The Art of (Paying Less Attention to) Noise

Part II of Volume II, Issue V

The gross national debt exceeded $32 trillion for the first time on Friday, underscoring the country’s unsettling fiscal trajectory as Washington gears up for another fight over government spending. A Treasury Department report noted the milestone weeks after Congress agreed to suspend the nation’s statutory debt limit, ending a monthslong standoff.

The $32 trillion mark arrived nine years sooner than prepandemic forecasts had projected, reflecting the trillions of dollars of emergency spending to address Covid-19’s impact along with a run of sluggish economic growth.  

~ The New York Times, June 16, 2023

“As the result of the high current US government debt-to-GDP ratio and continuing projected deficits, we face a possible dollar inflation uncertainty nightmare: Continuing deficits, if unchecked, eventually will lead to a fiscal dominance problem. This problem seems likely, given the way Congress has behaved in recent years. A significant rise in long-run real interest rates also seems quite possible, given that the three decades of decline in real interest rates are poorly understood and may reflect temporary demographic influences. Such an environment would hasten the triggering of a fiscal dominance problem, leading to a messy monetization in the US, with ramifications worldwide…”

~ Charles Calomiris, in the Federal Reserve Bank of St. Louis REVIEW, June 2023

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Editor’s Note: This is Part II of Volume II, Issue V of The Macro Value Monitor. Part I, Checkers vs Chess Amid an Inflationary Great Mistake, can be found here.

To listen to The Macro Value Monitor, click on the headphones icon in the Substack app. A full PDF of this issue is available here.

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Part of the enduring value of the story of Benjamin Roth in Youngstown in 1931 is in how he felt amid the noisy, rapidly changing market environment of 1931. 

If you recall, Roth noted in the opening pages of his diary that many of the stocks that were so high-flying in 1929 had lost the majority of their value by the summer of 1931, and how those traders and investors who rushed in early to buy the apparent bargains in 1930 were subsequently wiped out when the declines continued.  Yet in July 1931, despite the losses, public sentiment remained firmly entrenched in the old market paradigm, as Roth recorded: “Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices.  They say that times are sure to get better and that many fortunes have been built this way.”

A similar durable enthusiasm remained after the peak valuation in the 1960s, and the market action after the highest valuation was reached in January 1966 worked deviously to reinforce it.