How are we going to pay for all this shit?

[Tiny]

Originally Posted by CaptainMidnight

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With midterm elections looming a year from now, the inflation narrative might be the most vexing issue facing Democratic House and Senate candidates.

Although obviously not a "tax" in the sense that a legislated tax is one, millions of working- and middle-class households certainly feel "taxed" by rising food and fuel costs. Republican candidates will try to draw a direct line between gargantuan spending packages and CPI inflation.

As Tiny mentioned earlier, all this spending even alarms center-left Democratic economist Larry Summers, who said a couple of months ago that proposed spending initiatives would cover the estimated output gap three times over, whereas the 2009 "stimulus" was only one-sixth as large. (To be clear, not in nominal dollar or real terms, but relative to the estimated output gap at the respected times.)

Larry also said more recently that he's concerned that central bankers now are becoming much more concerned with their perceived "wokeness" than with the issues that responsible Fed officials ought to be concerned with. (Holy fucking shit! If Larry goes any further with any of this sort of talk, people are going to start saying he's a conservative!)

Along with the issue of possible "tapering," the inflation debate is the dominant one in the financial world today. Yellen is still insisting that inflation is "transient." My view is that, at least if you're looking out to an 18-24 month window, she may very well be correct. But not for reasons that she's likely to be very happy about.

Suppose House Democrats get shellacked in the 2022 midterms, and the Blue Team even loses the Senate. What do you think happens in 2023?

Spending initiatives get killed stone dead, and the trend deficit/GDP ratio drops from the mid-teens to perhaps 6% or so. (Still a lot of deficit spending, but I suspect that's about as close as we're going to get to fiscal "austerity" in this insane world.)

What do you think that would do to headline GDP and to currently bloated values of almost every major asset category?

Note that the 10-year UST yield keeps sticking around the 1.55-1.6 range while the long bond (30-year Treasury) now yields a couple of bips below 2%. That's astonishingly low by historical standards.

My view is that the bond market "sees something" that most finance commentators and journalists don't.

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The budget deficit is 12.190% of GDP. Captain Midnight forecasts federal budget deficits as a % of GDP around 6% as far as the eye can see.

Gross federal debt is $29 trillion.

M2 (money supply) was up 24% YoY in September, 2020. And it was up another 12.8% in September, 2021.

Our foreign exchange reserves are $251 billion. For comparison, Thailand's are 282 billion and Brazil's are $370 billion. China's are 3.4 trillion.

Real interest rates, based on the 1 Year T-bill rate, are -5.3%

Our gross external debt is $22.6 trillion, compared to $148 billion per month exports.

And 30 year rates are below 2%???????

We're damn lucky to have the world's reserve currency. Otherwise our ass would be grass. Our currency would be in the shitcan. That's just a layman's opinion though, and you're a professional.

I think what you're saying is that, assuming we get divided government, they're going to take the punchbowl away. And that may result in falling prices across asset classes. All all this is consistent with expectations for low long term interest rates, by historical standards. Is that right?

I had high hopes for Summers, that maybe he'd seen the light. But now he's harping about how upper income Americans need to pay higher taxes, the same old "demonize the rich" mantra we've heard for years.

[WTF]

Is there any doubt that the Dems will lose the House? They may keep the Senate, may but only because if I remember correctly Republicans have more seats to defend.

OPEC/Russia will be a huge factor in regards to it being a slaughter or not. If they keep supplies tight...the Dems will get slaughtered. But on the flip side, oil stocks will do well !!!

[Texas Contrarian]

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Originally Posted by Tiny

The budget deficit is 12.190% of GDP. Captain Midnight forecasts federal budget deficits as a % of GDP around 6% as far as the eye can see.

Gross federal debt is $29 trillion.

M2 (money supply) was up 24% YoY in September, 2020. And it was up another 12.8% in September, 2021.

Our foreign exchange reserves are $251 billion. For comparison, Thailand's are 282 billion and Brazil's are $370 billion. China's are 3.4 trillion.

Real interest rates, based on the 1 Year T-bill rate, are -5.3%

Our gross external debt is $22.6 trillion, compared to $148 billion per month exports.

And 30 year rates are below 2%???????

We're damn lucky to have the world's reserve currency. Otherwise our ass would be grass. Our currency would be in the shitcan. That's just a layman's opinion though, and you're a professional.

I think what you're saying is that, assuming we get divided government, they're going to take the punchbowl away. And that may result in falling prices across asset classes. All all this is consistent with expectations for low long term interest rates, by historical standards. Is that right?

I had high hopes for Summers, that maybe he'd seen the light. But now he's harping about how upper income Americans need to pay higher taxes, the same old "demonize the rich" mantra we've heard for years.

Federal deficit spending was running at close to a 6% annual rate during the 12 month period prior to the onset of the pandemic, so I'm afraid that if there are any spending increases at all (and there almost certainly will be some, even if most of this stuff fails to pass), it will be difficult to get the debt accumulation run rate down to 6% ever again. (Proposed tax increases will not raise much revenue relative to the quantity of the proposed spending.)

Even that is predicated on Democrats losing the House (almost a certainty) and maybe the Senate (fairly likely, even though the "Senate map" this time is not favorable to Republicans).

If Democrats are pushed out of congressional control, sharp restraint in the growth of spending is assured, as it was in 2010 when Democrats got slaughtered at the polls.

Now the problem in my view is that Democrats want to bake as much new spending into the pie as possible before next fall, and much of this will be stuff that cannot easily be reversed. ("Are you cruel? Do you want children to starve and old people to go without the treatment they need by way of massively enhanced Medicare programs?")

You can almost see the ads now -- sort of evocative of the ones from almost a decade ago featuring an actor who was a Paul Ryan lookalike pushing an elderly great-grandmother in a wheelchair over a cliff.

I see the current inflation not so much as a monetary phenomenon stoked directly by spiking M2, MZM, or any other monetary aggregates, but as a fiscal and supply-chain debacle which will largely resolve when the huge porch-drops of cash into almost every non-affluent household in the nation recede.

About $5.8 trillion of direct covid-related support has been pumped into the economy, and that alone is about 40% of the annual amount of the consumption portion of GDP. That does not even count other big piles of cash directly distributed, but that are not technically "covid-related."

Pour this in at the same time that both domestic and global supply bottlenecks and chokepoints exist at levels never seen other than during world wars, and for at least the period of time it takes for the effects of the wild levels of spending to wind down and the supply issues "normalize," sharply elevated levels of inflation arise virtually by brute force.

However, I think it's very likely that when the pandemic finishes running its course and when the elements mentioned above "normalize," we will return to the slow growth (by historical standards), low-inflation economy that's been the trendline for the last couple of decades.

.

[bambino]

https://t.me/rrndaily/99099

[Salty Again]

... Hee Hee!

You mates are making me laugh like a crazy bird!

... Of course the Dems are gonna get CRUSHED in the mid-terms.
Why do ya think Pelosi and Schumer were pushing so strong
for the passing of the HUGE Biden Spending Plan?

They KNOW that most people DO NOT want it - and this
2 Nov. election showed this in GLOWING Detail.

The Dems wanted to pass it BEFORE this election.
NOW the secret's OUT. NO Democrat on now
will be able to campaign next year with RISING prices
on everything from energy to grocery prices.

The "resistance" to this bill comes from those
politicians seeking re-election... Yes, yes, I know
the news media is trying to show that Bernie and
the Squad are the hold-outs - but it's really
the concerned Dems.

The Dems who KNOW that IF this Big Shitty Thing
gets passed - and people see what's in it -
ALL the over-spending earmarks and $400,000 dollar
payments to illegals - NOT MANY, IF ANY Democrats
will be re-elected.

... And what a shame THAT will be.

### Salty

[Redhot1960]

Originally Posted by Tiny

The budget deficit is 12.190% of GDP. Captain Midnight forecasts federal budget deficits as a % of GDP around 6% as far as the eye can see.

Gross federal debt is $29 trillion.

M2 (money supply) was up 24% YoY in September, 2020. And it was up another 12.8% in September, 2021.

Our foreign exchange reserves are $251 billion. For comparison, Thailand's are 282 billion and Brazil's are $370 billion. China's are 3.4 trillion.

Real interest rates, based on the 1 Year T-bill rate, are -5.3%

Our gross external debt is $22.6 trillion, compared to $148 billion per month exports.

And 30 year rates are below 2%???????

We're damn lucky to have the world's reserve currency. Otherwise our ass would be grass. Our currency would be in the shitcan. That's just a layman's opinion though, and you're a professional.

I think what you're saying is that, assuming we get divided government, they're going to take the punchbowl away. And that may result in falling prices across asset classes. All all this is consistent with expectations for low long term interest rates, by historical standards. Is that right?

I had high hopes for Summers, that maybe he'd seen the light. But now he's harping about how upper income Americans need to pay higher taxes, the same old "demonize the rich" mantra we've heard for years.

You had high hopes for bernie, too...



FUCK!

[Redhot1960]

Originally Posted by bambino

https://t.me/rrndaily/99099

Glad to see you got your crown on! They should just leave us alone...

[WTF]

Originally Posted by CaptainMidnight

.


However, I think it's very likely that when the pandemic finishes running its course and when the elements mentioned above "normalize," we will return to the slow growth (by historical standards), low-inflation economy that's been the trendline for the last couple of decades.

.

Better watch out lustylad will try and convince you that growth wasn't slow under Trump!


We should also properly note that Trump is more than a little responsible for the current 5.8 trillion of Covid stimulus.

In fact his deficits were not all that great before the pandemic.

We are yet to see if Biden will break Trumps record 4 year 7.8 trillion (and that is being generous to Trump as this years budget is Trumps) pile on to the federal debt.

As I've come to learn though...Don't bet against the Fed.

They are the one's who have encouraged this moral hazzard with this low intrest policy that will never end.

[dilbert firestorm]

Originally Posted by bambino

https://t.me/rrndaily/99099

[Tiny]

Originally Posted by CaptainMidnight

About $5.8 trillion of direct covid-related support has been pumped into the economy, and that alone is about 40% of the annual amount of the consumption portion of GDP. That does not even count other big piles of cash directly distributed, but that are not technically "covid-related."

Pour this in at the same time that both domestic and global supply bottlenecks and chokepoints exist at levels never seen other than during world wars, and for at least the period of time it takes for the effects of the wild levels of spending to wind down and the supply issues "normalize," sharply elevated levels of inflation arise virtually by brute force.

However, I think it's very likely that when the pandemic finishes running its course and when the elements mentioned above "normalize," we will return to the slow growth (by historical standards), low-inflation economy that's been the trendline for the last couple of decades.

Thanks for this. That's the best succinct argument I've read as to why higher inflation should be transitory. Do you think the Fed and other central banks would be unlikely to throw a wrench in this, say by keeping interest rates too low for too long?

German CPI has been running around 4% YoY since July. But German interest rates out to at least 10 years are negative. You pointed out somewhere else that, despite higher inflation, 10 year U.S. bonds yield around 1.5%, and 30 year yields are under 2%.

Anyway, I'm worried about long term inflation. I haven't really done anything about it though, like buying more shares in commodity producers. That's because I figure the Bond Market and Captain Midnight are smarter than I am, about this anyway. I however know more about the mind of the Costa Rican hooker than you and most central bankers. And that makes me feel less ignorant.

[adav8s28]

Originally Posted by WTF

Better watch out lustylad will try and convince you that growth wasn't slow under Trump!

When Trump did 2% GDP growth it was considered "setting a record". When Obama did 2% it was considered "under performing". After Trump cut the corporate tax rate to 20% we suppose to get GDP growth rates of 4,5 or even 6 per cent. That did not happen, Trump did not even sniff 3% GDP growth.

The data is the data.

https://www.thebalance.com/us-gdp-by-year-3305543

[lustylad]

Originally Posted by adav8s28

When Trump did 2% GDP growth it was considered "setting a record"...

??? Where do you come up with this nonsense?

Show us a link where any economist, or non-economist, described 2% GDP growth as "record-setting".

Or just admit you are spewing nonsense again.

[adav8s28]

Originally Posted by Tiny

OK, The COVID relief bill just passed will cost 1.9 trillion. Biden has just proposed another 2.2 trillion for Democratic priorities and infrastructure, and reportedly will propose another 2 trillion spending bill in April for more Democratic Party priorities. That adds up to about 6 trillion in round numbers.

Alexandria Ocasio Cortez and Joe Manchin believe the $2.2 trillion just announced is too low. AOC wants it upped to $10 trillion and Manchin wants $4 trillion.

And then there's the Green New Deal, beloved by all the progressive Democratic Politicians. The American Action Forum estimates that would take $51 trillion to $93 trillion over the next ten years.

So most of this money is supposed to come from people who make more than $1 million a year, and all of it from those who make over $400,000 per year. President Biden has promised people making less than $400,000 per year will not have their tax rates increased.

Here's a link to the IRS tax statistics:

https://www.irs.gov/statistics/soi-t...d-gross-income

The latest year available is 2018. In that year, the total taxable income of people making over $1 million per year was $1.6 trillion. If you add the amount of taxable income of people making from $500,000 to a million a year, that goes up to $2.3 trillion.

However, these people are already paying a large % of their income in federal and state income taxes to help pay for existing programs. Let's say 30% of their income to be conservative -- I'm pretty sure it's more than that. That means if you take every dime they make, that they're not already paying in taxes, you end up with $1.1 trillion ($1 million cutoff) or $1.6 trillion ($500,000 cutoff) to pay for all this shit the Democratic Party politicians are proposing.

There's a snowball's chance in hell these politicians can do what they want to do by just taxing the rich.

Need to do three easy things to fix the long term debt.

One per cent of the population is controlling 90% of the wealth. People who make under a $100,000 are paying roughly 28% tax on their income. The multi-millionaries and billionares are not paying 28% taxes on their incomes they are paying a lot less. Remember when Mitt Romney said he was only paying 15% tax rate on his income. Some people like Trump are not paying any taxes at all.

To clear almost 30 Trillion in rolling debt in 30 years, you need Trillion dollar surpluses. The last surplus was under Clinton for a couple of million dollars. We wont't get anywhere near a trillion dollar surplus under the current tax code without changes. Trump just proved that cutting taxes does not spur economic growth. His GDP numbers are essentially the same as Obamas. Do the following and don't get into anymore nation building wars and the USA has a chance to clear the rolling debt.

Paul Ryan had a plan but he wanted take away the health care of anyone who was not rich.

1. The tax rate percentage in the 7th tax bracket needs to go 40% at least for a while. This or create one or two additional brackets where people who make over 10 million and 100 million are paying more taxes.

2. The Corporate tax rate percentage needs to go back to 25 per cent. I agree that 35% was too high but 20% is too low.

3. Capital gains tax should go from 20% to 25% when all of the income is coming from Capital gains and there is no W2 or 1099 earnings filed for that tax year.

[Tiny]

Originally Posted by adav8s28

When Trump did 2% GDP growth it was considered "setting a record". When Obama did 2% it was considered "under performing". After Trump cut the corporate tax rate to 20% we suppose to get GDP growth rates of 4,5 or even 6 per cent. That did not happen, Trump did not even sniff 3% GDP growth.

The data is the data.

https://www.thebalance.com/us-gdp-by-year-3305543

After Ryan, McConnell and Trump cut the federal corporate tax rate to 21%, in 2019, before COVID, we ended up with the lowest unemployment rate since 1969 and the highest annual increase in median household income, adjusted for inflation, since the St. Louis Fed started keeping records in 1984. Furthermore, kicking out 2009 and 2020 (the great recession and COVID), average GDP growth per annum under Trump was 2.5% and the average under Obama was 2.1%. And that's despite Obama having the advantage of coming out of a deep recession.

However, at least with respect to GDP, this is a fools game. What's causing GDP to growth to change? Well, there are changes in technology, globalization, the business cycle, what's going on in other countries, the Fed and monetary policy, demographic changes, consumer and business confidence, availability of capital, changes in productivity, Congress, etc.

I do think however the Republican tax cuts and deregulation did play a part in lower unemployment and higher real income, for reasons we've discussed ad infinitum.

[lustylad]

Originally Posted by Tiny

Anyway, I'm worried about long term inflation. I haven't really done anything about it though, like buying more shares in commodity producers. That's because I figure the Bond Market and Captain Midnight are smarter than I am...

The Bond Market used to be smart, but that was back in the (pre-QE) days when you could still extrapolate meaningful data on inflationary expectations by dissecting the yield curve.

Nowadays, with the Fed hungrily buying up every scrap of every US debt maturity in sight, price, yield and inflation signals are hugely distorted by the 800-pound gorilla in the market.

The only sense in which private bond traders are still smart is in following the old adage "don't fight the Fed". Don't even try to sell bonds and push up yields to where they might actually offer real, inflation-adjusted returns to savers and investors. If you do, you'll quickly find yourself being body-slammed by that 800-pound gorilla.