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Can The Economy Stay Out of Recession Without Perpetual Government Deficits?

Our last recession is approaching nearly a decade ago and the economy continues to reflect moderate growth.  Various economic releases continue to reflect a mixture of results.  Some are weakening and attempting to trend lower while some are continuing to reflect consistent growth.

Through the years of the last decade, while the economy has ebbed and flowed its way to staying out of recession, it has also posted some overall poor results compared to past post-recession recoveries.  This has occurred while truly historic initiatives have been taken by the Federal Reserve with monetary policy.  In addition, Fiscal policy has been accommodative as reflected by the consistent levels of government deficits.

The backdrop is beginning to offer the question whether the economy can stay out of recession without a consistent trend of significant government deficits.  Decades ago Keynes offered the economic policy approach of running government deficits to assist the economy when it fell into recession.  Once said economy was positive the deficits would no longer be needed.  Up to our current era deficits are now a structural placement with their consistency in good or bad times.

Surplus or Deficit

The above chart from Mr. Griess at the Chart Store ( walks us back to the late 50’s with two different views of our structural deficits.  The upper pane depicts in dollars the trailing twelve month level of our current deficit.  For the previous twelve months ending in May we have tacked on an additional $600 Billion-plus of debt to our nation’s IOU tab.  More notable is the trend.  The best we have seen during this nearly decade long recovery is the accumulation of $400 Billion of additional annual debt which was attained back in 2015.

Since 2015 we have been trending lower on the chart which means our deficits have been growing notably larger.  The $400 Billion to the now $600 Billion-plus and trending is not indicative of a thriving economy.

The lower pane places the deficits into context as a percentage of the nation’s economic growth via the GDP measure.  This measure also peaked out on its improvement back in 2015 and has since rolled over and is trending weaker.

As citizens we are all ultimately responsible for these accumulated deficits that are collectively known as our National Debt.  In addition, our Unfunded Liabilities are multiples higher than that of our accumulated debt.  For my part, what is most concerning is the seemingly collective yawn we the citizenry display with this topic.  It is “We the People” who are ultimately responsible for these debt accumulations and it is we the citizenry who will incur the various ramifications that come from excessive debt accumulation.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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