Archive for ‘budget deficits’

Budget Deficits, Media Hype, and E-Mini Trading

By , 5 September, 2011, No Comment

The last several years have been a difficult time for a sizable portion of the United States citizenry. As a nation, we have muddled through TARP, quantitative easing, real estate short sales, QE2 and a host of other anachronisms in hopes of solving a catastrophic price decline in the real estate markets caused by questionable bundling of mortgages that were then offered for sale to interested third parties (who were unaware of the questionable viability of these investments.)

Yes, we have a wide range of programs designed to solve one simple equation.  All the programs are designed with one stated purpose in mind; put more money in the system in hopes banks will loan more money, people will spend more money.  Banks have moderately increased their lending, but the consumer has not felt comfortable enough to return to pre-2008 spending levels.  Thus, we are stuck with an unenviable GDP of 1%.   I would also like to point out that corporations are sitting on very high levels of cash, but so far have not been enticed to spend their high cash levels on hiring new employees.

So we find ourselves in a bit of quandary, or “Liquidity Trap” as Paul Krugman often describes in his column.  Though, I would also note that during the last two FOMC meetings the Fed has declined to make substantive changes in their approach to the economy.  Though the Fed’s balance sheet is in excess of 2.5 trillion of rolling treasury debt, which they will continue to invest, they apparently feel that the market has enough liquidity to begin a recovery…but money is not necessarily the issue.

Now enter the politicians; both the right wing Republicans and Tea Party members have made this year’s election a referendum on the national debt.  There is no actual crisis that is going to occur this year or in the near future, but we desperately need to readjust our spending habits.  What we don’t need is a massive decrease in government spending as we are teetering on the brink of recession.  But you would think, reading and listening to most of the campaign literature that we are at our last chance to break our spending cycle or else all is lost.

And that exact moment is when the train runs off the rails.  We certainly need to begin work, hard work, on our national deficit; but the deficit does not have to be solved overnight, after all, it took a considerable amount of time to accumulate our current level of debt.  For the inevitable outcome of this story, read about Herbert Hoover’s presidency, his actions, and the ensuing depression.

My point is a simple one.  We need to spend less and take in more.  The Democrats see government as the way out of this problem.  The Republicans want to cut taxes and spur business development.  In different situations these approaches have been used, with nominal success.  Reagan got the economy going strongly through tax cuts, as did Bush II, but in doing so they managed to pile up a large level of debt.  Democrats have thrown a mountain of money at this problem, with negligible positive results.

Finally, if the politicians were serious about solving our problems they would address runaway health care spending, which has been increasing exponentially over the last ten years.

But no, we are going to kick the can a bit farther down the road, and let the next guy worry about our problems.  That is really a shame, too, because we finally have some attention placed upon our fiscally irresponsible congressmen…but there is no one in congress ready to step outside the party line. So we find ourselves with the inevitable…gridlock and finger pointing.

Why All the Doom and Gloom?

By , 3 October, 2010, No Comment

Like most things in life, there is a way to make money out of practically any situation. And, recession is no exception. Having been fortunate enough, or unfortunate enough, to have been day trading through several recessions, the doom-birds come to roost every time the economy takes a serious downturn. While there may be some individuals in the doomsday movement that are seriously concerned about the state of our economy, I am convinced that the vast majority are simply capitalizing on the fears and insecurities of the American public.

And they have a wide variety of doomsday cures to proffer. Buy gold, silver, you name it… and they have some sort of “fix it” product that is guaranteed to ameliorate any potential problems with the upcoming “end times.” This is not to say that there are not rough times ahead. Our country faces many serious problems and it will take innovative and creative solutions to steer clear of potentially serious economic situations. Personally, I have serious doubts that our current set of economists and politicians have the intestinal fortitude to tackle the serious issues that lay before us. But that issue is not the topic of this article.

No, what concerns me is the opportunist who is working overtime to exacerbate the public’s perception of our current economic woes. Our country has shown time and time again to be resilient and steadfast in its resolution and approach to crisis situations. Granted, many of our past presidents have shown little restraint in financing our public debt. This trend needs to stop. No country or individual can spend in excess of their earnings for any extended period of time. You need not be an economist to understand this simple principle. On the other hand, many of the citizens of our country have grown accustomed to the government solving even the smallest of economic hardships they face. Of course, this is not a government that our forefathers, our founding fathers, envisioned for the populace.

In short, we as a country will need to be more innovative in our approach to government spending. We must learn to do more with less money. In my opinion, this will be a bitter pill for many to swallow, but it is, nonetheless, an essential remedy for our current situation.

On the other hand, the chorus of the doomsday cabal grows louder every day; and richer every day. They would have you believe that we have found ourselves in an intractable situation; nothing is farther from the truth. While our debt load has increased in recent years, it is far from unmanageable. It is also true that the dollar has fallen against other currencies in recent years; some of this is intentional and some devaluation is the result of our current recession.

My point is a simple one; don’t buy into the notion that our country is lost. We are a powerful and influential force in the world. Our universities, contrary to what many may say, still produce great technological minds that will lead us in the coming century. We are still a country of great wealth and influence.

In short, don’t buy into the notion that all is lost, as many would have you believe. Every recession that I have experienced has brought forth a group of the doomsday cabal. They hawk their newsletters and negativity to a public unaware of the underlying strength of our country. They also make a tidy sum on spreading this negativity to anyone who’ll listen. Like all recessions, this one will come to an end and productivity and profitability will once again be the norm.

Needless to say, we will have to make some changes in the way Wall Street does business, and we have made some strides in that area. Personally, I was disappointed that the Republican leadership blocked the reinstatement of the Glass-Steagall Act which prevents Wall Street investment banks from the effectively securitizing mortgage loans. This was a great mistake, and one that may come back to roost yet again. It is my belief, however, that this oversight will be corrected in time and Wall Street investment banks will return to their proper function. We have a long way to emerge from our current economic woes, but we will emerge a better and more reliable economy than ever, and the doomsday cabal will once again sink into obscurity, that is, until we experience another recession.

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More on the Financial Crisis: If you want to Understand what is going on, read this.

By , 12 July, 2010, 3 Comments

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

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The Current Debt Crisis: How Did It Happen

By , 9 July, 2010, No Comment

I usually don’t write articles about current events, but this particular article is about a current event that has its origins nearly 30 years ago. The tremendous debt load that most countries are currently burdened with are not something that has its origins in the last decade. This fact may surprise people, as national debt has only been coming to the forefront since the most recent credit crisis. But a careful analysis, and an honest analysis, will show that this unprecedented borrowing spree has been going on for more than 30 years and we are now only beginning to reap the consequences of a poorly managed economy.

I think it’s important to understand that I have no blame to place on any individual, as most borrowing has been approved by Congress and whatever President was currently in charge. To be frank, there is enough blame to go around and both parties have been equally complacent in failing to halt our runaway debt problem. So there will be no politics in this discussion, just simple facts that are well documented and may help readers understand the cause and current effects of our credit situation.

From the onset, I would not predict we are doomed to failure. We are, and always have been, a resilient country with vast human and natural resources. The United States has also shown a remarkable ability to adapt to a variety of conditions which have on several occasions threatened the bedrock of our democracy. So I think it’s important to understand that there are remedies to our current situation and I believe we will implement the proper laws and regulation to bring our country into a more manageable debt situation.

Many individuals believe that our recent budget deficits are a product of the last two or three administrations, but the fact of the matter is surprising; our major budget deficits began under Pres. Reagan and at the time, it created a massive stir. In England, Margaret Thatcher was in the process of drastically reducing public spending, and in the United States the Congress and Pres. Reagan were amassing massive debt, primarily spending money in the defense sector. Economists at the time were sharply divided in this approach, as the freshwater economic sector favored increased borrowing and spending, and the salt water economic sector felt strongly that an increasing debt load would be detrimental to our country. In the end, Reagan’s budget director, David Stockman, resigned in protest when the Republican Party would not bring deficits under control.

Of course, Congress and a variety of presidential administrations have continued to exacerbate our burgeoning debt load. The problems we are experiencing, are simple; we have too much debt, and lack the resources (at the present time) to service our debt levels. This phenomena is occurring at both the national and state levels. Many states are currently underfunding or borrowing from vested civil service pension funds to cover the shortfalls in our current system. The unfortunate fact is that you can’t make debt go away. On the other hand, many citizens are loathe to sacrifice the government provided services on which they depend. So our debt has continued to grow at an alarming rate.

In the last two years, our country has attempted to remediate the effect of a very deep depression by infusing economy with 8 trillion, or more, depending on which numbers you care to quote and hastened the level increase in our debt.

While there are no specific individuals to pin the blame for this crisis upon, the burgeoning debt load our country has accumulated will be an Achilles’ heel for many years to come. I think it is important to know that our current crisis is not the result of any single action, though Wall Street in recent years did help exacerbate an already tenuous position, but our problems have been accumulating for an extended period of time. Of course, from a political standpoint both parties are happy pointing the fingers at each other for this mess, history will show that both parties showed equal levels of incompetence in dealing with the United States budgetary concerns. The facts show unequivocally that our borrowing has increased exponentially in the last years and shows no sign of abating, despite the rhetoric and politicians and political pundits espouse. The truth is a simple one; this particular budget crisis is the work of Congress and presidents who targeted programs for funding that were beyond their means we had to pay for them.

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