Federal Commitments Now Total $5 Trillion 19 comments
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There is a rising tide of negativity about "bailout nation." Public opinion has been in opposition each step of the way, most recently on the auto bridge loan, announced yesterday and analyzed by us here.
The problem in the media characterizations is that everything is described as a "bailout" since that is the story that plays. There is also special emphasis on what the taxpayer will get in return, judged on the basis of investment potential.
Get serious! The government is not a hedge fund. The purpose of these actions is not a specific return on investment, but avoiding the collapse of the economy. Many of the commitments have specific collateral. Many are short-term in nature and some have already been repaid. Others are showing a profit. These are not just grants, and certainly not all "bailouts."
It is typical media punditry. Describing a program as a bailout is an easy and popular story. The source attracts many readers, blog hits, or ratings. Analyzing the public policy costs and benefits is more difficult and pretty boring.
Readers can get some clarification from this interesting interactive graphic from Slate, allowing you to see the timeline and terms of each decision.
Investment Take
The investment conclusion starts with the notion that almost no one has any confidence in the specific plans or the effects, one of our items on the Wall Street Truthiness list.
We plan a more detailed discussion, but the broad concept is easy. Few of the existing pundit opinions and none of the econometric models allow for much impact from these programs. Meanwhile, we have efforts of unprecedented size.
There is a contrarian opportunity.
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Underlying all the opportunities out there, I agree with Philly regarding inflation risks. That would destroy most opportunities except perhaps gold, TIPS, and some other commodities. I don't think stocks would offer that much protection, given that earnings are simply not realistically projected for next year's fall by most analysts...but that is a separate problem.
If possible, I would like to see a more detailed outlining of future equities risk in your "detailed discussion". Personally, I find it difficult to ascertain the risks of runaway inflation and misleading earnings projections and how or if they correlate:
1) Would inflation alone destroy value in stocks, or would it inflate earnings as well and thereby stock prices?
2) Are earnings projections for next year over-estimated in general, or just in specific industries? If so, which ones?
3) I suppose it is also prudent to ask, what would prove to be an effective inflation hedge besides the aforementioned gold, commodities, etc? Basically, what foreign equities/currencies would gain (or lose) against the dollar and dollar-denominated investments?
These questions are broad, although I consider them less broad than your post.
This is fully correct.
US army - development of the 747 paid by tax payers, gave a good return over the last 30 years. Now everybody is shouting about government subsidy in Europe for airbus, you did that yourself.
Hoover dam - I think a lot of electricity is produced there, which reduces the need for oil
Don't always look at the quick buck, many projects effect society in general, from which all profit, e.g. highway, school .....
government will always tend to go into project which significantly influence society in the long run.
I'm an optimist. But you've got to draw the line somewhere.
On Dec 21 02:15 AM Alan von Altendorf wrote:
> Hmm. Lemme think. Did the govt make a profit on NASA? Or Hoover Dam?
> Vietnam?
On Dec 21 07:50 AM bluesmoke wrote:
> Good article. Agreed, the press tends to go negative. Not wanting
> to play a broken record but that doesn't include any entitlement
> programs, nationalized healthcare, potential state bailouts, or unforseeable
> disasters of any kind.
>
> I'm an optimist. But you've got to draw the line somewhere.
Under Paulson and Bernanke it is. And the $5 Trillion you mention is only the most recent addition to overall American shortfall. The current account deficit is somwhere in the neighborhood of $80 Trillion.For a country with a GDP of some $13 Trillion, our debt is unsustainable. We are in the same boat as GM - absolutely unsustainable without major fundamental restructuring.
Most financial analysis today is based on economic theories that are based on assumptions which in the current market do not exist. If you get really simple and assume that debt is prespent income - which it is - it becomes clear that the US government has already spent a couple decades of total national GDP, and about a century of government receipts. Those who think this is sustainable are nuts.
The underlying theory that says "yes, we can" is the notion that we can grow the economy enough to keep covering the deficits. REAL GDP is falling. It will only grow if the Fed and Treasury provide not a "helicopter drop", but an all-out "rolling thunder" tsunami of new money.
Our "leaders" are idiots. Growing our way out of this mess is their new wardrobe. Keep your seatbelts fastened.
Lets hope that when the 10 or 15 trillion threshold in Federal commitments is there, people finally start turning positive and admire the smart and clever folks that lead them into prosperity...
1. ZIRP interest rates.
2. Wild government overspending.
At my own blog, I have detailed statistical information about this process. Japan's depression is now sucking in the entire planet! This is the heart of the mess. And is not being addressed by virtually any economics pundits.
The world's #2 [or #3 depending on what statistics one uses] economy has been mired in this hideous depression since the mid-1990's. I often remark on the queer nature of this depression. The ZIRP system of Japan flooded the world with faux dollars via the very notorious 'Japanese carry trade' where currency gamesters and offshore banksters all piled into the Japanese lending system.
This caused a flood of Japanese [and Chinese!] exports to flood markets of stronger currencies. The yen is now rapidly shooting up in value due to all nations trying the Japanese ZIRP systems, themselves.
Zimbabwe here we come. Thanks, all you economic experts, for making it possible. You're so scientific, and you gotta love those charts!
All a ridiculous mess started earlier but worse by our ridiculous C student president(on a good day), who cannot even spell crook much less know its deifinition. "Maybe someone who works in a kitchen?" Duhh.
And that's the truthiness of the matter.