by shortonoil » Mon 02 Mar 2009, 18:19:18
BUDGET APOCALYPSE
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')Doug Noland: "Over the past decade, the “optimists” often cited the federal government’s positive fiscal position as evidence of the health of the overall economy and soundness of our prosperity. It should be clear these days that the protracted boom's massive inflation of private-sector Credit had grossly inflated government receipts (among other things). Indeed, over the 12-year period Federal Receipts inflated 88% (to $2.651 TN) and State & Local receipts increased 92% (to $1.903TN). This crucial facet of the inflationary boom spurred federal and state & local spending growth of 80% and 93%, respectively. State & Local governments will now attempt to maintain these inflated levels of expenditures, while the federal government will move aggressively to grossly inflate already inflated spending. The budget now calls for federal expenditures this year to
approach $4.0 TN. This compares to spending of about $1.6 TN back in 1995. The federal deficit is projected to expand by a combined $3.0 TN during fiscal years ’09 and ’10. This would amount to a 60% increase in federal debt in only two years. Today’s unparalleled expansion of federal debt and obligations is being dressed up as textbook “Keynesian.” It’s rather obvious that we are in dire need of some new books, curriculum and economic doctrine. But from a political perspective, the title is appropriate enough. From an analytical framework perspective such policymaking is more accurately labeled “inflationism” – a desperate attempt to prop inflated asset prices, incomes, business revenues, government receipts, and economic “output”. There have been many comparable sordid episodes throughout history, and I am not aware of any positive outcomes....Today, the deeply impaired financial sector is incapable of assuaging the system's bloated Credit needs.... In the final analysis, the bust has left multi-Trillion dollar holes in various sector balance sheets. Moreover, Patterns of Spending throughout the economy have been forever altered. Year-after-year of reckless lending has quickly come home to roost in a Big way.
Our federal government has commenced the process of attempting to fill holes through the massive inflation of government Credit and obligations (by the Trillions). Depending on the reader’s perspective, I risk appearing either the master of the obvious or a rabid sensationalist. Yet the stakes associated with the current course of fiscal and monetary policy are absolutely momentous. And I am compelled to write that “if you’re notconfused you don’t understand the nature of the problem.”...But I do fear that we now face Trillion dollar deficits as far as the eye can see. I don’t expect “Keynesian” policies to have much success in reinvigorating busted asset markets. I’ll be surprised if private-sector Credit creation bounces back anytime soon. I fear policymaking will do more harm than good when it comes to needed economic restructuring. And my worst fears of policymaking (fiscal and monetary, democrat and republican, national and local) bankrupting the country are being anything but allayed. Similar to my belief that mortgage Credit growth should have been limited to, say, no more than 4 or 5% annually during the boom, there is today a very serious need to incorporate some reasonable limits on the expansion of federal debt and obligations. " (emphasis mine)
$this->bbcode_second_pass_quote('', 'G')DP in the U.S. fell at a
6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported.
White House Estimates$this->bbcode_second_pass_code('', '
Real GDP
2008 1.30
2009 (1.20)
2010 3.20
2011 4.00
2012 4.60
2013 4.20
')
Available Energy Model
Estimates$this->bbcode_second_pass_code('', '
United States
Year GDP % Net Worth Net Worth Decline
‘08 (5.9) 423.5 26.5
‘09 (6.3) 396.8 26.5
‘10 (6.7) 370.3 26.5
‘11 (7.1) 343.9 26.5
* Net Worth in trillions
** all figures year end results
')
It has been the massive inflation of private-sector Credit that has allowed for the massive expansion of state, local, and federal expenditures in recent years. This massive expansion is projected by the White House to restart, which is expected to provide much of the needed financing for the massive deficits to come.
“The federal deficit is projected to expand by a combined $3.0 TN during fiscal years ’09 and ’10.”The $3 TN deficit number is based upon White House Estimates of GDP growth of -1.2% for ‘09, and +3.2% for ‘10. If this Keynesian dart throwing estimation method does not work (the -6.2% already reported indicates that it probably won’t) and the
Available Energy model* does, the deficits will have grown to -5.4 TN by ‘11.
45% of the entire federal budget is now being borrowed. $5.4 trillion in additional debt (108% increase) would also need to be borrowed in addition to the present 45%. This would drive bond values downward dramatically. Interest rates would grow to double digit numbers, and the equity markets would completely collapse. In the event of a contracting economy, such as the one outlined above, the federal government is likely to find that it will be unable to further service its newly birthed debt monstrosity!
The great majority of this growing debt is sprouting around a financial black hole, which is forming in the vicinity of the nation’s largest banks. We are being told repeatedly that saving these economic abominations is essential to the security of the nation; that they are too big to fail. We are constantly being reminded that we must understand that no matter what the consequences may be, we must continue to pump the entire Treasury of the nation into them - if need be. We are rarely reminded that $9.7 trillion in loans and guarantees that have already been bled into these dissolving carcasses!
A declining economy means that we need less banking capability to service that economy, not the same amount. Why then are we betting the solvency of the entire nation (and probably the world) on institutions that we don’t need? Institutions which are now insolvent, and which we probably can’t rescue. Why are we attempting to rescue them with a plan which is based on an almost methodological theory that has proven itself repeatedly to have little predictive capability.
Why is JP Morgan, Citi, Wells Fargo, Bank of America, GS and the other money sinks of the financial world not being dismantled; sold off for what ever they can bring. How is it that the entire nation is being asked to hemorrhage to death to save these already decaying zombies?
Are the people in Washington who are planning this fiasco incredibly stupid and insane - or are they desperately hoping that we are?
*The AE model has been back tested 35 years and forward 5 with fairly accurate results. Government estimates haven’t been right for three years in a row since 1929.