Capex growth to slow
A complication occurred for this "athlete." The belly sequestered all the nutrients, and the legs are screaming & cramping in the 1st 100 yards.
"Structural" adjustments in the legs isn't gonna do squat.
[or rather, using the same word, with different semantics ... anything else but! :) ]
Proper, preventive, training & diet matters, and produces more adaptive resource distributions. We all hope there's another chance to learn that lesson. Praying that the bear catches some other idiot first isn't a reliable survival strategy.
This athlete needs MORE, not fewer, automatic stabilizers. Especially at the policy end. No tool helps much, if it's use isn't practiced, BEFORE it's needed. Even less if it's not even used.
Might wanna pay a bit more attention to the actual operations, regardless of the theory?
5 comments:
Looks like they know it is likely that there will be no additional revenues to go after this year so they will not INCREASE capex but will use any additional earnings to buy shares back in ... thus boosting EPS even in a year in which they get no revenue growth...
If govt acts to increase incomes then these firms have incentive to invest additional amounts to be able to go after the associated addl revenues...
"Spending by companies in the S&P 1200 global index increased by 15 per cent in 2011 and 11.3 per cent in 2012, but it was unchanged in the first six months of 2013 compared to the equivalent period of the previous year,"
govt spending increased meaningfully in the years before these years ("the stimulus"), has fallen since... firms see the effects of this so they are adjusting their plans accordingly.... they will buy stock in instead of using the funds for increased capex... they are not morons...
rsp,
Matt-
How do you view the interaction between operational effects of Govt spending\deficit spending and economic output data?
Let me put it another by describing 3 examples. Lets assume that all T-bonds are bought by non-banks and the top 1% buy 90% of all T-bonds.
1) Govt spending and taxing is $1T. Assume we have the exact same tax code as today, so this is our baseline. The net effects of bank deposits, reserves, and T-bonds are obviously zero.
2) Govt spending and taxing is $1T. But the tax code results in 90% of taxes be paid by the top 1%. I think we can agree that in this example, economic output would be greater than #1 due to the differing propensities to consume of the taxpayers\spending recipients. And the net effect on bank deposits, reserves and T-bonds is still zero.
3) Govt spending is $1T and taxation is only $100B (same tax code as today and ex. #1). The net effect on bank deposits and reserves is still zero, but of course we have the T-bonds left over as private sector wealth.
What am I missing here? If the net level of bank deposits is the same in examples #2 and #3, and 90% of the bank deposits that were used to either A) pay taxes or B) buy T-bonds came from the top 1% of earners, then how can the economic output be different between 2 and 3?
What is your take on how the operations effect the output?
I know all of the historical data bears out that surpluses and shrinking deficits (especially yoy reductions)
http://research.stlouisfed.org/fred2/graph/?graph_id=156732&category_id=0
lead to recessions, but recently I've been having trouble understanding the channel. I've had some muddled thinking on this recently due to the accounting impacts. I'd much appreciate some thoughts from the class so I can begin to regain some clarity on the matter.
I would look at it in terms of flows. G is top line spending that injects $NFA into the economy through spending and transfers that mostly are spent. This increases incomes of households and firms directly, and flows to consumption and investment (with the increase in saving being the accounting record of investment). So the amount of G is pivotal.
Taxation is an outflow that is subtracted from G to arrive at the fiscal balance, but taxation is not subtracted from spending. This is point that I think many miss. Taxes don't come directly from the spending flow, and since the wealthy are more likely to save out of income, it is logical to say that the bulk of taxes subtract from flow into saving. This is the way Michael Hudson looks at if for example, showing evidence that high progressive taxation has not hurt growth historically.
The fiscal balance is significant in the profit equation, however, since a deficit contributes to profits. So this is probably where we need to look for the effect of the fiscal balance v. top line spending.
Auburn,
I am currently "out" on the concept of 'deficit spending'... I just dont understand this concept wrt how some of us are using it... to me there is 'govt spending' and there is "savings" and the two are not directly related...
So I instead look at like "net" Treasury withdrawals from the Daily Treasury Statement and follow the trends there...
Where you say here:
"I know all of the historical data bears out that surpluses and shrinking deficits lead to recessions, but recently I've been having trouble understanding the channel."
I would say "me too".... and at the risk of speaking for Mike I think Mike agrees too...
Because the deficit is savings so if we have deficits increasing, that means savings is increasing so I dont see how that can "help"...
Some say, "a tax cut is just as good as a spending increase" and I just dont see how it can be, as the addl net income to the taxpayer is just saved...
Here is the GDP equation (FD: I am not an economist, only perhaps 12 credits mostly micro but here goes anyway...correct me if I am wrong...)
GDP = C + S + T
OK, so we are going to cut taxes. Well the people who get the tax cut already have a job.
So govt as step 1 cuts T, but they do not increase govt contribution to C, so the only way that GDP can increase is if the people receiving the cut increase their C. They dont they increase S and GDP remains flat.
The way the Treasury does its policy now is that it has to maintain a positive balance in the TGA, so a tax cut has an immediate effect to decrease TGA deposit rate and govt in response to this, again as they have to maintain a positive balance in the TGA, will increase the near term rate of UST securities issuance.
contd
contd
In effect they are saying: "ok, we will do a tax cut BUT only if we get someone in the non-govt to agree to increase savings by an equal offsetting amount..."
So before the govt can maintain its previous rate of spending before the tax cut, it requires someone in non-govt to modify the term characteristics of previous issued savings, Warren would say "move the funds from the checking account to the savings account" and then the govt can maintain the current rate of its contribution to C and current rate of direct xfers...
So at the "macro level" for sure the tax cut is "saved"... as govt cant spend at previous rate unless somebody in the non-govt agrees to save an addl offsetting amount by buying the addl UST securities...
This imo is ESPECIALLY true with the supply-side/Laffer "top down" cuts, say we take the top rate down from say 39% to like 36.5% the amount those households make to be in that brackets in the first place for sure mean that it is going to be saved and hence will have no effect on GDP, the reduction in T is just offset by an increase in S and we muddle thru instead of getting any increase in GDP...
So that Laffer stuff is all BS imo... false.
What you see with these Laffer cuts is ALWAYS an increase in Govt spending (which can be leveraged by govt agents ie "the banks") and imo THAT is what does it, the Laffer tax-cuts are just coincident with no causation imo...
A "bottom up" tax cut might help to a certain extent but not much since the lower brackets in effect dont even pay taxes via the EITC anyway... and a FICA cut may help just a tiny amount as the higher income households just increase savings....
Here is a chart I am working on where you can see the steady increase in govt spending (and correspondent Bank Credit) going back to 1998 from the end of the Clinton years and all thru the Bush years (forget Obama years its literally a disaster..) .... so we had the 'supply side' cuts during this time too but look at the steady increase in govt spending. govt spending goes up like 85% in 10 years (and banks leverage this increased flow) imo THIS is what generates the growth:
http://chartsninja.com/charts/single/7017
So to stay on that trend we should have been at like $4.8T in FY 2013 just ended but we came in at $4.2T so we are behind by 600B in 2013 and this year in 2014 we should be on our way to over 5T but are BELOW the 2013 numbers (so far by 40B) and starting to roll over imo...
S&P revenues/Earnings 2014 forecasts are starting to be revised down in face of this so you see no increase planned in CAPEX by firms as there is NO new business to go after... markets are correcting for this unforeseen development in the trend of govt spending, so we go down on the indexes ....
If govt would have spent 4.8T last year we would be doing a lot better imo, more people would be working, firms would be more profitable, etc...
The empire sure isnt going to run very well if Caesar thinks "we're out of money!" ;)
Hang in there Auburn your generation has to get us out of this mess... the current older people running things just dont know what the heck they are doing...
rsp,
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