WEDNESDAY AUGUST 26, 2009

Obama Dilemma

Over the last few days, the Obama Administration has made two announcements relative to the deficit.  The good news is that the forecasted deficit for 2010 has been lowered to “only” $1.5 trillion. The bad news is that the deficit is will be over $9 trillion over the next ten years!

I believe that the Washington’s spending levels, particularly the stimulus money, are going to get much more scrutiny than it is currently receiving.  The economic numbers continue to indicate that the economy has stabilized.  This morning’s Durable Goods number was up 4.9%, the most recent of a string of strong economic indicators.  President Obama is going to face a dilemma.  On one hand, he will point out that the economy has responded to all his programs and is growing again.  On the other hand, the strength of the economy raises the question about the need for future stimulus.  For example, the President will claim that “cash for clunkers” was a success, but if the economy is better, than why do we need to spend another few billion on a “cash for appliances” program.  Less than 20% of the $800 billion stimulus program has been spent.  If the economy continues to improve, look for more market participants (and politicians) to suggest that it is time to pull back many of the stimulus monies in the name of fiscal discipline.  At some point, the fiscal and monetary stimulus will need to be reduced or serious inflationary pressures will develop.  I believe the calls for fiscal discipline might be coming sooner rather than later.

POSTED AT 1899-12-30 08:54:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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