37. Assume the Will to Reduce Entitlements: … IF there are jobs false savings considered too radical, but in fact the MOST we can do insufficient impossible
Have recently found Janet Daley and find her dead on with her analysis. Her column on the incapability of Progressive Socialism and Capitalism was exactly correct for Europe and the US. Capitalism has paid the freight and now has been drained by the Socialist State and it's spending needs along with a shift in the demographics on who is left to pay. The Mathematics of the situation is very clear except to the politicians who can't seem to understand basic math and economics along with a lot of people who still think the Fairy Tale can continue. It Can't! We are rapidly moving toward an endgame that will not end well for anyone.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
This is The Age of Deleveraging , and all the government efforts to date pale in relation to the deleveraging in the private sector. Since early 2006, U.S. federal plus state and local debt has jumped from around 3% of GDP to 9.6% in the first quarter, or about a seven percentage point rise. But during the same time, the private sector delivered from about 16% borrowing-to-GDP to -0.5%, a 16 percentage point drop. So all the government deficits that lay behind that borrowing and the fiscal stimulus they represent offset less than half the deleveraging of the private sector.
Have recently found Janet Daley and find her dead on with her analysis. Her column on the incapability of Progressive Socialism and Capitalism was exactly correct for Europe and the US. Capitalism has paid the freight and now has been drained by the Socialist State and it's spending needs along with a shift in the demographics on who is left to pay. The Mathematics of the situation is very clear except to the politicians who can't seem to understand basic math and economics along with a lot of people who still think the Fairy Tale can continue. It Can't! We are rapidly moving toward an endgame that will not end well for anyone.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
CHART OF THE DAY: America's National Debt Binge Is A Lot Of Hot Air x Email Article From To Email Sent! You have successfully shared the post. | A A A Buzz Share4 Vincent Fernando, CFA and Kamelia Angelova | May. 3, 2010, 1:27 PM | 3,088 | 61 Substantial attention is paid the U.S. government's growth in debt these days, yet far less is paid to America's total debt picture as a whole. More should be, because a quick look at the chart below will make you realize that much of America's perceived debt 'binge' these days is the result of hype rather than fact. Yes, the American government has increased its borrowing at a record rate. In 2008 and 2009 U.S. state & local governments plus the federal government net-borrowed a combined $1.3 trillion and $1.6 trillion respectively. That's a huge step-up from their combined net borrowing of $428 billion in 2007. In isolation, this data is terrifying. Yet if one is concerned about the entire nation's solvency, and wants to understand why proponents of current stimulus aren't necessarily irresponsible, then one has to step back and take into account the private side of the U.S. debt equation. This is especially important since America is a nation driven mostly by its private economy. The private economy is far larger than the government's. Thus to ignore what the private sector does is to see less than half of the picture. On this measure, if you look at 'total net U.S. borrowing', which takes into account borrowing by everyone -- the government, private U.S. households, financial companies, and non-financial companies -- then it turns out that 2009 was indeed a monumental year for U.S. borrowing... in that total U.S. borrowing fell by $438.4 billion. (shown in red below) This historic reduction in U.S. borrowing is due to the fact that in 2009, U.S households, financial companies, and non-financial companies all de-levered as a group. In fact, they reduced their borrowing by so much in 2009 that it completely eclipsed growth in borrowing by the government. In 2009, U.S. households reduced their borrowing by $237 billion, financial companies reduced it by a whopping $1.8 trillion, and non-financial companies reduced borrowing by $200 billion. The data on this can be found at the Federal Reserve . Thus whether you are for or against various stimulus policies, one should at least try to understand the thought process behind the U.S. government's debt growth. Many proponents of stimulus were worried by the massive de-leveraging (reduction in net borrowing) by the private sector and the effects it would have on the U.S. economy during a downturn. If the government hadn't increased its borrowing, the red negative bar in the chart would be far larger, at nearly -$2,000 trillion. Less debt can be a good thing, but if everyone de-levers at the same time in a sharp fashion then it can destroy a substantial amount of economic activity in a flash, which would be extremely painful for many Americans. Proponents of stimulus were worried that this would make for an extremely ugly recession, far worse than we saw. Hence, cognizant of private sector de-leveraging, they realized that the government could increase borrowing without creating a dangerous increase in total U.S. borrowing. Thus the government was used to step in and fill the gap, due fears of that private de-leveraging, which had to happen due to past excesses, could create a lot of suffering for Americans if left without a counterbalance of stimulus from the government. So even with seemingly ridiculous borrowing from the U.S. government, America as a whole actually ended up paring back its debt in an unprecedented fashion. Let's just hope that the government's debt growth is reigned in, now that the U.S. economy has recovered to some degree. Yet the key take-away regardless of your political view on stimulus is that America isn't binging on debt right now: Read more: http://www.businessinsider.com/chart-of-the-day-total-net-us-borrowing-2010-5?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_050310+_control#ixzz0mvSFWVD1
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
This is The Age of Deleveraging , and all the government efforts to date pale in relation to the deleveraging in the private sector. Since early 2006, U.S. federal plus state and local debt has jumped from around 3% of GDP to 9.6% in the first quarter, or about a seven percentage point rise. But during the same time, the private sector delivered from about 16% borrowing-to-GDP to -0.5%, a 16 percentage point drop. So all the government deficits that lay behind that borrowing and the fiscal stimulus they represent offset less than half the deleveraging of the private sector.
We are seeing asset and wealth deflation, and inflation for those that pay the cash bills ... ... fundamentally, all liquidity is locked up right now by a velocity factor of economic growth that is less than 1 : pump in more, even more freezes (I call it fear-frozen icebergs waiting to melt when the economic sargasso sea temperature gets warm enough (global warming NOT a factor here, nor anywhere else) ... and it is not warming anywhere right now. You can therefore have deflation while getting no help from a lot of additional liquidity locked up. no one seems to keep deflation statistics but it is there to see in many sectors. We can also have massive deflation in asset classes while core goods inflate, stagflation, with "average" inflation stats seeming kind of ok, but they are not. Debt consolidation (the permanent or long term freeze kind) is essentially deflationary in that liquidity gets used up to reduce something that has no positive impact, because the "excess" lending capacity is not really there, total lending contracts because lending ratios are reduced from capital requirements going up, and cash sits around idle. Worse than debt consolidation is that governments are spending all private excess liquidity with no productivity AND very little velocity in the system. This is like a toilet bowl, the liquidity gets sucked back under the earth where it is not easily available anymore. We are 3 years into the Japan experience which has been "steady managed decline" for more than 12 years, there is really no near-term future for us or for Japan: governments will have to cut back dramatically but that will not create liquidity for the private sector, and jobs are created not by the big companies and banks sitting on fear-frozen cash but by the little companies dependent on and creating the velocity factor ... where does their liquidity come from? Consumers are tapped out debt-wise and have no room to spend. Look at post WW1 Germany where government obligations suddenly (war debt and reparations) vastly exceeded remotely possible repayment and economic power (and the Ruhr Region was annexed by France, just as US energy resources are being locked off right now). That created hyperinflation as Germany printed all the money it could, even though assets deflated more rapidly, a true toilet bowl effect. The resulting socialist dictatorship with a thin veneer of crony-capitalism that was just huge statist corporations only kept itself alive through invasions and slave labor until all the statism fell apart. Now look at post-WW2 USA, and the difference when you're the war winner without damage to the homeland, use all the available domestic resources without constraints, export into a world needing reconstruction, have a currency respected by the world (debt capacity), respect for private enterprise, and so forth. Which do we look like more?
We have been expecting inflation a long time, but government austerity worldwide means deflation. That is better than hyperinflation, but not by much. At some point, the inflators will take over again, and you want to sell your bonds before that is obvious. A trader can make money with week-to-week fluctuations, buying low and selling medium. An investor should hold only stocks with little financial leverage that do well in recessions. Family Dollar and Dollar Tree come to mind, but they are in competitive business with little barriers to entry. Avoid stocks with beta over about 1.4. Wait for bargains to appear, and be patient. It’s likely that third quarter of 2012 to early fourth quarter will prove a good entry, assuming that someone other than Romney opens up a large lead vs. Obama. See 1932 stock prices for one example. But know that this contraction is likely to be the nastiest since 1931-1932. If you were invested 1978-1982, you know how your stomach felt. Read and understand company financials before investing. Corporate financials - except for banks - tend to be more honest than government reports. The HFT (high-frequency trading) systems run by the big brokerages don’t have the wisdom to take the long view; use that to advantage. Bonds tend to lead stocks, so there may be a time when you want short maturities or cash. If you think the price of gas is too high, it probably is. But right now I view that as a shrinking of the working class standard of living, due to trade and budget deficits. Europe and the U.S. are going through the same adjustments the Soviet Union went through in the 1990s. We start with a higher base, so the worst won’t be as bad, but it will take until we elect Herman Cain types to the Senate as a working majority. Right now, bonds are backwards - bonds up when stocks down - and have been that way for more than a year, due to Fed manipulations. Don’t pay undue attention to doom and gloom forecasts, except to note they hit the state-run media near market bottoms and Republican Administrations.
In typical recessionary periods past, the Fed has been able to lower interest rates and stimulate demand for credit. Demand for credit ultimately stimulates broad economic activity via an increase in aggregate demand. But in deleveraging cycles as opposed to typical business cycles, interest rates can fall to zero and still not positively influence demand for credit. This is exactly what has occurred in the current cycle. You may remember from our discussions over the years we asked one question again and again, "is this a business cycle or a credit cycle?" The only borrower of substance in the current cycle has been the Federal Government, yet we are currently reaching the limits of Government balance sheet expansion tolerance, as clearly witnessed by the debt ceiling melodrama. This has only served to weaken the US as a credit. Again, the inability to generate demand for credit by almost any means (and in our present circumstance historic means) is simply a classic fingerprint of a generational deleveraging cycle.
When do we see a seriously falling velocity of money? At the end of debt supercycles, where deleveraging is the order of the day. Which is where we are today in the US. Look at the graph below (from my friend Lacy Hunt at Hoisington Asset Management). Notice that the late '70s saw a rising money supply and rising velocity of money. And voila, we got inflation in the US. Notice that now velocity is falling and, as Lacy points out, the velocity is mean reverting over very long periods of time, so we can expect it to go lower. Also remember that the US government (at the federal level) has yet to really begin to get its fiscal house in order. (Although state and local government have combined to cut deficits $200 billion a year through a combination of spending cuts and tax increases, or over 1% of GDP, which has been a serious headwind with more cuts and tax increases to come.)
If we take a look at the inflation rate of the US following the 1930s stock market crash, we can see that the inflation rate fell into a deflationary pit (bottoming near -10%) that stuck around for about four years. In comparison to the Crash of 2008, the US appeared to slip into a slight deflationary gully (bottoming near -2%) for a single year. One might use the analogy of the 1929 economy tripping up and falling into a ten-foot-deep hole and the 2008 economy tripping up and falling into a ditch by the side of the road.We are seeing asset and wealth deflation, and inflation for those that pay the cash bills ... ... fundamentally, all liquidity is locked up right now by a velocity factor of economic growth that is less than 1 : pump in more, even more freezes (I call it fear-frozen icebergs waiting to melt when the economic sargasso sea temperature gets warm enough (global warming NOT a factor here, nor anywhere else) ... and it is not warming anywhere right now. You can therefore have deflation while getting no help from a lot of additional liquidity locked up. no one seems to keep deflation statistics but it is there to see in many sectors. We can also have massive deflation in asset classes while core goods inflate, stagflation, with "average" inflation stats seeming kind of ok, but they are not. Debt consolidation (the permanent or long term freeze kind) is essentially deflationary in that liquidity gets used up to reduce something that has no positive impact, because the "excess" lending capacity is not really there, total lending contracts because lending ratios are reduced from capital requirements going up, and cash sits around idle. Worse than debt consolidation is that governments are spending all private excess liquidity with no productivity AND very little velocity in the system. This is like a toilet bowl, the liquidity gets sucked back under the earth where it is not easily available anymore. We are 3 years into the Japan experience which has been "steady managed decline" for more than 12 years, there is really no near-term future for us or for Japan: governments will have to cut back dramatically but that will not create liquidity for the private sector, and jobs are created not by the big companies and banks sitting on fear-frozen cash but by the little companies dependent on and creating the velocity factor ... where does their liquidity come from? Consumers are tapped out debt-wise and have no room to spend. Look at post WW1 Germany where government obligations suddenly (war debt and reparations) vastly exceeded remotely possible repayment and economic power (and the Ruhr Region was annexed by France, just as US energy resources are being locked off right now). That created hyperinflation as Germany printed all the money it could, even though assets deflated more rapidly, a true toilet bowl effect. The resulting socialist dictatorship with a thin veneer of crony-capitalism that was just huge statist corporations only kept itself alive through invasions and slave labor until all the statism fell apart. Now look at post-WW2 USA, and the difference when you're the war winner without damage to the homeland, use all the available domestic resources without constraints, export into a world needing reconstruction, have a currency respected by the world (debt capacity), respect for private enterprise, and so forth. Which do we look like more?
We are seeing asset and wealth deflation, and inflation for those that pay the cash bills ... ... fundamentally, all liquidity is locked up right now by a velocity factor of economic growth that is less than 1 : pump in more, even more freezes (I call it fear-frozen icebergs waiting to melt when the economic sargasso sea temperature gets warm enough (global warming NOT a factor here, nor anywhere else) ... and it is not warming anywhere right now. You can therefore have deflation while getting no help from a lot of additional liquidity locked up. no one seems to keep deflation statistics but it is there to see in many sectors. We can also have massive deflation in asset classes while core goods inflate, stagflation, with "average" inflation stats seeming kind of ok, but they are not. Debt consolidation (the permanent or long term freeze kind) is essentially deflationary in that liquidity gets used up to reduce something that has no positive impact, because the "excess" lending capacity is not really there, total lending contracts because lending ratios are reduced from capital requirements going up, and cash sits around idle. Worse than debt consolidation is that governments are spending all private excess liquidity with no productivity AND very little velocity in the system. This is like a toilet bowl, the liquidity gets sucked back under the earth where it is not easily available anymore. We are 3 years into the Japan experience which has been "steady managed decline" for more than 12 years, there is really no near-term future for us or for Japan: governments will have to cut back dramatically but that will not create liquidity for the private sector, and jobs are created not by the big companies and banks sitting on fear-frozen cash but by the little companies dependent on and creating the velocity factor ... where does their liquidity come from? Consumers are tapped out debt-wise and have no room to spend. Look at post WW1 Germany where government obligations suddenly (war debt and reparations) vastly exceeded remotely possible repayment and economic power (and the Ruhr Region was annexed by France, just as US energy resources are being locked off right now). That created hyperinflation as Germany printed all the money it could, even though assets deflated more rapidly, a true toilet bowl effect. The resulting socialist dictatorship with a thin veneer of crony-capitalism that was just huge statist corporations only kept itself alive through invasions and slave labor until all the statism fell apart. Now look at post-WW2 USA, and the difference when you're the war winner without damage to the homeland, use all the available domestic resources without constraints, export into a world needing reconstruction, have a currency respected by the world (debt capacity), respect for private enterprise, and so forth. Which do we look like more?
CHART OF THE DAY: America's National Debt Binge Is A Lot Of Hot Air x Email Article From To Email Sent! You have successfully shared the post. | A A A Buzz Share4 Vincent Fernando, CFA and Kamelia Angelova | May. 3, 2010, 1:27 PM | 3,088 | 61 Substantial attention is paid the U.S. government's growth in debt these days, yet far less is paid to America's total debt picture as a whole. More should be, because a quick look at the chart below will make you realize that much of America's perceived debt 'binge' these days is the result of hype rather than fact. Yes, the American government has increased its borrowing at a record rate. In 2008 and 2009 U.S. state & local governments plus the federal government net-borrowed a combined $1.3 trillion and $1.6 trillion respectively. That's a huge step-up from their combined net borrowing of $428 billion in 2007. In isolation, this data is terrifying. Yet if one is concerned about the entire nation's solvency, and wants to understand why proponents of current stimulus aren't necessarily irresponsible, then one has to step back and take into account the private side of the U.S. debt equation. This is especially important since America is a nation driven mostly by its private economy. The private economy is far larger than the government's. Thus to ignore what the private sector does is to see less than half of the picture. On this measure, if you look at 'total net U.S. borrowing', which takes into account borrowing by everyone -- the government, private U.S. households, financial companies, and non-financial companies -- then it turns out that 2009 was indeed a monumental year for U.S. borrowing... in that total U.S. borrowing fell by $438.4 billion. (shown in red below) This historic reduction in U.S. borrowing is due to the fact that in 2009, U.S households, financial companies, and non-financial companies all de-levered as a group. In fact, they reduced their borrowing by so much in 2009 that it completely eclipsed growth in borrowing by the government. In 2009, U.S. households reduced their borrowing by $237 billion, financial companies reduced it by a whopping $1.8 trillion, and non-financial companies reduced borrowing by $200 billion. The data on this can be found at the Federal Reserve . Thus whether you are for or against various stimulus policies, one should at least try to understand the thought process behind the U.S. government's debt growth. Many proponents of stimulus were worried by the massive de-leveraging (reduction in net borrowing) by the private sector and the effects it would have on the U.S. economy during a downturn. If the government hadn't increased its borrowing, the red negative bar in the chart would be far larger, at nearly -$2,000 trillion. Less debt can be a good thing, but if everyone de-levers at the same time in a sharp fashion then it can destroy a substantial amount of economic activity in a flash, which would be extremely painful for many Americans. Proponents of stimulus were worried that this would make for an extremely ugly recession, far worse than we saw. Hence, cognizant of private sector de-leveraging, they realized that the government could increase borrowing without creating a dangerous increase in total U.S. borrowing. Thus the government was used to step in and fill the gap, due fears of that private de-leveraging, which had to happen due to past excesses, could create a lot of suffering for Americans if left without a counterbalance of stimulus from the government. So even with seemingly ridiculous borrowing from the U.S. government, America as a whole actually ended up paring back its debt in an unprecedented fashion. Let's just hope that the government's debt growth is reigned in, now that the U.S. economy has recovered to some degree. Yet the key take-away regardless of your political view on stimulus is that America isn't binging on debt right now: Read more: http://www.businessinsider.com/chart-of-the-day-total-net-us-borrowing-2010-5?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_050310+_control#ixzz0mvSFWVD1
It's getting pretty hard to argue that America is at risk of high inflation
It takes time to recover from a debt crisis. Consumers and firms took a blow as they saw their balance sheets destroyed. They are now reluctant to spend, and are seeking to deleverage. They just want to get rid of the debts! They do not want to invest; they want to save.
On the economic front, we would undertake an energy development program similar to Reagan's arms buildup in the 1980s, in the following sense. Reagan understood that the Soviet economy was too sick and fragile to keep up with the United States and that, if he pressed it with such an arms race, the Soviet Union would collapse. We understand that the Islamic economies are even more fragile than the old Soviet Union, almost solely dependent, as they are, upon oil exports. We further understand that the United States has the largest fossil fuel deposits (including coal, oil and natural gas) in the world, equivalent to one trillion three hundred twenty four billion (1,324,000,000,000) barrels of oil (called Barrel of Oil Equivalents or BOE). Russia is second at one trillion two hundred forty six billion(1,246,000,000,000) BOE, with Saudi Arabia and China a distant third and fourth with roughly five hundred billion BOE each. The United States has more fossil fuel reserves than Saudi Arabia, China and Iraq combined. We have more than three times the BOE reserves of Iran.
On the economic front, we would undertake an energy development program similar to Reagan's arms buildup in the 1980s, in the following sense. Reagan understood that the Soviet economy was too sick and fragile to keep up with the United States and that, if he pressed it with such an arms race, the Soviet Union would collapse. We understand that the Islamic economies are even more fragile than the old Soviet Union, almost solely dependent, as they are, upon oil exports. We further understand that the United States has the largest fossil fuel deposits (including coal, oil and natural gas) in the world, equivalent to one trillion three hundred twenty four billion (1,324,000,000,000) barrels of oil (called Barrel of Oil Equivalents or BOE). Russia is second at one trillion two hundred forty six billion(1,246,000,000,000) BOE, with Saudi Arabia and China a distant third and fourth with roughly five hundred billion BOE each. The United States has more fossil fuel reserves than Saudi Arabia, China and Iraq combined. We have more than three times the BOE reserves of Iran.
Have recently found Janet Daley and find her dead on with her analysis. Her column on the incapability of Progressive Socialism and Capitalism was exactly correct for Europe and the US. Capitalism has paid the freight and now has been drained by the Socialist State and it's spending needs along with a shift in the demographics on who is left to pay. The Mathematics of the situation is very clear except to the politicians who can't seem to understand basic math and economics along with a lot of people who still think the Fairy Tale can continue. It Can't! We are rapidly moving toward an endgame that will not end well for anyone.
Have recently found Janet Daley and find her dead on with her analysis. Her column on the incapability of Progressive Socialism and Capitalism was exactly correct for Europe and the US. Capitalism has paid the freight and now has been drained by the Socialist State and it's spending needs along with a shift in the demographics on who is left to pay. The Mathematics of the situation is very clear except to the politicians who can't seem to understand basic math and economics along with a lot of people who still think the Fairy Tale can continue. It Can't! We are rapidly moving toward an endgame that will not end well for anyone.
Have recently found Janet Daley and find her dead on with her analysis. Her column on the incapability of Progressive Socialism and Capitalism was exactly correct for Europe and the US. Capitalism has paid the freight and now has been drained by the Socialist State and it's spending needs along with a shift in the demographics on who is left to pay. The Mathematics of the situation is very clear except to the politicians who can't seem to understand basic math and economics along with a lot of people who still think the Fairy Tale can continue. It Can't! We are rapidly moving toward an endgame that will not end well for anyone.