Financial topics

[OLD1953]

Spending vs GDP if all levels of govt are considered are not out of whack with norms since WWII, given the current situation of winding down two wars and ongoing expense from that. All countries vs govt spending as a percentage of GDP is listed here on Wikipedia (from the WSJ and Heritage Foundation).
http://en.wikipedia.org/wiki/Government_spending

The link does not support your statements of fact: "Spending vs GDP if all levels of govt are considered are not out of whack with norms since WWII ..." In fact, I do not believe there is even a single time series in that link that shows "Spending ( of ) all levels of government" over the years you are discussing, "since WWII". The time series graph of just U.S. Government spending, that is included in your link, proves just the opposite of what you are stating.

This appears to be nothing but a political talking point, desperately searching for facts that would support it.

That was meant as a reminder that we had discussed this matter throughly about a year ago give or take. The fact is that if you look at total government, then spending has not risen much if any as a percentage of GDP since about 1964, when the war, the Truman Doctrine and the general social movement peaked out, the increase in total government spending as a percentage of GDP since has been pretty much local spending. That's not unexpected, given that the US moved from rural areas to cities and suburbs during this period. I recall reading some civil engineering writings on early suburbs, which sometimes mentioned certain small suburbs where sewer lines hadn't been run as literally floating on a sea of septic tank sludge. Sewer lines cost money, and cities get draconian about forcing people to tie in, Aedens mentioned that a week or so back in fact.

A site which is heavily political does show this (they don't fudge their data, they just get hysterical over the interpretation and they make it somewhat difficult to get the exact series you want, so if you use their charts be very careful you get the one you intended) is this one:

http://www.usgovernmentspending.com/spe ... 111mcn_F0t

If that shows as I set it up, it's GDP vs total US government spending at all levels of govt, strictly limited to 1970 on, as their charts will not display correctly over a certain range, which shows clearly that totals did not go out of whack with modern history at all until 2008, which for purposes of the US budget due to timing was actually on the FY 2009 budget*, due to the bank and bailouts. This is dropping, and given history I fully expect it to drop faster than current projections.

(It's also important to note that the federal government hasn't had an actual budget for several years now, Congress can't agree on one so they just pass continuing resolutions and single items.)
*(US FY starts in October, bank bailouts were budgeted AFTER Oct 1 but BEFORE January 20 - which is I suppose a political explanation of a factual matter, that the outgoing President has the ability to mess up the first year budgeting for his successor, and many or most have, with the result that the outgoing party gets to yell about the other guys first year forever)

If you add federal and state spending together, and leave off the city spending, you come even closer to no increase at all, when federal spending goes up, states go down, and vice versa. There's a spreadsheet I set up and John reformatted (thanks again John) showing the changes in the deficit due to tax policy and the wars since 2000 out under the government and politics section.

Every effort is being made by both politicians and business to hide the modern problem, which is simply that the US has set itself up in a no win situation. This isn't a budget problem per se, it's a problem of not admitting we have a problem. And that problem is simply that US business has a severe addiction to deficit spending, all deficit spending shows up as business profit somewhere, and reducing the deficit to zero would simply crush business flat and force many into bankruptcy. This is why the bubbles burst whenever the spending slows down, and it's why we have a deficit addiction.

[Higgenbotham]

http://msnbcmedia.msn.com/i/CNBC/Sectio ... ipt-R1.pdf

On pages 31 and 32 Jeff Immelt and Warren Buffet say Simpson-Bowles will get done, that they have 100 CEOs demanding that Washington get it done.

Also, I found this comment on page 33 interesting:
"IMMELT: But you know, you know, Warren, I think the beautiful thing about American business is how flexible and how fast we adjust, you know. It just is today the most resilient economic system on earth. And I've seen them all. And business people small and large are going to figure out, 'OK, this is a business I can be in. I can —I can do this, I can't do that, let's go.' "
So apparently he thinks that he doesn't need huge deficit spending and subsidies to stay afloat. I have to laugh thinking about our comments about "crusty old bureaucracies" versus his characterization of how "flexible and fast we adjust".

[OLD1953]

BH can probably adjust faster than most, given the structure. Many companies can't do anything without 15 separate approvals from the board.

I could live with Simpson Bowles, but I have a serious doubt it can be passed at all, unless it's the option to the fiscal cliff - and possibly not even then. Too many in Congress are absolutely fixated on cutting taxes at any cost.

Higgs, did you read that stuff on the 20's - 30's economic moves of Italy, and did you find it as depressing as I do?

[Higgenbotham]

BH can probably adjust faster than most, given the structure. Many companies can't do anything without 15 separate approvals from the board.

I could live with Simpson Bowles, but I have a serious doubt it can be passed at all, unless it's the option to the fiscal cliff - and possibly not even then. Too many in Congress are absolutely fixated on cutting taxes at any cost.

Higgs, did you read that stuff on the 20's - 30's economic moves of Italy, and did you find it as depressing as I do?

Immelt runs General Electric, which is why I got such a kick out of his comment. But it also might explain generational behavior and why there can be deflation in these times. Probably any CEO of the hero generation would realize he needs those deficits and subsidies to stay afloat.

I was going to do some more research before commenting about Italy, but my first inclination was to agree with what you wrote. Separately, the US is no longer a nation of independent farmers and small businessmen who balance corporate power, it's a nation dominated and controlled by large corporations. US corporations, as I've written here, are fascist organizations where no dissent whatsover is tolerated. I ought to know because I worked in 4 of the largest corporations in the world, including big oil (Chevron), big biotech (Monsanto), and big whatever you want to call it (PepsiCo), plus interfaced with many more. They're all rotten to the core. http://generationaldynamics.com/forum/v ... cist#p1786

[Reality Check]

That was meant as a reminder that we had discussed this matter throughly about a year ago give or take. The fact is that if you look at total government, then spending has not risen much if any as a percentage of GDP since about 1964, when the war, the Truman Doctrine and the general social movement peaked out, the increase in total government spending as a percentage of GDP since has been pretty much local spending.

Actually the link you posted to support your position, supported just the opposite. The fact that you wished, or intended, the link to imply something it did not, does not really change the lack of factual support for your political talking points.

I doubt anyone really believes that state government spending during a period of mandates ( mandates from the federal government ), of ever increasing, Medicaid and Welfare spending ( ever increasing spending by the states mandated by the Federal Government ) reduced spending at the state level, and thus offset increased Federal spending.

But, of course, you provided nothing at all in this link: http://en.wikipedia.org/wiki/Government_spending
related to state spending over the period of time your talking points addressed ( Since World War II ).

[Reality Check]

...

... short term bonds will not be rolled over and provide a flood of new cash ...

Which short term bonds? Who currently holds them? Who will decide not to roll them over? If they do not roll them over, what will they do with them?

If they alternatively chose to roll them over, what would that involve?

I am asking serious questions here ( at least they are serious from my point of view ), just trying to understand what you are describing and what you see the alternatives are.

[vincecate]

...

... short term bonds will not be rolled over and provide a flood of new cash ...

Which short term bonds? Who currently holds them? Who will decide not to roll them over? If they do not roll them over, what will they do with them?

If they alternatively chose to roll them over, what would that involve?

I am asking serious questions here ( at least they are serious from my point of view ), just trying to understand what you are describing and what you see the alternatives are.

This has happened in many other places many times before. People don't roll over their bonds (buy a new one when the current one pays off) because they decide bonds are not a good place to be. They use the money to buy other stuff. If prices are going up fast and bonds are crashing as interest rates go up you can buy all kinds of things you might need in the future and be better off than holding the bonds till the future and then buying. My classic example is cans of tuna. They can keep for a couple years and if you have 4 kids like I do you know you will eat a lot over the next couple years. The prices are going to go up faster than the interest rate so you are better off to buy the tuna now than to leave the money in the bank and buy it later. But this works for all kinds of things when inflation picks up.

[Reality Check]

... short term bonds will not be rolled over and provide a flood of new cash ...

This has happened in many other places many times before. People don't roll over their bonds (buy a new one when the current one pays off) because they decide bonds are not a good place to be.

I understand now. At least I believe I do.

You were talking about people who own short term Treasury bonds or maybe Treasury Bills just taking the money when they mature and not buying new debt from the U.S. government ( nor buying new U.S. Debt on the secondary market ).

You were not, repeat not, talking about the FED as the owner of these bonds or notes, but third party owners, Correct ?

The FED on the other hand owns such U.S. Bonds and U.S. Bills as assets on their balance sheet and must buy replacement U.S. Treasury notes or bills, on the secondary market, to maintain their balance sheet as long as the monetary base ( the liabilities ) remains as big as it is. correct ?

[Reality Check]

When I look at the valuation of the US stock market, I can only come to one conclusion - that investors believe the subsidies and bailouts to US corporations can continue for a long time. In other words, they believe that the US government can keep going further and further into debt for a long time to continue to support corporate profits.

There is an alternative belief on the part of investors that might result in the same stock market investment actions.

QE1, QE2 and QE3 have resulted in massive excess reserves ( over and above the required Reserves ) in the accounts of Banks and other Financial Institutions at banks. These excess reserves are on the order of 1.4 Trillion Dollars in total. That 1.4 Trillion could serve as the Required Reserves for up to Fourteen Trillion in additional loans by the Fractional Reserve Banks to businesses and others.

This lending, if it occurred, would of course drive up inflation and allow the values of stocks to rise based on inflation as well as profits generated when Fourteen Trillion hits the private economy.

You're right; I read some version of this almost every day. Usually, they gloss over the debt. This was today's version:
Read More At IBD:http://news.investors.com/investing-mar ... z2Avogt3fm

I did not notice any mention of Quantitative Easing or Excess Reserve Balances, but maybe I missed it.

He didn't mention it.

It appears to me that the 1.4 Trillion now sitting in accounts of ( account balances owned by ) Banks ( Private Fractional Reserve Banks ) and other Financial Institutions ( such accounts being located in each bank's regional Federal Reserve Bank ), is both part of the U.S. Monetary Base, and totally under the control of the Private Fractional Reserve Banks, to do with as they decide ( not the Federal Reserve Bank's decision and not the U.S. Government's decision). The 1.4 Trillion is not part of the "Required Balance" in those same Reserve Accounts - it is the Excess Reserve.

It also appears to me, this 1.4 Trillion in Monetary Base deposits could be used to expand the fractional reserve loans made by fractional reserve banks by up to 14 Trillion dollars ( assumes a 10% reserve requirement on deposit with the Federal Reserve Bank - which already exists - in the form of the 1.4 Trillion in excess reserves currently deposited in the reserve accounts ).

But obviously there are other things they ( the private banks ) can do with this 1.4 Trillion, such as just leave them sit in their Reserve accounts and earn next to nothing in interest as they now appear to be doing, and other things.

This 1.4 Trillion exists, and even if the FED attempts to reverse the Quantitative Easing, this money remains under the control of the private banks, if they elect not to buy back the FED assets ( U.S. Debt Instruments such a T-Bills and Treasury Notes that the FED holds as assets ) then either someone else will buy back the FED assets, or no one will. Either way this 1.4 Trillion remains under the control of private banks, if they so choose, and they can do what they want with it.

Currently the 1.4 Trillion is having no impact on the U.S. economy because it is just sitting in accounts, the accounts of private banks, at the Federal Reserve Banks, earning next to no interest, with all the interest it is earning going only to the profits of the private banks. But this could change based on the decisions of the private banks that own this 1.4 Trillion dollar portion of the U.S. Monetary Base.

The impact on the U.S. economy of this 1.4 Trillion, or potentially 14 Trillion, if leveraged by the fractional reserve banks, is in addition to the impact of the 1.2 Trillion in deficit spending which is included in the total U.S. Government spending each year, not an either/or alternative, but additional as a result of Quantitative Easing. If the U.S. government cuts spending, keeps it the same, or increases it, what ever the impact the 1.4 Trillion has on the economy is in addition to U.S. government spending.

Am I missing something here ?

[aedens]

Am I missing something here ? No same line of thought as Fisher to inflation expectation on the crushing debt and inflation on the people of the money multipiler of worthless paper. http://generationaldynamics.com/forum/v ... her#p15851

Unless one can make a convincing case that structural reform or fiscal expansion will provide the necessary demand, the only way to expand the economy is to reduce the real interest rate; and the only way to do that is to create expectations of inflation.
Fisher, Irving, (1933), “The Debt-Deflation Theory of Great Depressions,” Econometrica, Vol. 1, no. 4.

The real GNP took a severe hit and the NGNP with implications we noted along the way. In a word Debt with a hell of a lot more people.
Think of it not as the amount but the participation rate of those able to value add. This was conveyed as "Smell the Coffee Test"

Not until the New Deal/war economy ended and resources became available for peacetime production did private investment—and the nation’s economic health—fully recover. Inflection point for me is here albeit somewhat early as we already noted for the overall. For us it asserts itself in second
quarter 2013 divergances to margin acounts.

As old noted: "I think there is a tendency to overlook something, that the world is ripe for actual change in the world economy to begin soon."

Yep, we already turned the corner for numerous reason and opportunity cost structures.
https://www.youtube.com/watch?v=ZxVEOc_PQ3E

http://www.zerohedge.com/contributed/20 ... k-pictures woot