ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Friday, November 07, 2008

 

"the united states is broke"


dick bove via dealbreaker on the funding of the "new new deal".

One reason that the New Deal could put into effect the programs that it had initiated was because the United States government had a solid financial structure. From 1919 to 1930, the Federal government had been paying down its outstanding debt while the economy expanded. Debt had fallen by 36.4% in this period while real GNP fell by 8.7% (it declined by 13.3% in 1930). Thus, the capacity for increasing the debt was substantial.

Clearly the problem today is that the United States is broke. From mid 2000 to mid 2008 the nation’s debt has grown by 66.9% while real GNP is up by 19.6%. The deficit was rising before the reintroduction of the New Deal and today the country does not have the money to pay its bills.

Therefore, if the Obama team wants to continue the Bush team policies of recreating the New Deal, some entity must lend the country the money to do so. Americans do not like buying Treasury debt so foreigners are being relied upon to fund this program.

Thus, one must watch the dollar. If it drops in value, it will force the Americans to buy the new debt (higher interest rates will be necessary) or the Federal Reserve to further debase the currency to pay for the new programs. In the next six months, the government must raise $915 billion. It will be very important to monitor this fund raising process to determine if New Deal redux will be put in place.


UPDATE: note the potential consequences of china's stimulus package.

Labels: ,



Obama seems to have such rockstar status kidder, maybe they should market treasury bonds they way they raised money for the campaign. LOL. I could see it now, every American gets eMails from Obama begging for $100.

 
------ ------- ------
don't laugh, ccd! if the dollar starts to slide and upcoming treasury auctions don't go well, they will pull out all the stops.

forget politicians and celebrities, though there will be that too -- they'll use your kids against you. they'll drop leaflets from planes. it's all been done before, of course.

but i suspect -- as there largely is no domestic savings to draw on -- that the primary weapon will end up being devaluation by quantitative easing -- ie, print up some more bills. and if that doesn't work, print some more. and then some more.

 
------ ------- ------
obama will assign this task to david plouffe. he needs something to do. give him a twitter account and a facebook page and they'll be selling these bonds to all the followers. they better act fast though, his celebrity will drop like a rock come jan 20th.

 
------ ------- ------
hell, ccd, i'll go you one further -- kiss the 401(k) idea goodbye.

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

“I want to stop the federal subsidy of 401(k)s,” Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”


of course eliminating the tax break on 401(k) contributions would boost the coffers to the tune of $80bn a year. but far more valuable to the feds would be the ability to borrow all the contributions and spend them -- as they now do the surplus payroll tax from the social security administration.

for a few years now i have resisted getting involved in the state of illinois' tax-advantaged 529 college savings plan for the kids because i considered it 50/50 to survive the state budget crunch that will accompany the economic downturn i was anticipating.

now it's starting to look like 401(k)'s may not make it either. scary.

 
------ ------- ------
I always knew the 401 K was a scam. Still I have been throwing my money away into it for 14 years. What a dumb idea that was...

Hannity and Rush will have a field day scaring the democracy with this.

 
------ ------- ------
from perrone: now, wait a minute gm, you didn't throw your money away -- you got the tax break and you got the returns. you weren't counting on any future tax break, since all that money was to be taxed as regular income when you withdrew it. am I missing something?

I'm not so sure overhauling the 401(k) is a bad idea, especially if you then force folks to invest in a _guaranteed_ retirement account. an unmanageable percentage of 401(k) contributors have already screwed themselves by trusting too much in the "long-term security" of stock markets.

but back again to quantitative easing and the implied risk of raging (hyper?)inflation. well, sure didn't happen to Japan. I know, I know, Japan had this huge current account surplus, a shitload of domestic savings, yadda yadda. to me, it's simpler than that.

there was just no way the world was going to ditch its second largest economy, it couldn't (and that's basically what hyperinflation is, everyone abandons your economy). and how could it ditch its largest economy? for hyperinflation to occur (Weimar Germany, Hungary, the Balkans, Zimbabwe -- how many of those entities seem analagous to the United States?) there's got to be somebody else around that's _much_stronger and not going down at the same time. not happening, guys.

which doesn't mean things aren't going to be downright wrenching and shitty. just in another way.

hey, I can't get off my "Good Man Is Hard to Find" thing -- how's this: after McCain's lauded concession speech, "yeah, he would've been a good man, if it had been somebody there to beat him in a huge election every minute of his life."

 
------ ------- ------

Post a Comment

Hide comments


This page is powered by Blogger. Isn't yours?