Friday, November 27, 2015

Guess what? Deficit is growing again. What will the "deficit is too small" crowd say now?

It's not a lot, but it's the first time in five years. The deficit is growing again. For the fiscal year thus far the deficit is $195 billion. That compares with $175 billion at the same time last year.

While a $20 billion expansion is not a lot, it's the trend that counts. This is the first time in five years that the deficit has been expanding and not shrinking.

Furthermore, when the Fed raises rates, which is likely at its next meeting on December 15-16, that will result in further deficit expansion. Remember that under Ronald Reagan the deficit rose to nearly 6.0% of GDP (the largest in post WWII history until 2009-2010) and that was due primarily to interest payments. Interest was the single largest line item payment of the government. It also boosted the economy, tremendously. (The Reagan "boom.")

We have been absolutely correct here at MNE all along. We have never been forecasting recession as others have. We have been looking at top line government spending all along, not the deficit and now we (I) am saying that the deficit is growing again.

Will the others ever admit they are wrong?

QE does not make the euro harder to get, either. "It's about price, not quantity." Exporters are price setters.

17 comments:

Bob said...

What is defined as a recession is becoming irrelevant to more and more people. Just like the euphemism "full employment".

You called it right, but it's a forecast that ordinary folks don't care about.

MRW said...

Euphemism? Full employment is a euphemism?

Ordinary folk, as you call them, damn well better care about it. The problem is they don't understand it, and obviously, neither do you.

MRW said...

Mike, can you write a brief post going into this a bit more?

Quote.
Remember that under Ronald Reagan the deficit rose to nearly 6.0% of GDP (the largest in post WWII history until 2009-2010) and that was due primarily to interest payments. Interest was the single largest line item payment of the government. It also boosted the economy, tremendously. (The Reagan "boom.")
Endquote.

MRW said...

Re: the previous. Interest was up to 20% then. Is that what you're talking about?

Bob said...

MRW,

Americans collecting food stamps know that full employment is a euphemism. Along with "recovery" and other feel good bullshit that the financial chattering classes keep spreading.

America is at full employment. Did you miss the memo?

Bob said...

"...when the Fed raises rates..."

What a running joke that has become.

Ignacio said...

How does people arrive to this conclusion: "QE does make the euro harder " ?


Bob your complains are valid, but getting economists to change their OC behaviour is too much, their income depends on it! And this is why while everyone and his mother things are going for the worse and people is turning more extremist you can see media pundits and doing the rain-dance of "growth" and "markets are strong".


95% of the population and the rest 5% different in total different realities.

Tom Hickey said...

It all depends on division of the surplus over subsistence.

It's a distributional issue and marginalism assumes "just deserts" in this division based on the neoclassical theory and model.

Does that prove "just deserts," or rather that the theory and model are badly skewed?

Auburn Parks said...

FYI for the "govt spending uber alles crowd".

If you were consistent in your analysis of Govt spending, then the correct call would be for nothing but stagnation and recession. 3 out of the last 4 years represent the only times in the last 40 that yoy govt spending has decreased:

https://research.stlouisfed.org/fred2/graph/?graph_id=270690

So every year for 40 years, govt spending has increased through booms and busts. And yet given that Govt spending finally contracts for the first time in decades you two predict the exact opposite of what history would indicate, and now that we havent had a recession you believe that Govt spending is the best and final predictor of macro outcomes? color me confused because looking at govt spending would not have allowed you to predict a single major economic event in the past 40 years.

But what does correlate with every major recession and recovery for the last 40 years?

https://research.stlouisfed.org/fred2/graph/?graph_id=212993&category_id=

The DEFICIT!!!

But hey, if you want to ignore all the data and all the history........

Roger Erickson said...

Useful graphs, Auburn.

Recessions don't seem to follow deficit level per se, but do seem to be triggered by deficit trend reversal (sharp falls in deficit).

probably best to directly plot rate of change of deficit vs rate of population [and economic] growth

Logic dictates that currency supply be right sized to net demand, which is a function of population AND economic growth.


ps: the 1990 recession seems to lag deficit-reversal by the longest interval; any idea why?

Roger Erickson said...

Then, of course, distribution of public fiat is a follow-on subtlety. Where public initiative is directed matters too.

Anonymous said...

Have a look here:

https://research.stlouisfed.org/fred2/graph/?id=FYFRGDA188S

Consider too, that from our POV it seems the recessions start earlier than from the Fed's POV.

Matt Franko said...

Auburn,

Govt spends FIRST....... THEN collects the taxes....

Spending has not fallen it has been even over last 4 years.... you have to include xfer payments...

Matt Franko said...

Auburn here from Bills NIA thing the other day:

"We also have to acknowledge that financial balances of the sectors are impacted by net government taxes (T) which includes all taxes and transfer and interest payments (the latter are not counted independently in the expenditure Expression (2))."

So they already net the x fer payments out of "taxes"....

So if social security pays out 75B in a month meanwhile FICA taxes are 75b to them its like nothing happened. ... ????????

Meanwhile firms are making bank on the people spending the 75b that month on provision... these geniuses then scratch their heads thinking "where did they get the money!?!?!"

They got it from the 75b of xfers morons....

Piketty doesn't even include xfers in his work at all....

This is fucked up analysis. ...

Matt Franko said...

Auburn these people would have you think that if these moron NIA numbers go red for these deranged people we all should go get a . 357 and blow our brains out...

Count me OUT....

Who the F cares if we have a breakeven quarter.. what we dont make munnie if the growth is zero? Please....

If growth is zero this year the S&Ps are STILL going to make a TRILLION USDs...

Matt Franko said...

The whole thing here is based on some sort of pagan Darwinian view like "growth creates employment! !!"

Its deranged. ..

Tyler Healey said...

Consumer spending barely rises again http://on.mktw.net/1OgTUFV