Thursday, August 27, 2009

White House Budget Projection

One piece of news that came out this week was that the White House is projecting a budget deficit of $9.05 trillion over the next ten years. What does this mean? First of all, let's look at where we are, how we got here, and where we are headed.

Using the information from we know historical US federal budget deficits going back to early 1993. On the day that Bill Clinton was inaugurated - January 20, 1993 - federal debt stood at $4.19 trillion. Next let's fast forward eights years to the day when George W. Bush entered the White House - January 20, 2001. On this day, federal debt stood at $5.73 trillion. This was an increase of 36% over 8 years - or 3.96% per year compounded. Next, let's fast forward to Barack Obama's first day in office - January 20, 2009. On this day, the federal debt was $10.63 trillion. This was an increase of 85.51% over 8 years - or 8.03% per year.

The budget projection for this year is $1.58, which, if accurate, will bring the total debt to $12.28 trillion by the end of this year. Now, the White House projects that the budget deficit will increase by $9.05 trillion from 2010-2019. This is an average yearly budget deficit of $905 million, or an increase of $7.92 trillion over the potential eight year Obama tenure. If accurate, this will leave the federal debt at $18.55 trillion when Obama leaves office. This would equate to an increase of 74.46% over 8 years - or 7.2% per year.

Of course we know that these numbers are equal parts guessing and wishful thinking, to put it kindly. They do not take into account the future costs of social security, the new health care reforms and other such programs. These numbers also do not take into account the many obligations that the treasury has taken on over the last year to bail out various financial institutions and backstop public and private debts. Throw in another "unexpected" recession or two during this time and you get the idea.

Bringing it all together, the federal debt increased by $1.53 under Clinton, $4.9 billion under Bush II, and at best will increase by $7.92 trillion under Obama. As government spending increases, it is comforting that tax receipts are growing as well. The only problem is that they are growing in the other direction, as in shrinking:

These trends are clearly unsustainable. If what cannot continue must stop, we know where this is headed. My guess is we do not even make it to the end of these government projections before something "interrupts" the cycle. We have a few theories as to what form this "interruption" takes but we will save that for another day.

Sunday, August 16, 2009

Daily Show Responds to Glenn Beck on Health Care

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Last Wednesday, we posted a clip of Glenn Beck talking about health care. We posted that clip not because we necessarily thought Beck was an authority on the issue - we have not followed all of Beck's health care related views so we cannot speak about everything he has said on the subject. We simply found the particular segment in question to be very well done.

The Daily Show with Jon Stewart, however, did a little research and did their own segment on the evolution of Glenn Beck's health care views over time (see the above embedded video). Basically, Beck complained about the existing health care system while working for CNN Headline News a year ago but having since moved to Fox News, he seems to be its biggest defender.

Nice job Daily Show. I am continually amazed how the Daily Show is a better pundit watchdog than the "real" media on a regular basis. The best example of this is the now famous confrontation with Jim Cramer. One reason that CNN, MSNBC and Fox News probably do not do segments like that shown above is that they would soon be attacked by the other networks for using the same dishonest means and be labeled as hypocrites.

Wednesday, August 12, 2009

Glenn Beck on Health Care

If you are a regular of this blog you know that we are no fan of the mainstream media. Some of the worst offenders of this group are the cable news trio of MSNBC, CNN and Fox News. In fact, the last time we included a video from any of these three networks we expressed our disgust with an MSNBC segment featuring Keith Olberman and Janeane Garofalo. That's why it was so surprising to us to watch the above clip from the Glenn Beck show as seen on Fox News. It features what can only be described as containing real, actual shreds of analytical thought in regards to the history and ethics of health care. You don't have to agree with what Glenn Beck says to appreciate the narrative he is trying to weave here.

I am only casually familiar with Glenn Beck and the Glenn Beck show so I do not want to defend everything the man has ever said. Some of the audio and video clips I have seen of him are pretty nutty. He also has some pretty provactive thoughts from time to time as well. In the included video, he strung together quite a segment. Is there some fear mongering? Yeah. Is his brief moment of tears a bit much? Perhaps. Is it partisan? Yes, but he makes some very valid points. Please watch the included video as it is far above the typical level of analysis you will find from most forms of mainstream media.

Sunday, August 9, 2009

Keynes Hated Stock Markets

I am currently working on a lengthy piece regarding John Maynard Keynes and his most famous work, The General Theory of Employment Interest and Money. A lot is seemingly attributed to the man and his supposed views. After reading what he actually wrote, however, one may have a distinctly different view of what Keynes actually stood for.

For now, I want to highlight some surprising ideas that Keynes held in regards to stock markets. You are not likely to see these quotes highlighted by modern economists. The following passages, highlighted in bold text, are taken from The General Theory of Employment Interest and Money, which you can read in its entirety here.

Chapter 12, Section V:
Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future.

This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of yearsFor it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs - a pastime in which he is victor who says Snap neither too soon or too late, who passes the Old Maid to his neighbor before the game is over, who secures for himself when the music stops.

Keynes' words seem even more relevant today than they did in his day. Stock market yields are now far below their historical average. Dividends, or the expected increase in dividends, are practically ignored by stock analysts. Also, when is the last time you heard an economist note the downsides to liquidity?

Chapter 12, Footnote 5:
It is said that, when Wall Street is active, at least half of the purchases or sales of investments are entered upon with an intention on the part of the speculator to reverse them the same day. This is often true of the commodity exchanges also.

Keynes would surely be appalled by today's market activity. We are now a world of high frequency trading between computers that hold positions for a fraction of a second at a time.

Chapter 12, Section VI
Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laisserz-faire capitalism – which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object. These tendencies are a scarcely avoidable outcome of our having successfully organized “liquid” investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive...The introduction of a substantial Government transfer tax on all [stock market] transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils.

Let's start from the beginning of this passage. Keynes asserts that when Wall Street speculation becomes the driver for the economy, and not the other way around, the economy will suffer dire consequences. I think this is a pretty concise way to describe what is happening today and what the results have been and are likely to be going forward.

Keynes then declares that Wall Street is not a great example of free market capitalism and that the primary purpose of Wall Street is not, contrary to popular belief, to allocate capital efficiently. Name me one well known economist, even amongst the so-called Keynesian economists, who professes this view.

Finally, Keynes advised an increase in the transaction costs of stock trading in order to curb trading by the general public and in general, speculation in favor of investment. Keynes would certainly be against the much lower transaction costs present today compared to his time. He would also be appalled by the high level of speculation taking place by the public. The idea of a 401k would probably be absurd to Keynes.

In essence, Keynes was against the workings of the stock markets of his day and, based on his specific grievances, would be against the workings of modern stock markets, only more so. For all of the lavish praise heaped upon Keynes and his most famous work, you would think that maybe one well known economist would share Keynes' views on stock markets or at least quote some of the passages mentioned here.

Stay tuned for upcoming posts for more thoughts on John Maynard Keynes.