Thursday, October 29, 2009

Gov't spending and its effect on income



As I have said (and shown by accounting identities) for years, government spending generally adds to the income and savings of the non-governmental sector.

Take a look at what happened in the year covering Q3 2008 to Q3 2009:

Over this period private wages and salaries declined $382 billion, from $5,419.2 to $5,037.8.

Yet, transfer payments (Social Security, Unemployment benefits, Medicare, Medicaid, etc) raised incomes by $257 billion.

Interest income, which is an important part of income paid by the government to holders of Government debt, actually fell. It went from $1,327.8 billion to $1,233.9 billion.

The more government spends, the greater the positive impact on non-governmental income and savings.

The drop in interest income also shows why, if the Fed were to raise interest rates, it would be INFLATIONARY, not deflationary.

Since the government is a net payer of interest, if rates were to rise, that would equate to an income boost to savers who hold gov't securities, but who might not be contributing all that much to the total output of goods and services.

That's why a rise in interest rates would likely be very bullish for stocks and the economy, at least for a while, or until rates hit a point where the yield on fixed income investments beat that of equities.

5 comments:

googleheim said...

i remember a year ago the prospect of finding which house and senate congressmen did not know how the tsy and fed works and which were clueless on debt and assets

where is the list i asked for ?

googleheim said...

vincent rowe mentioned mike norman today on biz radio.

he said that mike is real smart but never got anything right on the market, that it was not his thing.

bizradio rowe with his austrian school bs is rife with hypocrisy.

namely vincent rowe has constantly shifted back and forth dancing about the debt terrorist fire camp worrying about things that do not exist.

Mike Norman laid down the drive over 1 year ago, and has not waivered like the little Pansy vincent rowe is.


Mike's continuity makes vince rowe look like a brake / gas / brake gas knee jerking back pedaler

Mike Norman said...

Yeah, I got a lot of things wrong.

Like I never expected the Fed to limit its lending to banks and only require the highest quality collateral. I never thought the Fed would allow bank runs--one of the primary reasons why it was created--but it did.

Sticking with the Fed, I never thought it would lend nearly $700 billion to foreign central banks (money that ultimately would go to foreign businesses, individuals, who knows?) killing off what would have surely been a dollar "super-spike, which would have effectively crushed gold prices and quelled inflation fears.

I never thought that a president who was elected on the promise to help "working people," would sustain the very non-bank entities that wreaked such havoc to the financial system in the first place, and allow them to go on doing their speculative destruction.

I never thought that a president who was elected on the promise to help working people would put GM and Chrysler--two firms that produce some of the important real assets our economy and society need--into bankruptcy, while giving billions to Wall Street hedge funds like Goldman Sachs, which add very little, if nothing, to the real economy.

I never thought that Congress would do nothing to stop speculation in food and fuel, causing prices for these things to rise beyond fundamental justification and hurt folks at the bottom.

I never thought that the Congress would give 400 times more money to Tarp than what it allocates for food stamps.

I never thought that Obama would give an $8 per week pay increase to regular working folks and allow Wall Street speculators to make billions in bonuses.

I never thought our policymakers would want to turn us into an export nation, which requires, by definition, that we impoverish ourselves relatives to other countries because they don't understand that exports are a cost and imports are a benefit.

Yes, Goog, Vince Rowe is right. I got a lot of things wrong.

googleheim said...

RAGE ON !

googleheim said...

I think vince rowe was also the guy who devoted almost an entire show last year to explaining how he heroically clutched a machine gun in the Artic tundra ( with no one around except polar bears ) and that some other Bizradio host had no business talking about the armed forces & Iraq money waste.

I think that someone was Mike Norman, but I do not remember the Norman show that day which used to preceed the vince rowe show daily.

But from what vince rowe was literally crying about was that patriotism does not include open free speech or intelligent discussion. perhaps maybe that Mike Norman had no business talking about the economics of the Iraq war and abuse of soldiers ( the lack of health care for them ! ) ???

so now i understand where Frischberg the other machine gun clutcher took some of his data ... from vince rowe ???

perhaps frischberg made a hasty decision ??

who is saluting the troops and then running off investment out of the USA where those returned vets look for mfg jobs ?

on the other hand, WHO IS OUT THERE ON A DAILY GRIND MARCHING AND PRESSING OUT THE NORMAN THEORY OF CAPACITY AND ADVOCATING INFRASTRUCTURE HERE ON AMERICAN DIRT AND SOIL, HEALTHCARE FOR GI'S, HOSPITALS THAT DON'T STINK FOR GI'S, ROADS FOR GI'S N VETS, EDUCATION FOR GI'S N VETS ... THAT PERSON IS MIKE NORMAN.