John Ransom

We need a new foreign policy and we need to spend a lot less money.

That’s the message stock market is telling us.

It’s a message painted in big bold letters and we’d be wise to read it. 

We need a foreign policy that uses the proven lessons we learned from the Cold War; a policy that pares back our commitment of troops to combat operations.

We need a fiscal policy that we learned during the 30 years from the 1960s to 1990, when our economy only did well as we restrained government spending to an amount affordable by our GDP.

During the Cold War we fought wars by proxy, generally speaking, or we committed a limited amount of troops for a short period of time.

When we didn’t do that, we lost local wars- a tie being the same as a loss in my book.

It was called containment. It was predicated on the belief that our system was superior to Communism and so, in the long run, our system would prevail. It was an optimistic way to wage war. 

During the same period, we learned that when we restrain spending as a percentage of GDP, the economy does much better. It’s a fiscal policy that could also be known as containment. We contained the amount of power the government had and maintained the power of individuals by limiting spending. It too was an optimistic system because it bolstered the freedom of the individual to make choices.  

When we expanded the power of government and spent more money on government the economy didn’t do well as all. It was kind of a self-starting restraint on government.      

The lesson came home to me as I was looking at a chart of stock market activity from 1950 to 2010. (See chart below).

I was struck by the similar patterns stock prices made from the period from about 1966 to 1980 and the period from 2001 to the present.

Both the period from the mid-Sixties onward and the period from 2001 onward show significant stock market corrections, followed by a period of sideways stock market action, followed by other, more significant market corrections. 

John Ransom

John Ransom’s writings on politics and finance have appeared in the Los Angeles Business Journal, the Colorado Statesman, Pajamas Media and Registered Rep Magazine amongst others. Until 9/11, Ransom worked primarily in finance as an investment executive for NYSE member firm Raymond James and Associates, JW Charles and as a new business development executive at Mutual Service Corporation. He lives in San Diego. You can follow him on twitter @bamransom.

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