I've been watching more cable news than is probably healthy since I moved back to the US. What can I say: every day is a new struggle to put off writing my dissertation. Anyways, one thing that I've noticed in particular is that the cable news format is atrocious for discussing economic news. As is such, I feel compelled to comment on two issues that I saw today:
1. The price of oil: CNN's economic "experts' have been cheering as the price of oil continues to tumble. Light Sweet Crude for September delivery is trading around $124.70 on the NYMEX. Today, they even had a poll asking whether viewers would go back to their old driving habits now that the price of gas is falling again. Easy there, CNN: oil's price fundamentals are still pointing up and any reversals may well be temporary. These days, there is high volatility within oil markets and price swings within wide margins are likely to become the norm. Oil prices may be down temporarily, but there is no evidence at this point that they'll stay down. Don't buy that new Hummer just yet.
2. The budget deficit: All the major cable networks are giving a lot of play to the new US deficit figures, the largest ever at $482 billion. Democrats are screaming bloody murder at GWB. Republicans are blaming Democrats. I don't like to take sides on things like this, but this is an election year and the Dems are really overreacting. Don't get me wrong: deficits do matter, in the sense that they signify that the government is spending more money than it is taking in. But the size of the deficit as a percentage of GDP is more important than the overall figure. Right now, the deficit is at 3.3% of GDP, compared with highs of 6% in the early 1980s. By comparison, I borrowed roughly 100% of my "personal GDP" last year to finance graduate school. Granted, this was an investment in future earnings, but many people wouldn't bat an eye at credit card bills that were higher than 3% of their yearly salary.
However, the government's budget deficit in any given year is far less important than the overall national debt, which is the total amount that the government owes from all of the times it has borrowed money to finance expenses. Again, it's important to consider this figure in relation to the GDP and GDP growth. This metric suggests that the debt isn't historically bad or unsustainable at its current level (see graph above. Source: Wikipedia.)
Enjoy cable news, but please enjoy responsibly.
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