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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: MikeM54321 who wrote (4046)	5/31/1998 12:38:00 PM
From: Zeev Hed	Respond to of 9980

Mike: " don't quite understand why you said Treasuries don't compete. I mean generally speaking, people buy bonds and people buy stocks." I meant to say "compete less", the supply of treasuries is smaller thus less competition from the treasury for "investible" funds. "You are assuming we, US taxpayers, are going to get this back via lower taxes, then most will put our rebate(so to speak) back into the equities market? If so, this isn't a given yet. Congress may spend it for us." I do not expect these $50 Billions to be paid back as rebates (it will no longer be surplus). I think that politician (and now the Feds) think we should "accumulate" these surpluses to reduce our debt. Because it seems that right now the "politically correct" thing to do is to decrease the company's (US) debt, the politicians are running the risk of precipitating a recession. My approach would be different. To the extent that there is consensus that some of this money should be invested by the government (and I am not smart enough to decide what is a good investment, lower the cost of college education, increase Government R&D into technologies of the future, or rebuilding our bridges and highways, or even get a world class "public transportation system" that people will really want to use), then increase Government spending. To the extent that there is a consensus to reduce taxes, then reduce taxes (and here I would not reduce the top tax bracket, but very slowly increase the the 15% ceiling rate until the 28% bracket is eliminated. Any drastic change in taxation always brings economic turmoil, asset reallocation for tax purposes only and other disasters). In any event, I am not worried that the debt structure is too heavy and would not reduce the debt (just at a minimal and an extremely slow rate of $20 Billion per year, and that could be left to grow at a 5% annually). If we reduce the deficit now with those excess funds, we will end up with a greater deficit later on, since we will precipitate a recession, and a recession will reduce our overall economy for a year or two (and if a very deep recession, even more). Reduction in our GNP will reduce Government receipts, while not having the flexibility of reducing in tandem outlays (very bad to reduce outlays in a recession). Unfortunately, Japan was not listening to me (VBG) last year when I suggested they eliminate at least their increase in sales tax, and better yet eliminate it all together) and I doubt Clinton, Newt, Rubin and Greenspan would listen to me now. BIG BUDGET SURPLUSES are BAD for the economy. Zeev