The August budget numbers continue to show that tax revenues are rising much faster than spending. Over the past three years, federal government spending has risen at a very modest 1.6% annualized rate, although it has picked up a bit of late: over the past six months, spending has increased at a 5.2% annualized rate. But overall, the slow pace of spending growth in recent years is a godsend, as it has allowed government spending as a % of GDP to decline from 25.2% of GDP to now "only" 23.5%. Spending is still too high, and threatens to rise further as Obamacare kicks in and entitlement programs continue to expand. Tax revenues, on the other had, are up 5.3% over the past year and have risen at a 4% annualized pace over the past three years. If these trends continue, the budget will eventually balance and spending will shrink to an acceptable level relative to GDP. To date, the deficit over the past 12 months has been $1.26 trillion, which is down from a high of $1.48 trillion in early 2010. Thank goodness for small favors.
The number of people "on the dole" continues to decline, and that is also a good thing from a macro perspective. 18.4% fewer people are receiving unemployment insurance today than there were one year ago. This is helping to moderate federal spending, and it is creating positive incentives to find and accept jobs.
My advice to everyone is buy equities now before it is too late -- low interest rates will persist through 2015 (according the Fed), but equity prices are no doubt heading up -- real estate deals will dry up quickly as sellers raise prices...
ReplyDeleteThe Fed QE program (though it should be larger and coupled with an elimination the Fed paying interest on excess bank reserves) all but assures a sustained equities rally.
ReplyDeleteI would have preferred also the Fed target nominal GDP growth, rather than unemployment or inflation.
Still, Wall Street is going to love this.
Get ready for some prosperity. Remember what that was like?
Benjamin, I doubt that "prosperity" will result from QE3 -- hopefully, manufacturing has learned lessons from Apple and will ship all future jobs to Asia where people earn a tenth what people are paid in the US -- plus, we still need to cut government spending by at least 40%, which will result in many government jobs being permanently eliminated -- fiscal policy still has a lot of work to do -- hopefully, only uniformed personnel will remain on public payrolls when this is over -- I also think that the US should consider printing a new currency that is gold-backed for use by accredited investors and corporate treasuries -- the sooner that Federal Reserve Notes are relegated to use by the government, the better -- I love the idea of being paid for my services in gold coin or other hard currencies -- the US is not out of its monetary or fiscal challenges by any means -- US Federal Reserve Notes can still be used to pay government pensions and public wages -- but, private enterprise needs to abandon Federal Reserve Notes as soon as that is practical -- once inflation kicks in, savers will clamour out of Federal Reserve Notes in haste -- I expect that global enterprise will soon be conducted in currencies that people (other than accredited investors) will not have access to -- said another way, the 1% crowd will soon find a new currency for their savings and for conducting commerce -- the sooner the better as far as I am concerned -- I personally resent being paid in US Federal Reserve Notes precisely because I have no control over future valuation...
ReplyDeleteI think Benjamin should rename himself "Perpetual 1978."
ReplyDeleteScott's Quick Update demonstrates that most of the recent sharp increase in budget deficits were due to the Great Recession with, on the one hand, lower incoming tax revenues and, on the other, greater outgoing spending for unemployment checks, food support (SNAP), Medicaid, etc.
ReplyDeleteAll of the above are self correcting and not the BIG DEAL that the Tea Party and other Republicans have made of it for political gain and to attach welfare in general- heartless folks that they are.
Our REAL long term problems are Medicare, Social Security due to the ageing, retiring baby boomers and our gargantuan Defense/Intelligence/ Homeland Security/ Veterans expenditures.
NB: a friend of mine works at the local Veterans Hospital. He observes that a large part of their increase in Veterans are from as long ago as the Viet Nam War who are no longer employed in construction trades and now are seeking VA disability payments, housing assistance, medical care for drug addiction, etc. Many many with addiction problems.
Scott, as always, thanks for taking the time to post your thoughts. ALWAYS appreciated.
ReplyDeleteScott,
ReplyDeleteLet me ditto Cabodog's comment. I have been away from your blog for while, but have recently been reading past posts. It seems that you have attracted some real negative followers. I hope you don't get discouraged by them. I think there are many more lurkers that do appreciate your efforts. I know I do.
All the best,
Bob
To reiterate my theme: If high unemployment is due to a downturn in the business cycle, Federal Reserve Bank monetary stimulus can help.
ReplyDeleteIf high unemployment is due to structural factors, then Federal Reserve monetary stimulus cannot fix it.
Our high unemployment is structural. We are almost back to normal considering retail sales, personal income, and industrial production. Employment is lagging. The lag is due to jobs being shipped overseas for the last 4 decades, technological advances, the high cost of labor due to anti-discrimination protections, healthcare costs of the employers, payroll taxes the employer pays, and over-regulation which has resulted in the reduction of small and medium size businesses. These problems are structural and to fix them requires congressional action.
The status quo is so entrenced it will take leadership to get anything done.
Credit to Obama!!
ReplyDeleteAlso, notice the slope of the curve. During the Bush terms, the slope is consistently steep through both terms. Whereas under Obama, the first year when we were staring deep into the economic abyss of depression, the slope was deeply upward, and rightly so. However, since then the slope has been very shallow.
More telling, if you draw a line continuing the slope from the Bush years, it will exceed where Obama is at right!!
Foobar: Note that Obama has made no attempt to limit or cut spending. On the contrary, every one of his budgets have proposed significant increases in spending. His latest budget received zero votes in Congress. Spending growth has been low thanks mainly to a divided Congress. Congress, after all, is the only branch of government that can spend money.
ReplyDelete
ReplyDeleteScott,
Isn't your interpretation too simplistic?
When someone sells a house, it is a common negotiation tactic to set a high price knowing the buyer will come back with a low price. Given the extremists that controlled the republican party, Obama should not "limit or cut spending". The exactly correct strategy for Obama is to play the counter balancing force against the republican!
While we can speculate the strategies and tactics employed in Washington, ultimately, shouldn't the end result matter the most? Shouldn't the actual data in your own chart speak for itself? If the data doesn't fit you view, does the data carry less weight or do you reassess your view?
For what it is worth, I am an independent because conditions change over time. To stay with a single ideology regardless of economic condition is counter productive at best and destructive at worst.
ReplyDeleteHaving said the above, for the last 12 years, the republican party has been a huge disappointment. However, I am very pleased that the extremists, the tea party and etc. are the dominant republican voice. Today, the country is still struggling. At times like this, a strong social safety net matters to people more than ever! Against this background, how can Romney and Ryan possibly win?! The republicans are hanging themselve with their own disingenous messages.
At the end of Obama's second term, the country will have healed. When people concern themselves more with getting rich and less with social safety net is when the republican have a chance for the white house. At that time, a strong republican candidate with a tight fiscal focus will likely get my vote. A counter-cyclical government is good for the country.
Foobar said
ReplyDelete"I am very pleased that the extremists, the tea party and etc. are the dominant republican voice. Today, the country is still struggling. At times like this, a strong social safety net matters to people more than ever! Against this background, how can Romney and Ryan possibly win?! The republicans are hanging themselve with their own disingenous messages."
I get what you mean.
Clinton balanced the budget despite those nasty Republicans who shut down the government so they could raise the spending on wealthy people. Under Clinton, the stock market party was wonderful. Bush was responsible for the NASDAQ bubble which burst shortly after he became president.
When the NASDAQ bubble burst, Bush was wrong to increase deficit spending. After we recovered from the NASDAQ bubble, Bush continued to run huge deficits, despite the Democrat congress, which tried to bring fiscal sanity, to his drunken spending.
Of course, the deficit spending is now trending down now because Obama is a fiscal conservative. The Tea Party and those nsty Republicans who are determined to throw granny over the cliff, cut off all aid to the needy, and give all the money they can possibly get their hands on to the rich, have fought to raise spending, but Obama has wisely said no. Also, Obama is determined to reform the entitlements. He did not to take any money from Medicare to fund to fund Obama care, it was the nasty Republicans who did that, because they hate old people.
Since Obama doesn't lie like the Republicans, he was right to shut down drilling for oil on federal lands, and then take credit for the boom taking place on private lands, for now until he can shut them down due to that terrible fracking. It was also good to shut down the Keystone pipeline, since the Canadians are too dumb to guard their own environment. And of course, Solindra was a good use of taxpayer money, it created thousands of jobs, and none of it went to rich Democrat donors.
Yes sir, if we can just get rid of those nasty Tea Party types, who are stupid common people who are concerned about their country, all will be well. The Occupy Wall Street people are good honest people, who thankfully set the Tea Party people in their place. The Occupy people are good, smart people who know how evil our country is. They are not radicals like the Tea Party people, who like this country the way it is. The Occupy people, Obama’s answer to the Tea Party, are trying to reproduce the Arab Spring here. Heaven knows how much better off everyone will be in Egypt now that the Muslim Brotherhood is in charge. We need our own Arab Spring, so we can change this country to be like Egypt.
Mr Foobar, I couldn't agree with you more. We need Obama for another four years, at least. If things are still bad, after four years, perhaps he could run again. I'm sure his new Supreme Court justices will agree.
When I read Foobar and Illunati's posts I can only pray that there are very few of them.
ReplyDeleteUnforturately I think there are to many of them.
God help us if the Illuminati's of the world gain real control.
Bob
Sorry Bob,
ReplyDeleteAfter reading Foobar's comments, I couldn't resist having some fun and make a point in the process. I was trying to channel a wacky lefty, and apparently I was too convincing. The fact that you took my post seriously is scary, since it shows how radical the conversation in our country has become.
Illuminati,
ReplyDeleteWell if your comment was done is sarcastic jest it went right past me, as I have read similar posts that were not done in jest.
Anyway, glad to here you don't feel as you wrote, if in fact that is the case.
Bob