Seeking Alpha
Portfolio strategy, oil & gas
Profile| Send Message|
( followers)  

In a terrible economic environment, in which things are continuously getting worse not better, some countries are “seeing the light” better than others. Nearly everyday I wake up and end up seeing some news clip that reminds me of the astounding idiocy that “we” elected to our legislative and executive branches of government. Meanwhile, other countries are fighting tooth and nail to enact policy that doesn’t waste what few bullets they have left on frivolous government garbage designed to do little more than promote their own re-election campaigns.

Chile, in particular, is apparently taking very positive, fiscally responsible steps to combat the hard times. In an article published Feb 19th in the Economist, titled “Stimulating”, Chile is noted as starting to cash in on their previous fiscally responsible policies executed during the previous booming period for copper/metals.

“As a small, open economy it is uncomfortably exposed to the world recession—the price of copper, its main export, has fallen by almost two-thirds since mid-2008. But virtue sometimes has its reward. More than any other government in the region, Chile’s is able to take action to stimulate the economy. Now it has done so.”

Some of the actions cited in the article include $4 billion increase in fiscal measures. Government spending will increase by slightly over 10%. I am not sure if the $4 billion is separate from the increase in government spending (but that is neither here or there). On the monetary front, the “independent Central Bank joined in, slashing its benchmark interest rate by a massive two-and-a-half percentage points, to 4.75%.”

Within the $4 billion fiscal stimulus,

“[The] package includes an extra $1 billion for Codelco, the state-owned copper company, to finance investment; $700m for infrastructure projects; extra benefits for poorer Chileans; and temporary tax cuts for small businesses.”

Quite frankly, the United States seems to need a lesson from Chile. The article goes on to say:

“The measures are better designed than similar efforts in rich countries, says Eduardo Engel, a Chilean economist at Yale University. ‘There’s almost no pork.’”

Candidly, they are still going to be deficit spending. In fact,

“the government forecasts this year’s fiscal deficit at 2.9% of GDP, but it can easily afford this. That is because it has stuck to a rigorous fiscal rule drawn up by its predecessor requiring it to save much of the revenue gained when the copper price rises.”

Hey! What is that called? Oh wait, I know….fiscal responsibility. What’s more is that

“Not only is public debt minimal (4% of GDP in December), but the government has also piled up $20.3 billion (about 12% of GDP) in a sovereign wealth fund which it can now spend.”

The article goes on to talk about some inflation issues but basically says that Chile expects inflation to come down over the coming months which will aid policy makers with their plans.

I am not really sure where the U.S. fits on the litmus scale of Keynesianism or Monetarism. Maybe that isn’t even the right question anymore. Maybe the proper question is capitalism or communism? Surely we can all agree that in any system you are better off having intelligent people as leaders. On a philosophical note, the best line in this entire Economist article was a quote from Chile’s Finance Minister Mr. Velasco, where he said, “being a Keynesian means being one in both parts of the cycle”.

What are we in the United States? We have a wretched tax code that penalizes success at a substantially disproportionate rate, and furthermore is so complicated to calculate that Obama’s own team can’t determine how much they “owe” on their own taxes. We spend a tremendous amount of that tax money on silly programs that serve as pet projects for congressmen and politicians generally to get re-elected. Is this cycle likely to end any time soon?

All of this leads me to conclude that investors should be relentlessly researching companies outside of the United States. Countries like Chile, where policy makers are enacting policies that benefit more than just their electorate. Moreover, they are designing policy to benefit their entire country. Maybe Canada is another good country to choose for research interests.

Evidence is mounting practically everyday that indicates The United States of America is on a strong trend towards becoming a socialist-equal-poverty-for-all style country. I fully understand that these are very difficult times with unprecedented problems and no easy solutions. But for goodness sakes, I am ready to hear some good policy proposals and less party rhetoric. Bring on the policy! And stop telling me how bad things are! I am well aware.


Source: U.S. Should Take a Lesson from Chile