8/7/20: On a Long-Enough Timeline, This Is Not Sustainable

Something will have to give, and on an increasingly more proximate timeline, although we have no idea when that timeline runs its course...

In basic terms, U.S. Bonds yields are only sustainable as long as:

1. There remains a market-wide faith that the U.S. Government will not deflate itself out of the fiscal mess it has managed to run, virtually un-interrupted, since at least 1980 on; 
2. There remains a regulatory coercion into the U.S. Government bonds being 'risk-free' capital 'instruments'; and
3. There remains vast appetite for the U.S. dollar as the store of value instrument for everyone - from migrants and legitimate business people in the politically questionable jurisdictions to drug dealers.

Which puts a serious question mark over how long can the U.S. Treasury afford to escalate weaponization of the dollar.

21/1/20: US Deficits, Growth and Money Markets Woes

My article for The Currency on the effects of the U.S. fiscal profligacy on global debt and money markets is out: https://www.thecurrency.news/articles/7371/the-us-deficit-has-topped-1-trillion-and-investors-should-be-worried.

Key takeaways:

"As the Trump administration continues along the path of deficits-financed economic expansion, the question that investors must start asking is at what point will debt supply start exceeding debt demand, even with the Fed continuing to throw more cash on the fiscal policies bonfire?"

"In the seven years prior to the crisis of 2008-2012, US economic growth outpaced US budget deficits by a cumulative of $1.56 trillion. This period of time covers two major wars and associated war time spending increases, as well as the beginnings of the property markets and banking crises in 2007.

"Over the last seven years since the end of the crisis, US economic growth lagged, on a cumulated basis, fiscal deficits by $928 billion, despite much smaller overseas military commitments and a substantially improved employment outlook.

"These comparatives are even more stark if we are to look at the last three years of the Obama Administration set against the first three years of the Trump Presidency. During the 2014-2016 period, under President Barack Obama, US deficits exceeded increases in the country’s GDP by a cumulative amount of $226 billion. Over the 2017-2019 period, under  Trump’s tenure in the White House, the same gap more than doubled to $525 billion.

"No matter how one spins the numbers, two things are now painfully clear for investors. One: irrespective of the stock market valuations metrics one chooses to consider, the most recent bull cycle in US equities has nothing to do with the US corporate sector being the main engine of the economic growth. Two: the official economic figures mask a dramatic shift in the US economy’s reliance on public sector deficits since the end of the crisis, and the corresponding decline in the importance of the private sector activity."

18/11/2012: US debt, deficits and spending

One of the best papers analysing the US spending, deficits and debt issues over historical perspective (link here to the older version and to latest version, published this month in Economic Affairs, Vol. 32, Issue 3, pp. 97-101, 2012).

Two charts from the paper:

I have done analysis of deficit / debt dynamics by Presidential Administration ( see link here ) and ehre's a chart from zerohedge on Federal deficits, spending and revenues (click to enlarge):

The above chart puts to rest the assertions made in the media that Bush Jr Administration was more profligate in spending than Obama Administration. Furthermore, as per evidence shown in my note (see link above), the above clearly shows that the current Administration is burning through deficits at a rate not once witnessed since the end of the World War 2.

25/9/2012: Some thoughts on US Government debt

There's much of a debate going on about which US President has added most to the US Government debt stockpile. The question is far from trivial.

Here's the chart plotting overall evolution of the US debt since 1980 with presidential tenures super-imposed onto it:

So far, it appears the contest is between Ronald Reagan, George W. Bush and Barack Obama. The tables below summarizes the presidential administrations' performance in terms of the US debt first in terms of absolute current US dollars and then in terms of debt to GDP ratios:

The problem is, of course, two-fold:

1. Presidential tenure starts in year 1, for which some of the budgetary dimensions are already Pre-set by the previous administration, and the tenure ends in year 4, when the outgoing President sets out some of the legacy measures for the incoming one;
2. Presidential tenures range between 4 and 8 years in the above period.

Controlling for the (1) is hard, so let's assume that the incoming President shares the burden of fiscal regime setting in year 1 with his predecessor. Tables below show this analysis:

The last two columns in the above summarize overall rates of change per year in office and this makes it clear:

• Current administration leads in terms of overall rate of increasing the US Government debt by a factor of 5 times that of the Reagan administration;
• The above does not account for inflation, as figures stated are in current US Dollars, but to match Barack Obama's rate of increasing public debt in real terms to that achieved by the Reagan administration we need annual inflation in excess of 6.5% pa. Meanwhile, over the period GDP deflator averaged 3.56%pa, while CPI averaged between 2.95% and 2.96% (depending on annual metric chosen);
• Obama administration also leads, by a massive margin, every other administration in the rates of debt increases relative to GDP.