It is interesting to look at some of the recent trends in the economy to see where things may be going. There is considerable talk about the improvement and then again about the fear of times ahead.
First let us look at the Federal Funds Rate.
The above shows that for the past few months the FED has basically given money away free. As we had said a few months ago with M2 relatively flat and the bank reserves growing this most likely means that the banks, yes that means Goldman Sachs, are using free money not to grow the economy but to grow their own personal wealth. The data is quite clear.
Second, despite near zero interest rates the Government is falling into the abyss.
The above is the Receipts, Outlays, and Deficit for the past few years. Note how the Receipts have dropped through the basement yet the Feds have increased spending at an insane rate. The net result is the $1.5 Trillion and growing deficit. But why is the Receipts dropping. We see that below.
First unemployment means less income tax. The drop is greater than the change in unemployment. If we see unemployment go from 5% to 10% then we should see about a 6% drop in Individual Income Tax Receipts but it is almost 20%! Why, less overtime and the like. And oh yes, bankers did not get bonuses. However the good news is Goldman is getting their $20 billion bonus pool from which they will contribute. Also Corporate Receipts are down due to slowing of business as well.
The Deficit as a % of the GDP is a telling number.
It is now 10%! It has never been that great that fast for no reason. The Government is just spending wildly to no avail. It is akin to a pilot in a dive just turning every knob in hope that something works while the ground is getting so ever close!
At the same time the Receipts as a % of GDP are dropping.
They have gone from almost 19% of the GDP to almost 14%. That is with no tax relief. What does that mean, well, assuming no reduction in unemployment, in fact an increase as we have anticipated, we then just tax the remaining workers even more! The spiral begins!
Yet there are signs of some contradictions. Look at Trade. We see a growth in services balances and then a growing deficit in goods balances.
Namely in the above we see the economy constricting as we started this downfall, the Goods Deficit getting smaller as people bought less, yet now we see it getting bigger again as people buy more. Yet is it buying more or buying at higher prices. To see that we look at the following.
Here we see the dollar getting cheaper, meaning any imports are more expensive, thus the imports of goods are costing more for the same goods, or if you will inflation on international trade. The only thing holding this back is the Chinese currency pegged to the dollar which continues to make Chinese goods lower in cost than others.
Sow where does that leave us:
1. We give banks free money which never gets back into the economy, they use it to make money for themselves.
2. We have a Deficit which is unsustainable and will result in collapse if we do not stop the spending, because we cannot increase the Receipts, too few people.
3. Yet we still are buying from abroad yet at inflating prices.
4. The only prop up is China which if it moves to cease the prop then we collapse!
Rather sad tale if I do say so.
First let us look at the Federal Funds Rate.
The above shows that for the past few months the FED has basically given money away free. As we had said a few months ago with M2 relatively flat and the bank reserves growing this most likely means that the banks, yes that means Goldman Sachs, are using free money not to grow the economy but to grow their own personal wealth. The data is quite clear.
Second, despite near zero interest rates the Government is falling into the abyss.
The above is the Receipts, Outlays, and Deficit for the past few years. Note how the Receipts have dropped through the basement yet the Feds have increased spending at an insane rate. The net result is the $1.5 Trillion and growing deficit. But why is the Receipts dropping. We see that below.
First unemployment means less income tax. The drop is greater than the change in unemployment. If we see unemployment go from 5% to 10% then we should see about a 6% drop in Individual Income Tax Receipts but it is almost 20%! Why, less overtime and the like. And oh yes, bankers did not get bonuses. However the good news is Goldman is getting their $20 billion bonus pool from which they will contribute. Also Corporate Receipts are down due to slowing of business as well.
The Deficit as a % of the GDP is a telling number.
It is now 10%! It has never been that great that fast for no reason. The Government is just spending wildly to no avail. It is akin to a pilot in a dive just turning every knob in hope that something works while the ground is getting so ever close!
At the same time the Receipts as a % of GDP are dropping.
They have gone from almost 19% of the GDP to almost 14%. That is with no tax relief. What does that mean, well, assuming no reduction in unemployment, in fact an increase as we have anticipated, we then just tax the remaining workers even more! The spiral begins!
Yet there are signs of some contradictions. Look at Trade. We see a growth in services balances and then a growing deficit in goods balances.
Namely in the above we see the economy constricting as we started this downfall, the Goods Deficit getting smaller as people bought less, yet now we see it getting bigger again as people buy more. Yet is it buying more or buying at higher prices. To see that we look at the following.
Here we see the dollar getting cheaper, meaning any imports are more expensive, thus the imports of goods are costing more for the same goods, or if you will inflation on international trade. The only thing holding this back is the Chinese currency pegged to the dollar which continues to make Chinese goods lower in cost than others.
Sow where does that leave us:
1. We give banks free money which never gets back into the economy, they use it to make money for themselves.
2. We have a Deficit which is unsustainable and will result in collapse if we do not stop the spending, because we cannot increase the Receipts, too few people.
3. Yet we still are buying from abroad yet at inflating prices.
4. The only prop up is China which if it moves to cease the prop then we collapse!
Rather sad tale if I do say so.
Posts
