer in the ideology
of central planning, whereas Roosevelt didn't believe in anything
except the need for him and his party to maintain political power.
Both Hoover and Roosevelt were totally clueless about economics, but
whereas FDR never expended any mental energy contemplating the
long-term economic implications of any policy -- his sole
consideration being a policy's vote-winning potential -- Hoover
genuinely believed that a government-managed economy would be more
efficient than a free-market economy if only the government applied
the practices that worked well in the field of project engineering.
Getting back on topic, we can explain why the current trend will
lead to poor economic performance and the severe curtailment of
individual freedom, and, therefore, why it should be stopped.
However, when planning our investments and our lives we must
acknowledge the reality that the government's growth spurt will
almost certainly not end anytime soon, because there is very little
resistance to it. That is, we must act based on the way things are,
as opposed to the way they should be, and part of today's reality is
an inexorable trend towards a bigger and more intrusive government.
Something to bear in mind when considering the investment
implications of the current trend is that governments always play
favourites. To be more specific, the governments of today are giant
re-distribution machines in that they take money and resources from
some individuals, corporations and economic sectors, and give them
to other individuals, corporations and economic sectors. The overall
economy either grows at a reduced pace or shrinks as a result of
this re-distribution, and in the long run almost everyone loses; but
over shorter timeframes there will be winners as well as losers. The
winners will be chosen by those in power based on perceived
vote-gaining potential (the Roosevelt approach) or the misguided
belief that the economy can be improved via the government-mandated
transfer of resources from A to B (the Hoover approach), although we
expect that the biggest winner of all will not be chosen by the
government, but will, instead, arise due to the unintended
consequences of the wealth re-distribution. We expect gold to be the
biggest winner.
Other big winners are likely to be companies involved in alternative
energy and companies that benefit from increased spending on
infrastructure, but in general the stocks of non-gold companies will
have substantial downside risk until after the broad stock market
becomes attractively valued.
Regular
financial market forecasts and analyses are provided at our web
site:
http://www.speculative-investor.com/new/index.html
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aren’t offering a free trial subscription at this time,
but free samples of our work (excerpts from our
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