Obama’s jobs conundrum
The insightful Andy Busch of BMO Capital Markets eyes it:
Here’s the ironic duality of the government spending creating jobs and massive deficits: it creates a small amount of short term jobs that steal a larger amount of long term jobs. Deficits are like weeds, when they are small they’re not a problem. When they get large, they block out the growth of what we want. It’s part of the reason why we have a conundrum of low interest rates while the deficit continues to expand. The markets are buying Treasurys because the prospects for strong growth are low and get further reduced with every new public sector spending initiative that adds to the deficit.
Let’s see if President Obama can morph himself away from FDR towards another presidential acronym: JFK. Like the 1960’s, it would be great to see corporate and individual tax cuts accompanied by a strong US dollar policy by the Federal Reserve to bring in foreign direct investment. Unfortunately, it will most likely take a year of sub-optimal growth to get the political momentum moving in this direction. It’s where economic policy needs to go to create sustainable growth.