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Nexvu on Economics, Politics and the Markets

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Collateral Benefit – Fiscal Cliff Creates Real Stimulus

Posted by nexvucapital on November 20, 2012

Here’s a good one…the market can really overcome the best intentions of the politician…

Most of the funds targeted for Fiscal Stimulus by the US Federal Government since the Meltdown have had little effect once they hit the street other than to create more Federal Debt because of the layers of administration and bureaucracy built into the expenditure system. Currently, the US is experiencing a massive movement of private capital into Tax Free Muni Bonds as investors try to move funds to avoid expected Federal Tax changes. What is ironic is that the most effective Fiscal Stimulus is expenditure at the Municipal Level on Municipal Infrastructure as this has immediate and lasting economic effects and increases tax revenues. During the aftermath of the Meltdown the only bonds with a bid were US Treasuries and high interest Corporates.

The liquidity coming into the Muni Bond market should have an interesting stimulative effect on US GDP almost immediately and into the future. Now, this is where it gets really ironic, if the debate over or the implementation of the Federal solution to the overhyped Fiscal Cliff continues over an extended period of time this will actually be good for the average American.

Finally, politicians doing something good for the US general electorate.

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