http://www.nationalreview.com/nrof_nugent/nugent200401160921.aspThe stock market has risen between 25 and 50 percent, depending on your index of choice. Foreign markets have mostly fared better than U.S. stocks. Real economic growth and corporate productivity are booming. And, strangely enough, interest rates and inflation are low. With all this good news, you would expect to see a little more exuberance after nearly three bear-market years and a mild recession. Yet there is no shortage of economic boogeymen toning down the optimism.
One of my clients recently forwarded a local newspaper editorial that would fall into the category of "Let's scare the hell out of 'em." The editor relied on a recent expose produced by none other than those perennial "bullish" economists at the International Monetary Fund. According to these purveyors of outdated economic analysis, U.S. fiscal policies "threaten the financial stability of the global economy." And according to the editorial-page writers, "the economists have a credible explanation for their worry. They warn that U.S. net financial obligations to the rest of the world, given current taxing and spending practices, could equal 40 percent of the total United States economy in just a few years. And this would bring bad consequences for the value of the dollar and play havoc with international exchange rates."
Such warnings confirm what modern economists have known for some time now: Traditionally trained economists, especially those who populate the IMF, rely on economic theory that is tied to a gold standard. However, the world went off the gold standard in 1971 when President Nixon closed the gold window — i.e., the U.S. no longer redeems dollars for gold.
So, now that we know the economic world is round and not flat, let's take a look at these IMF forecasts.
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