Double Trouble: Hike the Deficit or Hit Another Recession Says Wiedemer
Talk about two awful choices. It's like having to pick between being shot or stabbed. There just is no good decision or scenario that can come out of that.
And right now, America and its fragile economy, are facing two comparable bad paths, says Robert Wiedemer, managing director at Absolute Investment Management and the co-author of the book The Aftershock Investor. As he sees it we can either double up on our already horrendous deficit spending OR face our second recession in four years beginning as early as next summer.
"I think recession is (inevitable), but you can avoid it," Wiedemer says in the attached video. "The way to avoid a recession now is to increase that deficit, just like we did before. If we take that deficit from $1 trillion to $2 trillion you'd find we would be out of the recession" and everything would get turned around, including the housing and job markets.
To some, putting another trillion dollars on the credit card doesn't seem like such a big deal. Except of course to budget-panel guru Alan Simpson who shed light in an interview on CNBC about how big the 13-digit expenditures that we casually flip around actually are. His assessment is highlighted below.
"It you spend a buck a second, you wouldn't hit a trillion dollars for 32,500 years. And if you spent a million dollars a day since the birth of Christ, you wouldn't be at a trillion. And the big bang theory of the universe happened 13 billion 600 million years ago. That ain't even close to a trillion, and we owe 16 of those babies."
Wiedemer's point is simple. "How did we get out of the last recession?" he asks. "We borrowed a lot of money, we printed a lot of money, and that boosted the economy."
As Wiedemer points out, there are already signs of QE3 fatigue, brought on in part by a "700% increase in government borrowing since 2007" in an economy that's already starting to slow down on its own. Add in headwinds from the global slowdown and he says it's clear, "we're facing a lot of problems down the road."
In fact, if there was one issue to highlight that he thought posed the greatest threat of all, Wiedemer says the slowdown in Europe and China could be the tipping point for the U.S.
To be fair, he does not see a washout type recession but rather a more mild one, helped (temporarily) by QE3, but that's not without concern. ''When you start telling everybody that you're going to print money forever, I think it gets people worried that we really will get inflation," he warns.
As for avoiding a dip into the fiscal red sea, that will take an act of Congress. And failing that, Wiedemer says, investors would be wise to reduce exposure to stocks and hang on to a little gold.
