Wednesday, September 30, 2009

If Pearl Harbor were attacked today, could we afford to defend ourselves?

Excellent article by Paul London on the Huffington Post.

If Pearl Harbor Were Attacked Today Could We Afford to Defend Ourselves?

If Pearl Harbor were attacked today as it was on Dec. 7, 1941, would the government have the money to defend the country? This question was answered 70 years ago. In 1939 opponents of Roosevelt and the New Deal were wringing their hands about budget deficits in exactly the words they use today. They argued that FDR was bankrupting the country and that the Federal deficit had to be reduced. Then suddenly money stopped being a problem: we had plenty of it.

Hitler struck Poland in September 1939 and two years later the U.S. was at war. The American government found billions to pour into war-related industries and the U.S. economy became the "arsenal of democracy." The conventional wisdom had said that the country did not have even a few billion dollars to end unemployment and fight the Depression, and it was completely wrong. In fact the government had access to all the money it needed to put idle resources to work to fight a world war and support a civilian recovery that raised living standards enormously. Government spending, far from being the economic disaster conservatives predicted, made the economy boom and was completely manageable.

How robust was the U.S. economy during World War II? It grew over 17 percent a year in 1941, 1942, and 1943, and 8 percent in 1944. Unemployment disappeared. Millions of men and women, said by conservatives to be unemployable during the Depression (remember The Grapes of Wrath), were pulled into the workforce and the armed services. The country built hundreds of thousands of fighters, bombers, and military vehicles and launched millions of tons of shipping. It supported 16 million people in the armed forces, the equivalent of 36 million today. It built new plants to produce aluminum, dams to power the new factories and much more. It paid for this with what, in effect, was printed money that the anti-New Dealers had said would be catastrophic. Talk about being wrong.

This history is 100 percent relevant in 2009. Almost 15 million Americans are out work and millions more are working part time involuntarily. Our factories and offices are on short hours, states are laying off teachers. Consumers and businesses are saving, not spending. Our dependence on foreign oil is dangerous and has been for 60 years, and our public works are in shambles. Republicans, having learned absolutely nothing from history, say more government spending to address these problems would break the bank. They ignore the experience of World War II when the government found the money to finance a huge war when Republicans had argued that it was broke.

Are Republicans just ignorant? I doubt it. Many of them know this "deficits will kill us" stuff is bull. Former Vice-President Cheney famously told then-Treasury Secretary Paul O'Neill that "Reagan proved deficits don't matter." His wife, Lynne Cheney has written at least six books aimed at teaching history to American children, a goal which I share. But the Republicans dismiss history when it serves them, and the economic history of World War II is clearly history they want to dismiss.

The truth is that Republicans spread fear about the deficit because they do not want Democrats and the government to get credit for dealing with unemployment, health care, the need to "green" our economy, and to modernize our educational systems and public infrastructure. When they had a congressional majority they did not wait a year to blow the Clinton budget surpluses to smithereens by giving tax reductions to the wealthiest Americans. Unfazed by deficits, they never had the political guts to propose taxes to fight the unpopular Iraq War, or to pay for earmarks that served their political purposes. The feckless George W. Bush and the Republican Congress doubled the national debt on their watch and refused to take responsibility -- that is ask voters to pay for -- their actions. Republicans don't care about deficits. They talk about deficits now because it fools people, and they see that as good politics.

The country can afford to spend money to put Americans back to work, modernize our infrastructure, green our economy, and improve our educational systems just as surely as it could afford to spend money to fight World War II. To do otherwise is to ignore American history. Write a book about this Ms. Cheney.

He just gets a little off track on the, "doubling the national debt" stuff.

Tuesday, September 29, 2009

The next time somebody asks you, "What if China doesn't buy our debt?"

There's a crescendo of worry regarding the question of whether or not China, one day, will stop buying our debt. Last week, famed hedge fund manager Julian Robertson said the U.S. will experience economic "Armegeddon" if China stops buying. (Proving that you don't have to be smart to make a lot of money as a trader.) And now Paul Volker is in the news alluding the same thing. (Proving that he knows shockingly little about macroeconomics.)

Let's try to break this whole problem down and see if we can understand it piece by piece, shall we?

The first thing you should say to someone who says, "What if China (or anybody) stops buying our debt?" is...

"Okay...can you tell me how China or anybody else pays for our debt?"

If they're halfway on the ball they'll say, "They pay in dollars," or something like that. If you get that answer, that's good enough. (You'll find that some people will even be stumped by your question.)

To be more precise, they pay in reserves. When somebody buys a Treasury, that person's checking account is debited and their bank's reserve account at the Fed is debited in the amount of the purchase.

The reserves balances are lower, but the buyer gets a Treasury.

So far, so good.

But here is the problem with the worry warts' arguments: Reserves are a monopoly of the state, i.e. of the government. Only the government can create reserves!

Therefore, if reserves are a monopoly of the government and buyers of Treasuries can ONLY pay in reserves, then in order for anyone to have the reserves to pay, the government MUST HAVE SPENT THOSE RESERVES INTO EXISTENCE IN THE FIRST PLACE!!

Do you follow me??

When you or the Chinese or the Japanese or your Uncle Frank or ANYONE buys Treasuries, you can only buy them with the government's own money. And the government has a monopoly on the creation of its own money.

How, then, does that equate to a loan from the Chinese??

The answer is, IT DOESN'T!!


How does that happen?

It happens when the governemnt spends. More precisely, it happens when the government defict spends because that is how more reesrves are credited to the banking system. Some of those reserves are held by accounts of foreign banks at the Fed.

When the government spends it increases aggregate demand, which adds to GDP and national income and that gives buying power to American consumers, who then spend on imports and that spending results in an increase in reserve balances for Chinese and other foreign entities' bank accounts.

Then those foreigners simply exchange those reserves (which pay little or no interest) for a savings account of the U.S. government that earns interest, which is called a Treasury. That's all a Treasury is...a savings account of the U.S. government.


Anyway, ask your friend or colleague this: Why in the world would the government need to borrow what it can create without limit???

This whole, "borrowing from the Chinese, thing" is a complete fallacy yet it is going to end up destroying our country.

Volker says China's rise highlights U.S. decline

“You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.” -Paul Volker

It’s amazing to think that Paul Volker, one of the most revered economic figures of recent times, simply does not understand macroeconomics.

China’s holdings of U.S. Treasuries are are reflection of the cost, in dollars, that it took to suppress their currency, along with the wages and living standards of their own citizens, in order to support a largely export-driven growth model. If China did not want to accumulate dollars it did not have to create real assets (goods) and export them to Americans in exchange for the dollar. It had to have been their desire to “net save” in the U.S. currency or else they wouldn’t have done it. They could have just as easily boosted domestic investment and implemented policies to increase wages and consumption and grown output and employment in that fashion. For whatever reason, they chose not to.

However, China is going down this path now, not because they want to, necessarily, but because they see the United States as no longer willing to sustain output and employment at sufficient levels to maintain their own export product. Perhaps it’s because we have policy makers like Paul Volker.

Bottom line: with people like Volker fashioning U.S. policy, it's better to invest in China. Get my China Report here.

Friday, September 25, 2009

You CAN spend your way out of a recession!

Nice post from Bob McTeer's blog:

Can You Spend Your Way Out of Recession?

“You can’t spend your way out of recession” is a sound bite heard almost every day on financial TV. Recently a guest commentator combined that sound bite with this one: “You can’t borrow your way out of debt.” Perhaps the second one was intended to divert our attention from the first one. Clever. Perhaps too clever by half.

Of course you can spend your way out of recession, almost by definition. A recession can be defined as a shrinkage of spending and income. More spending is needed to generate more income. Therefore, more spending will do the job.

I think the problem is that spending your way out of a recession is the message of Keynes’s “General Theory of Employment Interest and Money, and people don’t want to be labeled a “Keynesian.” But surely one can cling to his classical economic principles while acknowledging that Keynes had a point, especially during recessions.

In a recession, income declines because spending declines, and spending declines because income declines. It’s a vicious circle that needs to be broken. One option might be tax cuts to increase business spending. Another might be lower interest rates to stimulate spending. Another is to have government spending make up the slack. That will work if it has monetary policy support, i.e. if the government spends newly created money so it doesn’t crowd out private spending.

I don’t necessarily want to be labeled a Keynesian either, but I see no reason to fear acknowledging that he had a point. To say that we can’t spend our way out of a recession may make a good sound bite, but it has no credibility.

He gets a little off track on the "crowding out" part, but in general it's a good piece.

Thursday, September 24, 2009

Citigroup to scale back U.S. footprint; limit lending to wealthy

There is perhaps no greater trend emerging from the Obama Administration than the trend of wealth flowing to the top.

For a president that promised change and more equity for working people, this development is truly astonishing.

From Tarp to the forced bankruptcy of U.S. automakers to tariffs on tire imports from China to the Public Private Partnership initiative and above all...the complete absence of any middle class tax cut, this Administration has, either deliberately or unwittingly, engineered one of the greatest wealth transfers from the lower classes to the most wealthy.

This Citigroup story is just another example. The beleagured bank is being forced to pare back its mighty U.S. presence, where it served tens of millions of everyday Americans, including many small businesses, and now focus on lending money to the only ones who have any left: the wealthy.

Because the Administration, including the Federal Reserve, failed to understand the very nature of our own banking system--that commerical banks are already public/private partnerships and quasi-agents of the goverment--they were given support with huge strings attached when there shouldn't have been any. Moreover, because the government has failed in its obligation to sustain employment and output (yes...OBLIGATION!) banks have no choice but to go where the money is.

This is a terrible, terrible, abrogation of government's responsibility and worse, a weak and cowardly act by the president by going back on his promise to help working people.

There is plenty of history to show that large doses of government spending--broad and actual spending--are necessary to avoid economic collapse and, indeed, to sow the seeds for future long-term economic growth. A real leader would have overridden the wrong-headed advice of his political advisors and done what was necessary to restore jobs, incomes and a decent standard of living for all Americans, as promised, and not just the 1% at the top.

Wednesday, September 23, 2009

My Fiscal Timer Digest had you short the S&P going into today and adding to that short

Long bonds, too!

The Fiscal Timer Digest nailed it!!

Sign up for a 30-day free trial.

The risk has always been that they would take away support too soon, and that's what they're doing

Headline speaks for itself. This weekend Obama will promise to the G20 that he will reduce the U.S. deficit. Bye bye rally!!

Sensitivity on deficits, inflation, will almost certainly shorten the duration of this recovery

So many people suffering...

So many people still being asked to sacrifice...

Things were starting to improve but only modestly, thanks to an incredibly meek response.

But now, it looks as even that tepid support is going to be taken away. Blame the deficit terrorists and the gold bugs. They've hijacked policy.

This recovery will be cut short; it's almost a certainty.

Start to lighten up on your stock holdings now as we trade to higher levels.

Fed slows $1.45T MBS buy program

I had a feeling this would happen. It's really unfortunate, but the Fed is now being influenced by the inflation hawks on the FOMC.

The Fed will do its declared total purchase amount, but the remainder--about $600 billion--will be spread out over the next six months rather than the next three.

Mortgage rates are not likely to rise substantially, but the lows are probably in for the year. If you are shopping for a mortgage, lock in your rate now!!!

Obama's speech at the U.N. We can't go it alone

If you are looking for the great American economic engine to recharge itself and pull the world to prosperity, you can forget it. Obama believes that you need to put hundreds of little pieces of a puzzle together for there to be prosperity at home again. Very disappointing...extremely disappointing.

Now is the time for all of us to do our part. Growth will not be sustained or shared unless all nations embrace their responsibility. Wealthy nations must open their markets to more goods and extend a hand to those with less, while reforming international institutions to give more nations a greater voice. Developing nations must root out the corruption that is an obstacle to progress – for opportunity cannot thrive where individuals are oppressed and business have to pay bribes. That’s why we will support honest police and independent judges; civil society and a vibrant private sector. Our goal is simple: a global economy in which growth is sustained, and opportunity is available to all.
-President Obama at the U.N.

Our goal is simple??? Yeah, right. Just get 180 pieces of the puzzle all aligned together. How simple.

If only he realized we don't need anyone else. Prosperity for all Americans is something America can ONLY achieve on her own.

The Right has successfully established the deficit as the main political concern

Republicans and other conservatives have successfully made the deficit the number one political issue, meaning that any jobs initiatives will have to take a back seat to cutting back the deficit.

Take a look at the comments below:

In addition to pushing the U.S. agenda, Obama is certain to face tough questions from other G-20 countries over whether his administration can develop a credible plan to curb a soaring U.S. budget deficit that the White House projects will hit an eye-popping $1.548 trillion this year and total $9 trillion over the next decade.

As part of an effort to convince the world that he is serious about getting the deficit under control, Obama is pushing a plan that would require the United States and other countries to make sweeping changes in how they manage their deficits.

The goal is to prevent the destabilizing imbalances represented by America's high budget and trade deficits, and huge trade surpluses in countries such as China.

Obama's initiative would require chronic trade-deficit nations like the United States to boost their savings rates to consume fewer imports, and for trade-surplus countries like China to get their consumers to spend more and rely less on export-led growth.

"We can't go back to an era where the Chinese or the Germans or other countries just are selling everything to us, we're taking out a bunch of credit card debt or home equity loans, but we're not selling them anything," Obama said during a CNN interview broadcast Sunday.

Obama has bought into this idea of "imbalances" that have to be fixed and he will support policies that lead to more exports even if that means Americans stay unemployed longer and wages remain low. (The latter is a necessary requirement for comparative labor cost advantage--the only way we will get real export gains.)

Gov't supplanting consumers

From an article by Robert Reich that appeared on the Huffington Post.

"In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government's expansion. And regardless of what you call it -- Keynesianism, socialism, or just pragmatism -- it's doing wonders for business, especially big business and Wall Street. Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap."

Yes...just as I have been saying for some time. This also has great import for China, which is being forced, by way of our policies, to rely less on exports and support growth domestically.

Read more at:

Tuesday, September 22, 2009

FDIC considers borrowing cash from banks

This is totally insane!!! Who are these morons controlling our government and vital institutions??? They are clueless!!!

The FDIC CANNOT run out of money!! In a nation where the government "spends" by crediting bank accounts and where the currency floats freely there can be no "running out of money." It is a totally inapplicable concept.

The deficit terrorists will cause an economic calamity of enormous proportions if this keeps up. In the meantime we are pushing many into poverty and lowering the standard of living of all but 1% of the citizens of this country because of irrational deficit fears!

Fed's Latest Quarterly Z.1

The Fed released the Q2 Z.1 report last week. Throughout this year, I've been following the Agency Bond and MBS purchase program that the Fed has underway, and the Z.1 identifies ownership trends of these types of securities.

The snip below shows that through end of Q2, the US Monetary Authority (Fed) has increased its holdings from practically none to approximately $560B, while the "Household Sector" has reduced its holdings to just $129B from a peak of over $800B late last year.

I can't help but conclude that the Fed is essentially buying these valuable assets away from the Household Sector, as the public (that's us!) liquidates these securities for among other reasons to probably replace some lost income.

Money is debt (well, private money at least)

Just got back from Fox where we taped a show, but it won't be airing; it was for internal use. The discussions, however, were very real.

One of my co-panelists kept harping on the deficit and casting it as this terrible thing, like most people do, because it amounted to nothing more than heaping debt on the backs of our kids.

This is an oft' heard remark. ("Leaving a legacy of debt..." etc.)

Curiously, these folks have no problem with the fact that businesses use debt every day to make investments and to grow. The truth is, in the world of businesss, we really DO spend our way to prosperity. I wonder if my colleague thinks that News Corp Chairman, Rupert Murdoch, would be faring as well as he is if he couldn't use debt to grow his business.

Yet when it comes to the government, where the ability to issue money is unlimited, there is this view that it is bad, even if the money is used for needed investments, like health care, education, infrastructure, sustaining the production of real assets or even making payments to support incomes of people who are unemployed or disabled, when the private sector can't.

Notice I said, "issue money," rather than issue "debt."

That's because the money of the state (government) is different from private money because it is not an i.o.u. or a promise to pay per se. The only promise inherent in state money is that the state promises to accept it for payment of taxes. But that alone is a pretty important promise; it could keep you from having your assets confiscated or perhaps even from going to jail.

Let's start with a basic concept, which is, that all money private money in a modern economy is debt. Everything that we routinely use as money, such as checking accounts, loans or other forms of credit; they're all debt.

Your promise to pay "creates" a loan, which is merely a credit that the bank issues to you by simply entering it onto its books. You then use that money to either acquire some of the real assets (goods and services) you need to live or, to acquire financial assets that you will need later on in life.

Here's another important point: Your promise to pay also created an asset for the bank. So for every debt(liability), there is a credit (asset). That point frequently gets lost in these discussions. The analysis ALWAYS centers on the liability side of the balance sheet (the debt) and NEVER on the asset side.

When the government spends to acquire goods and services, pay interest or support incomes to retired or unemployed people, it supports GDP. Rsing GDP equates to greater wealth creation. That's a good thing.

What is often misunderstood is that government issuance of securities (like Treasuries) does not constitute borrowing, but rather, functions simply to sustain a desired interest rate.

That means there really is no, "legacy of debt left to our kids and grandkids." the statement is a complete fallacy. Spending today makes GDP higher than it would have been had the spending not occurred. All that means is that we have produced more goods and services (real wealth) and THAT is the true legacy passed along to our kids and grandkids. It's why the "debt" our grandparents ran up duing WWII didn't impoverish us, it made us rich.

What impoverishes us is poverty. That sounds silly but it's true. Poverty comes from sitting around and doing other words, not engaging the capital of the nation to produce the wealth that we're capable of producing. When we do that we pass along a lower standard of living to our kids and grandkids. We make them poorer.

Monday, September 14, 2009

Focus on the game rather than the score

When you watch a football game do you think that it is the points on the scoreboard that decide the game, or is it the teams on the field and the game play that dictates the score, which ultimately decides the game?

The answer, of course, is the latter.

Think of it this way: if an actual game had been played and the score were 20-7, but the scoreboard was broken, a game still took place with a real outcome. One team scored 20 points while the other scored only 7. One team won and one team lost. The scoreboard, therefore, is just a convenience; the game is what's of true importance.

Similarly, if there were no game, just two teams sitting on the sidelines, but the scorekeeper put up a score of 20-7 on the scoreboard, had there been a game? No. Was the outcome real? No.

This is the problem we get into in economics when we think about "the money" rather than the result or, "the output."

We tend to focus on the nominal price level (the money) as opposed to looking at whether or not we are using all of our resources and capital to the fullest. It gets us into trouble in many ways.

One way it gets us into trouble is by causing us to believe that national investments, such as health care or job creation, must be "paid for" in current dollars by some segment of the society. This merely redistributes wealth in some fashion; it doesn't create more. We are doing this now and it is unfortunate that we are, especially given how much spare capacity and idle capital we have.

Real "costs," however, often come from not utilizing all the productive capital (physical and human) that a nation has. This results in a lower standard of living to both current and future generations. That is the true legacy passed along to our kids and grandkids. It's also the reason why the debt that our grandparents ran up to fight WWII did not impoverish us. On the contrary, it made us rich.

Of course there is also a cost in pushing beyond the limits of what our productive capital is capable of yielding, but we are nowhere near that level. In fact, this country has not been anywhere near that level for 80 years. Therefore, one can say we have been living beneath our means for all that time.

Think of a business that has the ability to earn you $1 billion per year, but you run it to produce $500 million instead, because you do not want to "spend" the money to run it at full capacity even though your return would be greater if you did. That is not only bad management, it is irrational. If the business earns you $1 billion per year after expenses, then a good manager would run it to maximize its output or as they say, maximize its profit.

Same holds true for a nation.

Sunday, September 13, 2009

You are invited to join my forex trading contest!

On September 21 I will be launching a forex trading contest, the Pitbull Economics Forex 1 Competition, on the Oanda forex platform. It is open to all skill levels.

To join you will need to open an Oanda FX game account where you will get $100,000 in play money. It takes a few minutes to set up and it is free. (You can set one up here.)

The contest will run for one month and the winner will receive a free, 3-month subscription to my new report, Fiscal Trend Digest. That is a $3,250 value!

If you attend my free forex trading webinar on Thursday, September 17, at 9:00 am to 11:30 am, you will have the skills necessary to compete. To register for this webinar please send me an email.

Good luck!

Saturday, September 12, 2009

Hey, deficit terrorists...keep your guilt trips to yourself!

To all those screaming about the deficit...

What you don't realize is that for every debit there is a credit; for every liability there is an asset and for every borrower there is a saver.

It's called double-entry accounting and it's the system the world went on 500 years ago because it was far superior to single-entry version, which kept most of the human race in poverty or enslaved in one form or another for thousands of years.

You and others like you still think we are on that old system or worse, you endeavor to put us back on it because of your own "guilt trips." You hate to see people comfortable and living nice lives. It is some Puritanical thing within you that wants anyone who is modestly happy and living a decent life to be punished. You believe it is all sinful and we must atone for our sins by punishment or as some of you call it, being "purged."

Why don't you go live with the fanatical muslims who deny themselves any form of pleasure and wish harm to anyone who does not subscribe to their extreme views?

Deficit terrorists, get lost!

Hey, here's an idea...why don't you go sit in a cave so you can safeguard your ignorance? Whatever you do, just keep your guilt trips to yourself. Impose them on your kids and your own family if you like, just stay away from me!!

-Mike Norman

Obama: Shrink U.S. productive capacity, then impose tariffs on imports. Unreal!!

July's bigger than expected increase in the U.S. trade deficit was due to a sharp rise in imported autos. That's because the Obama Administration had been hard at work earlier in the year shrinking our domestic automotive production capacity. (Remember how he forced GM and Chrysler into bankruptcy.)

Back in March I talked about how the move to make the U.S. auto sector "lean and mean" would simply result in a shrinkage of capacity and down the road, we'd end up having to import more vehicles or face shortages. Now this is happening.

As if the damage the Administration has wrought was not enough, they are now putting tariffs on other necessary goods, like automobile tires.

Who changes their tires?

Mainly, people who own used cars and have to hold on to them for extended periods. Maybe because they can't afford a new car. Maybe because they don't have a job! (And maybe they need tires to go look for a job!)

So once again, here is an Administration that is putting in place one policy initiative after another that causes incomes and benefits to flow to the top, while those in the middle or at the bottom suffer.

It is truly outrageous.

Friday, September 11, 2009

U.S. Economic Growth to Slow as Car Rebates End, Survey Shows

Yes, the one thing that actually worked: getting money in the hands of consumers, is being halted. A measely, $2 billion program that had enormous bang-for-the-buck impact is deemed too expensive and shut down.

Yet nearly one-third of the deficit--or $400 billion--is due to Tarp, which has ZERO influence on aggregate demand.

Tarp came about because people like Hank Paulson did not understand that banks are functionally agents of the government and they could have been easily sustained by the Fed if it had done the right thing, which was to lend on an unsecured basis and without limit.

Instead, money was thrown at investment banks and other intermediaries that should have failed without consequence to the financial system and real economy if the situation was properly attended to.

Because of all this massive mismanagement 14 million Americans continue to be without a job and the list of countries emerging from recession grows every day while the U.S. again faces the prospect of further contraction.

Great...just great.

What a bunch of policy idiots.

Brazil Emerges From Recession, Led by Domestic Demand

Strong deficit spending in Brazil has pulled the country out of recession.

The U.S. is the only major industrial nation still mired in a contraction. As others deficit spend to the degree necessary to reverse their decline, America frets about the deficit and nearly 14 million workers remain unemployed.

The longer we let output collapse the greater the risk that we see our standard of living erode permanently relative to the rest of the world. It is already happening.

On the bright side (for some people, I guess), this will help "solve" the immigration problem. As jobs remain scarce, fewer immigrants will desire to come here and many who are here illegally will choose to return home or go someplace else.

China Recovery Quickens as Production, Lending Climb

Sept. 11 (Bloomberg) -- China’s industrial production rose more than forecast in August, lending unexpectedly climbed and retail sales advanced, indicating growth in the world’s third- biggest economy is likely to accelerate.

This is what I have been saying all along. China has no choice but to continue its stimulus because WE are implementing policies here in the U.S. that will keep consumption down and endeavor to boost exports.

Those who continually call for a "top" in China stocks simply do not see the big picture. Buy every dip you can, especially when the crowd's warnings of an imminent China collapse are greatest!

Read my Special Report on China and get the whole picture!

Thursday, September 10, 2009

Art Laffer's legacy: Falling real earnings

Art Laffer is a master propagandist. He tells anyone who'll listen (and there are many) that the vaunted "supply-side" economics utilized during the Reagan era--of which he was the key architect--transformed the American economy from malaise to prosperity.

Yet the data show otherwise. His policies produced the second worst performance in real incomes over a 24 year period. Real earnings under Laffer's policies dropped 1.0%, second only to Jimmy Carter's abyssmal 7.6% decline. In contrast, real earnings for workers under Johnson, Nixon and Ford increased.

Laffer says the best savings account is a good, high-paying job. Too bad his policies came nowhere close to providing that.

More signs of hope on the job front

Weekly unemployment claims are falling...

Employment tax deposits are rising this month compared to August...

Average daily tax deposits in August were higher than July...

Tuesday, September 8, 2009

Fiscal Trend Digest is here!!

Mike Norman introduces his new daily research report...

Fiscal Trend Digest

The only in-depth daily analysis of fiscal trends anywhere!

Gives you daily:
  • Government outlays
  • Government receipts
  • Deficit/surplus figures
  • Public debt sales
  • Public debt redemptions
  • Tax collections
  • Tarp payments
  • FDIC cash injections

Short-term trading recommendations for S&P 500 based on gov't money flows

And...short-term trading recommendations for Treasury futures

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With government now comprising nearly 30% of GDP you can't be without this!

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Sunday, September 6, 2009

Asset Side of the Government Balance Sheet

We continue to be bombarded with endless reporting and non-stop commentary that casts the public debt in a very negative light. This echo chamber of doomsday warnings, and policy recommendations for austerity threaten our American economic future and the quality of life we can ultimately achieve.

Mike here and others have often pointed out that outstanding U.S. Treasury securities and other state and local Government securities represent only the value of the "liability" side of the public balance sheet, and for perspective, objective observers should compare those liabilities to any public "assets".

One of the most visible public asset classes is our U.S. system of roads, highways and interstates. On this Labor Day weekend, let us look at these tremendous public assets that stand as an operational monument to the U.S. worker. What could be the value of these assets? How does that value compare to our public liabilities? Here's a shot:

The construction cost models I found differentiate between Rural and Urban costs and call out a "LOW" and "HIGH" cost to establish a range for estimators. My LOW value you can see is $8.7T and the HIGH is $29.9T. The Fed's latest Z-1 is clipped below and indicates that total Federal borrowings are $6.36T and State & Local borrowings are $2.23T , for a total of $8.59T of public borrowings.

So if one was concerned about our public debt to asset ratio, you can see from this (albeit quick) analysis that total public debt outstanding may not even be "financing" the current replacement value of our country's highways and roads. The remainder of all public assets could be considered more than paid for (think: water, electric transmission, health, defense, public safety, I could go on and on). My question then becomes: ARE WE UNDER LEVERAGED? I think we are; and I think we are tremendously over-taxed "to pay for it".

Notes: I got the total for U.S. lane-miles here. The data for the HIGH/LOW, Urban/Rural construction costs for the Interstates and Other Arterials came from here. I've made an assumption that Collectors would cost 50% of the actual highway, and that Local roads/streets would cost 10% of the Collectors (this may be quite a lowball if you include the underground utilities and hookups as part of the Local street construction costs).

Saturday, September 5, 2009

Congressman Pete Stark gets it mostly right on the national debt

Watch this interview with Congressman Pete Stark of California as he tries to explain to an ignorant journalist some facts about the national debt.

Wednesday, September 2, 2009

A glimmer of hope on the job front?

The Treasury is reporting that it collected $126.4 billion in employment taxes in August compared with $131.4 in July.

On the surface that looks like another weak month for the job market, however, you have to read between the lines on this one.

That's because July had 23 statement days and August had only 21. So the averge daily employment tax take for August actually exceeded the average daily take for July.

July employment taxes: $131.4 billion
August employment taxes: $126.4 billion

July average daily take: $5.71 billion
August average daily take: $6.02 billion

A glimmer of hope as we come up to Friday's number.

If you want to take a shot on a trade, buy Monster Worldwide or Korn-Ferry today. Both stocks have come off their highs.

More frustration...

A blog reader just emailed me to remind me that much of the stimulus is still to come in 2010. I very much appreciated his encouragement.

This is what I wrote back...

Yes, that's true and it's one of the reasons why I am remaining optimistic, however, will the Administration "sterilize" the back end of the stimulus with deficit-reducing measures in the meantime?

It's clear to me that we favor some level of fiscal conservatism in this country over job creation and maximizing our output.

We have not seen real earnings of workers or, industrial utilization, anywhere near 1960s and early 1970s levels even with Reagan's big tax cuts.

There is a lot of talk about the "working class" around every election cycle, however, it is just talk.

One could just say, "Fine, that's the way it is here in America so stop thinking like a worker and think more like a capitalist."

Okay, I accept that. And what do people do? They invest in stocks or buy real estate and endeavor to accumulate assets like capitalists.

Then what happens...

The whole thing goes down the toilet and the government sits there and lets it happen even though it pretty much forced everyone to do these things because of current tax, income, trade and regulatory structures.

The only people who win are the elite, "finance capitalists" of Wall Street who have influence on the political system. They get bailed out or get sweetheart investment deals backed by the government, while everybody else drowns.

It's amazing! And it happens whether it's a Democrat or a Republican. Doesn't matter.

It's all becoming clear to me now

Funny how that worked out, isn't it?

One day before the close of the month the Treasury's statement showed outlays of $903 billion and receipts of $818 billion, or a deficit of around $85 billion. Then on August 31st, the closing date of the Treasury's statement, it sells $112 billion in securities, even though redemptions that day were a mere $23 billion. (Usually the amount the Treasury sells is pretty close to the amount being redeemed, with some additional for operating cash if necessary to avoid going into overdraft, which by law it is not allowed to do.)

Then...Voila!!!...a balanced budget for August--receipts, $943.7 billion; outlays, $943.3 billion. No, wait...a surplus of $4 million!!!

For a long time I have pondered why we have not been doing the right thing in this country. Why is fiscal conservatism so ingrained, I thought, when you have so many people out of work and when so much of the productive capital of this country sits idle?

The answer is becoming very clear to me now: Fiscal conservatism is held at much higher value, politically, then job creation or maximizing our potential.

This carries very significant import. It means that we are likely to see much higher levels of unemployment and/or lower or sub-trend rates of growth and output in favor of not running up the deficit.

At some point this will reverse, but before it reverses the pain of high unemployment and slow growth will have to reach high enough thresholds so that it sparks political and ideological change in this country. We are probably a long way from that point, especially given the meager rebound we have recently seen, which is helping to make people feel more optimistic.

I am starting to wonder whether or not the "double-dippers" or, those who believe we are headed back down, will be right.

It's still too early to tell, I think, because there is talk of another stimulus, albeit faint talk, however, we should give it a little more time.

Tuesday, September 1, 2009

Yesterday they balanced the budget for August; today the stock market tanks

The numbers are in from the Treasury. A huge debt sale in the amount of $112 billion yesterday, a day that saw only $23 billion in redemptions, basically put the budget into balance for August. (Outlays for August: $943 billion; Receipts for August: $943 billion). A day before we had an $85 billion deficit.

This shows you how deathly afraid the Administration is of the deficit. Politically, they fear this more than 10% or higher unemployment.

Well, the debt sale constitutes a huge reserve drain, so you can bet the Fed is going to be very busy with monetary operations to offset this. They have to maintain their target rate. Expect strong purchases of MBS next week.

No good reason for this selloff today

The Dow is off nearly 200 points as of this writing and from where I sit there is no good reason for this selloff. Blame it on a weak longs and perhaps some "catch up" by U.S. market averages to what has been happening to China's stock market recently. (Down 26% from its highs.)

However, fundamental economic news appears to be getting better. Economist Mark Zandi, who called the dowturn two years ago and who stayed bearish throughout the contraction, said that the ISM numbers released today were the "clearest sign" that the recession is over.