Archive for the ‘Federal Debt’ Category

Rates Rising, Yet Bond Buying Sets Record

Monday, April 17th, 2017

Rising interest rates, higher inflation and tighter monetary policy should be bad news for bonds. Yet investors have been buying record volumes of new bonds.

  • Highly rated U.S. companies issued $414.5 billion of debt during the first quarter, a record for any quarter.
  • Dealogic reported that companies and governments in emerging markets sold $178.5 billion of dollar-denominated debt in the first three months of the year, the best first quarter on record.
  • U.S. companies with junk-bond ratings issued debt totaling $79.6 billion, double from a year earlier.

Why are bonds so popular now?

Economic growth remains uncertain. There’s been plenty of good economic news of late.

Chart from Motley Fool. Numbers are in millions of dollars.

The unemployment rate fell to 4.5% in March – or 8.9% if you use the U-6 rate, which even Fed Chair Janet Yellen seems to finally agree is more accurate. The labor force participation rate, which was 62.6% on November, has nudged up to 63%. New orders are up, capital expenditures are up and housing starts are up.

Yet there’s still plenty of uncertainty about the economy, which could be affected by actions in the Middle East, Russia, Korea or elsewhere.

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Financially Unsustainable

Monday, February 13th, 2017

Sustainability is a big deal. Large companies have hired chief sustainability officers whose job it is to ensure that the company minimizes its negative impact on the environment. They’ve found that it is often possible to increase profits while also reducing their companies’ impact on the environment.

In theory, a company must achieve environmental equilibrium to be sustainable. While that’s not achievable, a great deal of progress has been made. Economies throughout the world still rely on fossil fuels, but conservation efforts have made the air and water cleaner and safer in many countries.usgs_chartDp11f

This Can’t Go On Forever

But what about financial sustainability? That’s an area where we all have a long way to go, both in the U.S. and around the world. We can think of many examples of financial unsustainability that could lead to economic collapse or, at the least, a lowering of living standards. Here are a few:

Greece. Consider the ongoing saga of Greece. Greece has been in such sad shape for so long, the rest of Europe has agreed to bail it out—not once, not twice, but three times. And now, unsurprisingly, Greece may be going for a fourth.

As further proof that socialism is a nutty idea, Greece continues to resist more stringent austerity measures while allowing its debt to continue to build. The International Monetary Fund (IMF), which is hardly ever a voice of reason, is arguing that “Greece’s debts are unsustainable and on an ‘explosive’ path to reaching almost three times the country’s annual economic output by 2060.” (more…)

Obama Sets Economic Record–For Failure

Tuesday, January 3rd, 2017

So did President Obama save us from the financial crisis and rebuild America’s economic strength?

Most media would have us believe that’s the case. As we previously noted, CNBC’s John W. Schoen reported that, “Obama’s biggest parting gift to Trump may be the economy,” since the unemployment rate has dropped to a nine-year low of 4.6%. AP’s Josh Boak repeated the statistic in an article, “Obama leaving behind much stronger economy.” And there are many, many other examples.gdp

Washington Post columnist Catherine Rampell wrote recently that the president-elect will be taking office with “among the most favorable economic conditions … imaginable.” She clearly does not have a very vivid imagination.

Yet other statistics bear out that Obamanomics has been an economic bust, not a boom. Consider the lack of economic growth. In the 85 years for which the U.S. Bureau of Economic Analysis has calculated the annual change in real gross domestic product (GDP), the period from 2006 through 2015 is the only 10-year period during which annual growth never reached 3%. Before now, the longest period during which the economy failed to grow by at least 3% was the four-year period from 1930 to 1933. That is, during the Great Depression. (more…)

Fear Politicians, Not Clowns

Monday, October 31st, 2016

Clowns have been on a rampage this year, with creepy clowns—sometimes armed—threatening victims not only throughout the U.S., but in other countries. According to a poll conducted by Chapman University, Americans are more afraid of clowns than they are of climate change.clown

Clowns? Don’t make me laugh. Even the “Killer Clowns from Outer Space” are sugar-and-spice-and-everything-nice compared with The Hillary and The Donald. This Halloween, trick-or-treaters have cast their votes in favor of both presidential candidates. They don’t need no stinkin’ clowns to scare people. They’re dressing as two of the scariest people in America.

What makes politicians so scary? Consider just a few examples:

Obamascare. Premiums are jumping an average of 25% for the benchmark plan on Healthcare.gov. But don’t worry about Americans losing their coverage. Most of the coverage is paid for by us taxpayers. Tell me again … why is it called the Affordable Care Act?hill-mask

Obamascare II. Hillary Clinton, if elected president, will seek to expand the Affordable Care Act. With also-very-scary U.S. Senators Bernie Sanders and Elizabeth Warren there to push things along, socialized medicine will likely be inevitable, just as retiring baby boomers are beginning to add to the strain on the system. Socialism, here we come! Americas will no longer have to cross into Cuba for real health care.

Donald Trump would like to repeal of the Affordable Care Act, although we’re not sure what he’d put in its place. Could it be any worse?

We’re all going to be poor. The federal debt doubled under President Obama. It’s approaching $20 trillion, but it’s projected to grow even more rapidly in the future.trump (more…)

In Defense of Capitalism

Monday, May 9th, 2016

“The problem is we don’t have enough free markets.”

                                                                  Ron Paul

The U.S. economy is operating with the invisible hand tied behind its back.  And that’s unlikely to change if we elect another President Clinton or a President Trump.

Unfortunately, capitalism has become unfashionable.  Media, academia, some members of Congress and others would have you believe that “profits” are bad and income inequality is America’s biggest challenge (Note: Socialist actors like Sean Penn, Susan Sarandon and Jane Fonda also make plenty of profits and contribute little to the economy.  When are they going to equalize their incomes?).

When’s the last time you heard a presidential candidate—or any politician, for that matter—extoll the virtues of capitalism?  This year, we have a socialist running for president and millions of millennials supporting him.

The Animas River was clean before the EPA’s Gold King Mine disaster.  Why aren’t activists protesting against the EPA?

The Animas River was clean before the EPA’s Gold King Mine disaster. Why aren’t activists protesting against the EPA?

Hillary Clinton reacted by moving almost as far to the left as Bernie Sanders.  She did mention capitalism in the nearly ignored Democratic debates, but only to say that we need to save capitalism from itself.  She’s half right … we need to save capitalism—from politicians, academics and the legion of “activists” who are clueless about economics.

You’d think that as a billionaire, presumed Republican nominee Donald Trump would be a die-hard capitalist, but he is a protectionist whose immigration policies, if enacted, would continue to stifle business formation.  Given that he has also personally benefited from eminent domain, his support of capitalism appears to be of the crony type.

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Wages Will Increase When Productivity Does

Monday, March 28th, 2016

There are three things we can say about income with a degree of certainty:

  1. You’re earning less than you did before the financial crisis.
  2. You are overdue for a raise.
  3. You are unlikely to get a raise anytime soon.

If these three statements fit your personal circumstances, you can take some consolation in knowing that you are not alone and that there is likely not much you can do about it.  Using the financial crisis that began in 2007 as a baseline, the Economic Policy Institute found that wages have dropped by an average of up to 5.9%, depending on the category of worker to which you belong. Employees with advanced degrees are the only group that didn’t see its income drop, but that group didn’t see its income rise, either. declining-wages

While the rate of inflation has been low throughout that period, it is still eroding your purchasing power and affecting your standard of living.

Why is income lower today than it was in 2007?

Lower Profits.  A major reason you’re earning less—and why you’re unlikely to get a raise anytime soon—is that your employer is earning less. (more…)

Making America Great Again

Monday, March 7th, 2016

It’s clear that in spite of boisterous bad behavior, a lack of workable policies and a few very bad ideas, Donald Trump is the odds-on favorite to become the Republican nominee for president of the United States.

Why?  It may be that his theme of “Making America Great Again” is resonating with voters.

While starting trade wars and building a wall to keep out Mexicans would have the opposite impact, American greatness could emerge as the theme of this campaign.

That’s because, as the charts below demonstrate, America’s greatness has faded mightily during President Obama’s administration.  Home ownership, median family income and labor force participation has plummeted.  Meanwhile, student loan debt, the use of food stamps (aka the Supplemental Nutrition Assistance Program or SNAP), federal debt, money printing, healthcare costs and—not coincidentally—black inequality have soared.20160301_obama_0

So voters have latched onto The Donald as the anti-Obama.

Why Candidate Trump Exists

In fact, former Louisiana Governor Bobby Jindal, whose own presidential candidacy never gained any traction, notes in The Wall Street Journal that Presidential candidate Trump would not exist if not for President Obama. (more…)

Eroding Economic Freedom Means Slower Economic Growth

Monday, February 8th, 2016

Being “the land of the free” apparently doesn’t apply to the American economy anymore.

Being a capitalist society with free markets, complemented by the Bill of Rights and the U.S. Constitution, have made America the freest country in the world with the highest standard of living.

And yet America’s standing is slipping.  The 2016 Index of Economic Freedom gives the U.S. a rating of 75.4 points out of 100—what your teacher would call a C.  That’s a drop of 0.8 points from last year, which is enough to nudge the U.S. out of the top 10.  But, heh, we’re way ahead of North Korea, Cuba and Iran.SR-trade-freedom-2016-chart-2

Ours is not an economy in shackles yet, but the degree of freedom needed to sustain rapid growth is eroding.  It was the eighth time in the past 10 years that the U.S. has lost ground. In contrast, more than half of the countries in the index—97 out of 186—improved their score this year and 32 recorded their highest level of economic freedom ever.

Hong Kong and Singapore lead the rankings with scores of 88.6 and 87.6, respectively, but the U.S. is also bested by New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia and the United Kingdom.

Ratings are based on 10 factors, including the size of government, regulations, degree of corruption, taxes and the openness of markets. (more…)

Today’s Economic News: Woe Is Me

Monday, July 27th, 2015

The summer weather and the media’s focus on positive economic news may have you feeling cheerier than usual these days.

Two words: “Bah, humbug.”  Or maybe, “Get real.”

Focus, for a minute, on the cloud, rather than the silver lining; recognize that evaporation has caused the glass to be less than half full (and more than half empty); see the bubble bursting, the interest rates rising and stock prices dropping.  In other words, get realistic about the economy.

In the Keynesian world, the more government spends, the more the economy is “stimulated.” In the real world, more spending means more debt, higher taxes, more regulation and GDP growth well below the historic norm. Chart 1

In the imaginary world, central bankers and government officials can keep the economy growing indefinitely and can boost asset prices to new records forever.  In the real world, asset prices are at artificially induced levels; reality will take hold when the Federal Reserve Board raises interest rates, when China’s stock market tanks (as it has begun to), when Greece is booted out of the Eurozone, or when Iran uses the $150 billion it receives from the lifting of sanctions to further its war against the U.S. and Israel.  (more…)

Why Worry About Climate Change When You’re $18 Trillion in Debt?

Monday, April 13th, 2015

Which crisis scares you more – climate change or our growing debt?

Climate change certainly receives a lot more attention in the media and a lot more attention from politicians, even if they’ve done little about it.

Last week, as one small example, President Obama said in an interview that his push to address climate change was influenced by an asthma attack his daughter Malia had when she was a four-year-old.  Asthma is a medical condition that has no connection to climate change.  It would be as logical to suggest that climate change cured her asthma, since she no longer has it and the climate has continued to deteriorate since she was four. National Debt and Interest 1 Wallace

We’re not suggesting that climate change doesn’t merit serious attention, but even if it’s as big a deal as environmental activists would have us believe, the U.S. is going to have little impact unless China, India and other ozone-busters get on board, too.

Debt, though, which President Obama and most members of Congress rarely talk about, just keeps rolling along.  (more…)