Archive for the ‘Government Debt’ Category

Is This Any Way to Run a Country?

Monday, April 27th, 2015

For as long as any of us has been alive, America has had a better way.

Our free market economy, complemented by the freedoms documented in our Bill of Rights, have combined to make America the envy of the world.  Our economic strength has also translated into an ability to spread freedom in other parts of the world.  Based on the strength of our principles, our economy, our people and our leadership, America won the Cold War without firing a shot.

But what’s happening today? Obama

Growth is taking place at a glacial place, debt is out of control, incomes are down and unemployment has been chronically high.

“Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country,” former U.S. Senator Phil Gramm wrote last week in The Wall Street Journal.  “Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries.” (more…)

Do You Believe in Santa Claus? You May Be A Keynesian.

Monday, December 29th, 2014

The Christmas season is an appropriate time to reflect on Keynesian economics, given this: believing in Keynesian economics is a lot like believing in Santa Claus.

Most Americans grow up believing some chubby guy in a red suit has the stamina to deliver gifts worldwide to billions of people in a single night.  Young children, by their nature, are self-absorbed and gullible enough to think that Santa knows how they behaved throughout the year and will deliver presents accordingly. Santa Keynes 2

Most of us grow up and realize that reindeer can’t fly, Santa would freeze to death in the North Pole and his elves would unionize.

But not everyone outgrows gullibility.  Some become Keynesian economists.  As Keynesians, they don’t quite understand unemployment, because they never experience it – there is plenty of demand for Keynesians, who can find jobs working for the government, in academia or as journalists.

Keynesians believe that increased government spending (aka “aggregate demand”) stimulates the economy and money can be handed out, like Christmas presents, with only positive consequences.  They even believe that a dollar spent by the government results in many dollars being spent throughout the economy (the “Keynesian multiplier”).  Since they believe there is a Santa Claus, they give little thought to the reality that someone, somewhere has to pay for this largesse.

(more…)

We’re All Debtors Now

Friday, March 7th, 2014

You’ve probably heard that corporate America is swimming in cash.  Something like $4 trillion worth of it.  And once corporate America starts spending it, the economy will boom again, jobs will be created, GNP will soar and the stock market will boom ever higher.

Corporate cash is the good news.  Corporate debt is the bad news.

While cash is at record levels, corporate debt now exceeds the level it was at in 2008 and 2009.  In case your memory is really short, that’s when America was wondering whether its financial system would survive.Corporate Debt

But temper your nostalgia for those bad old days.  When we say “exceeds,” we mean that corporate debt is 35% higher than it was then.

Net debt – what you get when you subtract cash from total debt – has been climbing steadily for American companies since 1998, as the chart shows.  It doesn’t mean corporate America is insolvent (not yet, anyway), but it does have nasty implications for future corporate growth, profitability, unemployment and income growth.

Given all of that cash on hand, some are making heady predictions about accelerating capital expenditures.  Goldman Sachs’ David Kostin predicted that capex spending will grow 9% in 2014, compared with 2% growth in 2013.

He may be right, given the need to replace aging and outmoded equipment, but a prediction is only a prediction.  And more capex spending will mean less cash for paying down corporate debt.

(more…)