I'm in a debate with deficit terrorist, Maya McGuiness, on Twitter

She's all depressed over the budget deal, which she says will "blow a hole" i the deficit. By that way, that probably means it's going to be GREAT for the economy so do yourself a favor and buy stocks.

But anyway, she's all PROUD of being labeled a deficit TERRORIST. Look...

I think "deficit terrorist ideologue" is a compliment? https://t.co/esunZpuscn

— Maya MacGuineas (@MayaMacGuineas) December 18, 2015

Budget deal is unequivocally bullish for stocks, economy. Buy the S&P and take a vacation until March 2017.

The biggest negative factor that we have been talking about here--the debt ceiling--is now out of the way until March 2017. We are in the clear, having averted what could have been a disastrous default of the entire U.S. economy.

With this new budget deal the amount of fiscal stimulus will be significant. Not only does the Congressional Budget Office anticipate a spending increase of over $230 billion over the next two years, the additional spending of $112 billion implied in this budget deal means that spending over the next two years will rise by nearly $340 billion.

That is significant and it means two things for sure:

1) The economy WILL NOT go into recession

2) You can go buy stocks now (buy the S&P Index, it's simpler) and basically take a vacation until March 2017. You will be handsomely rewarded.

I don't care what anyone is telling you about the deficit, they are going to be wrong. And if I end up being wrong here in my prediction, feel free never to read this blog again or mock me from now until forever.

Oh, and one more thing...the dollar will fall because some pricing power will return to foreign exporters. And if and when the euro rises it won't be because it has become "harder to get." It's all about price, not quantity. People should know that.

P.S. If and when the Fed raises rates (and they will) that will be an added fiscal stimulus. Those who have been saying here, that it doesn't work that way, can also call me out as ignorant if it in fact doesn't end up to be bullish.

I see the Dow trading back to the low, 17,000s, but not doing much after that

The U.S. stock market is in "recovery" after the irrational plunge of late last week/early this week. It's coming back as I said it would, however, I don't see the Dow going much above the low, 17,000s for now.

We're really going to have to wait until the new fiscal year and what Congress decides with respect to the debt ceiling. Failure to raise the debt ceiling will have very damaging consequences so this bounce back in the stock market could be the rally to sell if you are into shorting stocks (which I am not).

If they raise the debt ceiling and continue on the spending path that is forecast by the CBO (spending increases by $250b) then we should have another very decent year for the market.

Don't look at the deficit. It might even be a surplus in 2016. Then what are people going to say?

This Ranks Right Up There With Records Packaging "Breathe-In" & "Breathe-Out" Messages For Blondes

   (Commentary posted by Roger Erickson)

10 ways to fix the broken congressional budget process (Brookings)

John Lounsbury: 'Some of the proposals are problematic but one definitely is not: That would establish a coupling of the "debt limit" to the appropriations passed by Congress.' :)

Uh ... was that coupling proposed by the tinfoil brigade?

One solution might be to close down Brookings, before they become the main reason no one answers SETI? It might be too late. The following quote nearly proves it.

"The debt ceiling should automatically be increased when a budget resolution, which accurately reflects the estimated debt limit, is approved by Congress and goes to the president for signature."

Please tell me the person who said that was drunk or senile. I can't stand to see our country run this way.

Fiscal snapshot: April ends with $373 billion in spending. Not bad, but some dark clouds are gathering.

Okay, so here's the end of April fiscal snapshot. It's not great news. It's not a disaster (yet), but it's not great in my opinion.

For the month of April the Federal Government spent $373 billion. That surpassed last April by $3 billion. Year-over-year Federal spending is up by $91 billion. That's the good news. We're on track at this pace to hit, almost, $4.3 trillion in total top-line spending for the fiscal year. That would be the first real increase since 2009.

That's good.

Here's the problem: Spending is stalling. Just about a month ago we were $110 billion over last year. The pace of spending over FY 2014 is slowing. This is not surprising because since mid-March Treasury has been running under  the debt ceiling constraint. These idiots in Congress still have not done anything  on the debt ceiling or the budget and who knows what kinds of measures, if any, Lew is using to pay the bills and that may not be able to last forever.

Furthermore, both CBO and OMB were predicting closer to $200 billion in spending above last year. We're coming in nowhere near that. I'm sure the morons over at Fix the Debt are elated. Jerks.

Now for the bad news (if you listen to other MMT economists). The deficit through the fiscal year so far is a paltry $252 billion. That's only 1.4% of GDP. The freakin' budget is almost in balance. The White House should be popping champagne corks, but they're too stupid to realize and also too stupid to understand that this is unequivocally NOT a good thing. Morons as well.

The top-line stall in spending is worrisome, at least to  me. Without a concomitant increase in non-government indebtedness, then it could mean trouble for the economy/stocks. Furthermore, higher private sector debt accumulation is not anything to cheer about, except maybe if you're a banker. It's just that we can go a while before debt service levels reach the tipping point, like where they were in 2007.

All data from the Daily Treasury Statement, of course. Remember, I teach a course on this, so if you want to learn how to do all this analysis and be able to read that Daily Treasury Statement then sign up for my course. It's well worth it. There's one coming up this Saturday. It's online. If you want to enroll please go to the link below.

Daily Treasury Statement course, Saturday, May 9.

Debt ceiling forecast: The Good, the Bad and the Ugly

My thoughts on the likely debt ceiling/budget negotiation outcomes. Happy St. Patrick's Day!

The Great Library At Alexandria Was Destroyed By Budget Cuts, Not Fire

   (Commentary posted by Roger Erickson)

Or, consituting a look at:

Dumb-Ass Neo-Liberals throughout the ages

Google "Emir Amrou Ibn el-Ass" - just one in a long trail of multi-ethnic, multi-religious dumb-asses, doing what they were told. The damage had already been done, long before, by those re-cooking the books.

Seems our current textbooks are worse than useless, yet again. :(

If we don't do something, we'll be left with an electorate that only cnows how to thinc. Without that missing real ability, it won't matter HOW much "STEM" data they memorize.

Now, aren't you happy that we've cut Public Initiative enough to balance our fiat? Oops! Pardon my illicit use of contraband. Oh what a feeling. Right. Was it worth it.

Department of Stupid: Congress to consider a bill comparing public and private lending

Via Center on Budget and Policy Priorities: 

The House will consider three bills in the coming weeks that would make the budget process more complicated, less transparent, and less credible. One of these is the Budget and Accounting Transparency Act (H.R. 1872), which would add an extra amount to the recorded budgetary cost of federal credit programs, beyond their actual cost to the government, to reflect what private lenders would charge if they issued the loans and loan guarantees.  By artificially inflating federal lending costs, this change would disadvantage direct loans and loan guarantees relative to other federal programs and expose them to a greater likelihood of cuts.

H.R. 1872 would change the accounting for credit programs such as Federal Housing Administration and veterans’ mortgage guarantees, student loans, small business loans, and rural electric loan guarantees by adding anextra amount to their recorded budgetary cost.  This extra amount would reflect what private lenders would charge if they, rather than the federal government, issued the loans or loan guarantees.  

The proposal is not based on a contention that current estimates of federal credit programs understate their cost to the government.  Therefore, the proposal would distort the budget by making federal credit programs appear more expensive than their actual cost to the government.  It would also undercut one of the key purposes of the budget, which is to provide a meaningful comparison of the cost to the federal Treasury of different programs.  

The bill also would make federal loan programs likelier targets for deficit reduction measures, since they would appear to cost more than unbiased projections show they actually would cost.  In the area of student loans, for example, this could result in higher costs for borrowers or less access to loans.  The size of the student loan program and how much of the cost students should bear are valid policy questions, but policymakers should not distort these issues by artificially inflating the program’s cost.

This idea is dumb enough even for those who don't understand monetary sovereignty...but for those of us that do, its just mind mindbogglingly stupid. CBPP does state that:

The concerns for the federal budget, however, are different from the concerns of private-sector investors.  The federal budget is a straight record of the cash flowing into and out of the Treasury; the deficit or surplus equals the difference between the money actually spent and the money actually collected.  That is what the existing credit rules ask the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to estimate.  If the estimates are unbiased and take all possible factors into account, including expected defaults and their likelihood, then the overestimates and underestimates should net to zero over the long term.  Adding a penalty because private investors are loss averse should have nothing to do with government budgeting and accounting. 

However, they don't go far enough, and say that the government's risk of default as a currency issuer is zero, and thus should never be compared to any private entity with inherent, nonzero credit risk. If a borrower of a federal loan defaults, this does not affect the federal government's credit/spending ability by one penny. There is therefore no reason to price this risk in any federal budget-scoring mechanism.

Applied MMT Working Paper: Reforming the Broken Federal Budgeting Process

For a few months, I have been working on this paper about why the federal budgeting process is broken and destructive. I'd like to get some input from the MMT community. 

Link Here

The audience I have in mind for this paper is people in/around government who already have some policy background. Ideally this would reach people on Capitol Hill and policy analysts in Washington. 

The first part is standard MMT economics, and it should be familiar to most. The second part is the discussion about the current budgeting process, and how it should be reformed/eliminated. It has gotten a little long over time, but please feel free to comment. 

In the next few days I will also share a powerpoint deck on how the Fed sets rates. 

"INFRASTRUCTURE" Spending As A Transfer Payment? Depends on Whether It's Social or Physical Infrastructure

(Commentary by Roger Erickson)

What are Transfer Payments, and why are they off-budget? Well, just because.

Yes, our country is pretty arbitrary about what is, and what isn't, exactly which kind of fiat. That kind of stuff matters to accountants, banksters and lobbyists ... as long as they're paid for their time and ... anything OTHER than their utility to nation. :)

It will be interesting to see how these two "ships" - infrastructure funding & Deficit Terrorism - manage to pass in the night. :)

Meanwhile, look at this example, to get an idea of the diversity of options that we could - and might yet - be exploring.

Waterways Council Lobbies for Multi-Billion Dollar U.S. Ship-Channel Project

" .. commercial waterway legislation may be enacted for the first time since 2007. The House plans to vote as soon as today on a multibillion-dollar bill that would authorize 23 port, dredging, levee and environmental restoration projects"

Looks like similar bills passed both House & Senate, with differences being negotiated in a Congressional Conference.

Could it be???

Are we accidentally, barely, saving ourselves from ourselves? Just in time?

Maybe the Tea Party, fiat-Deficit-Terrorist members will, rather like FDR, end up essentially voting to make "INFRASTRUCTURE" spending a Transfer Payment, and therefore officially "off budget"?

Just like most of our Social Infrastructure & similar public investment spending?* :)

Wouldn't that be hilarious, and unexpected? Less surreal things have happened in our wacky, national history.

Meanwhile, note that [all?] Corporate Welfare IS officially, on-budget. Maybe things aren't as bad as we thought.

It should be a hoot watching our Congress critters attempt to unravel all this reality. :)

You can almost see their mental wheels ... j..u...s....t... starting to
turn. Who knows, maybe they actually will.

Or, they might scare themselves, freeze up, and simply stop the country in it's tracks ... again.  Keep your fingers crossed and your fiat dry.

* Gosh, maybe we could even fund local police and white collar crime regulation as an Off Budget Transfer Payment!    Wotta concept! :)

All the spin is wrong: The GOP shutdown was about more than tactics

The GOP's desperate to spin their shutdown in order to camouflage very real divisions. They do have one way out

Salon
All the spin is wrong: The GOP shutdown was about more than tactics

Brian Beutler

I would put it somewhat differently. The GOP's aim is to preserve Norquistism and get the Democrates to agree to cut Social Security. First, Norquistism is an iron clad rule since Poppy Bush broke his "Read my lips. No new taxes pledge." 

Secondly, the primary aim of the GOP is to end the welfare state created by New Deal, which means ultimately privatizing Social Security. They know that Social Security is very popular, especially with their older base. They cannot cut Social Security or Medicare alone, and they need Democratic leadership to do it.

Many Democrats realize that this is a trap and than if they agree to cut Social Security, especially if they propose the cuts as part of a Grand Bargain, then they will be beat over the head with it in coming elections.

The problem is that the Democratic Establishment is also aligned with the forces lobbying for entitlement cuts, that is, the wealthy donor who see the welfare state as increasing their taxes.

In addition, first Bill Clinton and now Barack Obama regards it as a matter of establishing presidential legacy as a Very Serious Person who dared to confront difficult political problems.

This may look like a Republican problem but it is a much more serious Democratic problem that could refashion the party in the future away from the Democratic Establishment. Which would be a good thing, but not at the expense of cutting Social Security and Medicare and "fixing the debt." 

The economic fallout would be horrendous if the government contribution is pared substantially. The GOP Establishment knows that and would try to increase military spending to offset the cuts in social programs, were this to happen.

Laura Clawson — McDonald's offers workers a budget solution: Get a second job

Daily Kos
McDonald's offers workers a budget solution: Get a second job

Laura Clawson | Daily Kos Labor

Bill Mitchell — MMT Budgetary principles and the Fantasy Budget 2013-14

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. This blog provides some general principles that should govern the design of a budget.

The complete suite of Fantasy Budget blogs are as follows:

Bill Mitchell – billy blog
MMT Budgetary principles

The Fantasy Budget 2013-14
Bill Mitchell

Awesome reference.

Timothy Taylor — The Stock of Federal Investment

Each year when the president releases a proposed federal budget, as President Obama did on Wednesday, an "Analytical Perspectives" volume is also released with other angles on the budget. This year, Chapter 20 of that volume is about "Federal Investment." Of course, there's a certain tendency by those who favor a certain area--from national defense to health care to antipoverty programs--to label as "an investment." But as the budget states: "The distinction between investment spending and current outlays is a matter of judgment. The budget has historically employed a relatively broad classification of investment, encompassing physical investment, research, development, education, and training." In these areas, what is the accumulated value of the federal investments over time?

Conversable Economist
The Stock of Federal Investment
Timothy Taylor | Managing editor of the Journal of Economic Perspectives

George Zornick — A Truly Progressive Budget Vision

But this massive spending is offset by a number of crucial revenue measures: The “Back to Work” budget increases taxes on millionaires and billionaires, taxes investments at the same level as wages, closes corporate tax loopholes, enacts both a financial transactions tax and a carbon tax, and introduces both a public option and government negotiating for drug prices to Medicare. In addition, the budget finds savings by cutting Pentagon spending back to 2006 levels.

In short, they sketch out the opposite vision of Paul Ryan: reduced military spending, robust public investment and a strong safety net.

Moreover, the budget actually reduces public debt over the next ten years....

The Nation
A Truly Progressive Budget Vision
George Zornick

Deficit doves and debt hysteria.

Stephen Ewald — History does rhyme …

Look after the unemployment, and the Budget will look after itself.— John Maynard Keynes

GIGO
History does rhyme …
Stephen Ewald

Warren Mosler — Is the Ryan Budget the Next Bachmann Budget?

I already posted a link to this at Warren's, but for the record here is at The Huffington Post.

The Huffington Post
Is the Ryan Budget the Next Bachmann Budget?
Warren Mosler | Fixed income fund manager specializing in monetary policy; Founder, MMT

John T. Harvey — The Ryan Budget: A Mistake of Historic Proportions

We are only slowly recovering from the second-worst calamity in economic history. While the recession officially ended almost three years ago, unemployment remains over 8% and real GDP growth is anemic. Paul Ryan and his supporters say that the reason for this sluggish response is the size of the government, the most visible manifestations of which are the national debt and the deficit. They believe that the public sector is leaching resources away from private industry, preventing the latter from booming and restoring prosperity. Their recommendation: trim the fat off our economy by cutting government spending. Then the private sector will be set free, jobs will be created, and real GDP will soar.

History, however, argues that reducing the size of the deficit at this time would not just prove to be ineffective, it would be disastrous. This is precisely what occurred in the middle of the Great Depression when, as a consequence of a misguided attempt to balance the budget, policy makers reduced government spending and drove unemployment up by almost five percentage points. It took over three years to repair the damage. Let’s not do that again.

Read the rest at Forbes | Pragmatic Economics
The Ryan Budget: A Mistake of Historic Proportions
by John T. Harvey | Professor, Texas Christian University

Shades of 1937 and the Treasury view.

Bill Mitchell — Look after the unemployment, and the budget will look after itself

Great post by Bill today that is worth calling attention to here in light of the present controversy over employment.

There was a Wall Street Journal article (March 5, 2012) – The High Cost of the Fed’s Cheap Money – which is full of statements like “could eventually lead to an economic calamity” etc. The WSJ article basically rehearses a confused form the old supply-side tradition of the pre-Great Depression era where the claim was that “supply creates its own demand” (so-called Say’s Law) which was shorthand for the proposition that flexible prices and interest rates would ensure that whatever was supplied would be purchased. The same sort of arguments were used in a recent lecture to Harvard EC10 students by the Director of the US Congressional Budget Office. It is extraordinary that these myths, which were part of the body of economic theory that led the world into the current crisis, still have currency. They should start by understanding what Keynes meant when he said “Look after the unemployment, and the budget will look after itself”.

Read it at billy blog
Look after the unemployment, and the budget will look after itself

by Bill Mitchell

The Laffer Curve and Fiscal Policy

The dynamic calculation would be supplementary and not replace the current official scoring methodology, but the obvious long-term goal is to require official revenue estimates to incorporate “Laffer curve” effects in order to make it easier to cut taxes and harder to raise them.

The Laffer curve, named for the economist Arthur Laffer, posits that tax rates may be so high that a tax-rate reduction will raise revenue to the government and a tax-rate increase will lower revenue.

While no economist denies the theoretical possibility of a revenue-raising tax cut or revenue-losing tax increase, Republicans talk as if the United States is always on the high side of the Laffer curve – no matter what the tax rates are – so every tax cut will pay for itself and no tax increase could possibly ever raise net revenue and thus reduce the deficit.

Read it at The New York Times | Economix

Tilting the Budget Process to the G.O.P.
by Bruce Bartlett
(Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.)

Must-read from the MMT perspective. It shows how the present budgetary process works from the right and how it is dictated by ideology rather than macroeconomic reasoning, let alone sectoral balances.

Republicans don’t really care about accurate revenue estimates; they just want them to show that tax cuts pay for themselves, so they can pass more of them without constraint. As my fellow Economix contributor Simon Johnson has noted, the corruption of the agencies that produce budget data is a crucial cause of Europe’s debt crisis.

Keven Drum chimes in at Mother Jones
Republicans Once Again Unleash Reality Distortion Field
by Kevin Drum