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The Republican Deficit
If you want to delve into the case against the future of US Treasury bonds in all its glory, take a look at the November/December issue of Foreign Affairs, the establishment bimonthly journal read by academics, intelligence agencies, and politicians alike, which I am sure you all have sitting on your nightstands. In a well-researched and thought out article penned by Roger C. Altman and Richard N. Haass, the road to ruin ahead of us is clearly laid out.
The US has no history of excessive debt, except during WWII, when it briefly exceeded 100% of GDP. That abruptly changed in 2001, when George W. Bush took office, despite his loss of the popular vote. In short order, the new president implemented massive tax cuts, provided expanded Medicare benefits for seniors, and launched two wars, causing budgets deficits to explode at the fastest rate in history. To accomplish this, strict “pay as you go” rules enforced by the previous Clinton administration were scrapped. The net net was to double the national debt to $10.5 trillion in a mere eight years.
Another $2.5 trillion in Keynesian reflationary deficit spending by president Obama since then has taken matters from bad to worse. The Congressional Budget Office is now forecasting that, with the current spending trajectory and the new tax compromise, total debt will reach $23 trillion by 2020, or some 160% of today’s GDP, 1.6 times the WWII peak.
By then, the Treasury will have to pay a staggering $5 trillion a year just to roll over maturing debt. What’s more, these figures greatly understate the severity of the problem. They do not include another $9 trillion in debts guaranteed by the federal government, such as bonds issued by home mortgage providers, Fannie Mae and Freddie Mac. State and local governments owe another $3 trillion. Double interest rates, a certainty if the current commodity price inflation continues, and our debt service burden doubles as well.
It is unlikely that the warring parties in Congress will kiss and make up anytime soon. It is therefore likely that the capital markets will emerge as the sole source of any fiscal discipline, with the return of the “bond vigilantes.” They have already made their predatory presence known in the profligate nations of Europe, and they are expected to arrive here imminently. Such forces have not been at play in Washington since the early 1980’s, when bond yields reached 13%, and homeowners paid 18% for mortgages. Since foreign investors hold 50% of our debt, policy responses will not be dictated by the US, but by the Mandarins in Beijing and Tokyo. They could enforce a cut back in defense spending from the current annual $700 billion. They might even demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan.
Personally, I think the US will never recover from the debt explosions engineered by Bush and by “deficits don’t count” vice president Chaney. The outcome has been permanently lowered standards of living for middle class Americans and reduced influence on the global stage. But I’m not going to get mad, I’m going to get even. I am going to make a killing profiting from the coming collapse of the US Treasury market through buying the leveraged short Treasury bond ETF, the (TBT). Sure the 40% gain since august has been nice, but it is only the appetizer. My recently joined “Macro Millionaires” have been able to book a quick 20% profit. The main course has yet to come. I am sticking to my long term forecast for this fund of $200, and that is despite a hefty and rising cost of carry of nearly 1% a month.
Of the current $13 trillion the US government owes the world, roughly 70% was run up by Republican administrations. Do you believe that the Democrats are the big spenders? Think again. The numbers from the Treasury Department tell a completely different story.
Ronald Reagan engineered the first deficit surge, taking the country’s IOU’s from $1 trillion to $4 trillion through a massive expansion of military spending and big tax cuts. This gap was primarily financed with borrowing from then wealthy Japan. That debt has never been paid off, just rolled over, and still sits with us today.
Bill Clinton presided over a mere $1 trillion in growth of the debt over eight years, enforcing strict “pay as you go” that tied any new spending to new revenue sources. George W. Bush was the mother of all big spenders, taking the debt from $5 trillion to $10.5 trillion. Don’t blame this on our wars. The overwhelming portion of this profligate expansion came from two whopping great tax cuts that were primarily borrowed from the Chinese. President Obama has since taken it up $3.5 trillion to $14 trillion.
I bet that if someone conducted a poll asking which party was primarily responsible for running up such gargantuan numbers as these, 90% would answer that it is all the fault of Democrats. This kind of erroneous perceptions is what billions of dollars’ worth of negative advertising and fake research by politically funded “research” organizations buys you. While corporate America bitterly complains about American taxes “rates” that are the highest in the world, how many of you know that 30% of the Fortune 500 pay no taxes at all, and are a big cause of our deficit problems? I bet very few. To see how quickly our situation is worsening, please click here for a real time national debt clock at http://www.brillig.com/debt_clock/ .
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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i wonder does old fuck een understand who he's stupid..
#Of the current $13 trillion the US government owes the world, roughly 70% was run up by Republican administrations
as far as i rememeber political system of USA, Senat/congress vote for budget 1st,, then its upto president to EXECUTE ONE..
hey idiot could you provide who controled senat/congress during all those
so called years of republican spending..
alex
ps
im not republican, consider Bush jr worst in history of all ..
The timing (and talking points) are not coincidental. This is part of an orchestrated campaign of diversion and distraction by the left, coming immediately after the current deficit projection was increased from $1T to $1.5T.
Now, in reality, saying that one party or the other is the more “fiscally responsible” is like saying that “Moe is the smart one of the Three Stooges”. However, since this little fellow insists, a partisan rebuttal is in order:
http://www.cbo.gov/ftpdocs/108xx/doc10871/AppendixF.shtml#1102688
http://www.cbo.gov/ftpdocs/108xx/doc10871/Chapter1.shtml
http://startthinkingright.wordpress.com/2010/07/17/obama-turns-to-clinto...
For more statistics:
The Economic Legacy of the Four-Year Democratic Congress
http://www.americanthinker.com/2010/12/the_economic_legacy_of_the_fou.html
Meanwhile, back to the San Francisco d00d:
But on the other hand:
1) “Don’t blame this on our wars.”? You just did.
2) So, tax cuts makes one a “big spender”. Non sequitur.
3) Bush, the “mother of all big spenders”? Compared to Obama, Bush was a penny-pinching miser.
But on the other hand:
So, Bush and Cheney are sons of perdition; but Obama, who “has taken matters from bad to worse” is your hero who deserves your praise, your support, your money, and your propagandizing, eh? Stupefying.
By all means, let’s gloss over the parentage of these little bastards...
Beyond breathtaking hypocrisy, into delusion.
Not only is “madhedgefundtrader” a liberal lackey, a liar, and an idiot, he can’t even spell “Cheney” correctly. He should first direct his “advice” (read effluvium) toward his hometown of San Francisco and his home state of California before presuming to “educate” the rest of us at a national level.
For more on “intragovernmental holdings” and other budget gimmickry:
http://www.craigsteiner.us/articles/16
I will simply ask a question of this so-called author. Which party started Medicare and Medicaid and which opposed it a they did the latest healthcare entitlement? It was LBJ and the democrats under the guise of the "great society. You know the same party that decided to fund the Vietnam war by starting the practice of hiding debt by "borrowing" social security tax funds and issuing worthless IOUs. Don't confuse the party of libertarian Barry Goldwater (who should have kicked LBJs ass if Americans had an once of rationality) with that of that nanny government war monger LBJ. Would there be either a debt or a deficit right now if we relied on the same more than adequate individual control of issues such as health and education we had from 1776-1964. The great society was the origin of the great decline of this country.
Oh, and if you want real long term historical background. Which is the party of Jefferson and which of that central banker, big army advocate Hamilton? That's right the federalists/democrats/debt lover/banksters all started with that bastard Hamilton.
And while we're discussing history on a longer time scale, does this author understand why all leveraged products like TBT are defective-guaranteed to lose money over the long term? Its called daily compounding/rollover loss. He should bring up a chart of any leveraged ETH on a length scale of say, 3 years. The best trade is to short both the ultralong and the ultrashort ETHs of "anything". You cannot lose unless there's no volativity in the market. My free tip of the day. Just sell calls spreads for the next year of so and watch daily compounding do its magic.
A simple example, three years ago FAS (triple leveraged financials) was at 40. Its now at 30. Never-the-less FAZ (its triple leveraged inverse) was at around 400 about the same time and its now at around 8. Talk about tracking error!
Both parties are guilty, however, the rather costly New Deal and Great Society programs belong to the Dems, with Bush adding another expensive entitlement to the mix, Medicare Part D.
Bush's strategem of the "triangulation" of Democrat John Kerry in 2004, known as Part D, is a fiscal Teacup Poodle compared to the duo of Irish ( Democrat ) Wolfhounds, the "New [ Raw ] Deal," and "Great Society" welfare schemes.
Woof !
It's been one party since JFK took it in the noggin. I blame dirty hippies. But if you want pretend it matters, I'll take the other side. If 70% of the current 13 trillion was run up by republican "administrations" what percentage was passed under a democratic House? And if you look at the $144 trillion in unfunded liabilities what percentage was passed by a Democratic house and administration. Also, I'd give my money to Bernie Madoff before I'd trust you with it.
While many on this thread see this post as attacking their pet elephant, it is largely factual, not partisan. I somewhat agree with the argument that although Bush was president when the deficit ballooned, the Dems held congress for most of this period, I must relate that Bush enjoyed enormous popular support following the events of 911 and congress mostly bowed to popular pressure.
The U.S. Congress is a mess. When huge, national interest issues, like war and financial calamity open their maws, Congress goes looking for cover. For example, the resolution authorizing the Iraq invasion was very similar to the Gulf of Tonkin resolution that ushered in the Viet Nam War. In both cases Congress simply abdicated its war-making authority to the president. Similarly, faced with the financial collapse, rather than debate the issue and display their individual and collective ignorance, they handed $700 billion to the president's men and hid under their desks.
I note that many on financial blogs are conservative and often declare support for the Republican Party or its Tea Party wing. Brand loyalty makes it hard to see the truth. The truth is our government is corrupt. It has been corrupted by money. Money is not free speech, it is influence. Monied interests have corrupted the U.S. government, allowing capital to do a wide array of extraordinarily risky things. Then, when the fruits of this "innovation" became ripe (rotten) and the system collapsed, they abdicated even their power of the purse to the Federal Reserve banks and the banksters in the U.S. Treasury.
This is not going to change anytime soon. The next catastrophe is baked into the cake.
I agree we won't recover, and what will take the place of our dreams is a US turned into a third world nation with the poor and the rich.
I've been to Venezuela and I really would not want to live there. Coming soon to a counry you are in. Who knows maybe Hugo is right and he can finally turn it around. Look at all the progress he has made so far.
By looking at the comments I see that the author of this article is the only person who doesn't know that the republican vs. democrat fiscal debate is a NON-ISSUE. BOTH ARE GUILTY.
Easy credit due to fiat currency printing is the bottom line cause of the financial Apocalypse looming over us.
The only difference between Dems and the GOP is
the different special interests that own them.
.
Roger C. Altman:
Lehman general partner; Asst. Sec. of the Treasury/Carter Administration; Deputy Treasury Sec./Clinton Administration ( resigned in disgrace under the cloud of scandal ); advisor to the Kerry ( defeated ) and Hillary Clinton ( also defeated ) presidential campaigns; member, Council on Foreign Relations and current Chairman of Evercore Partners.
Richard Haass:
Beltway lifer; advisor to "Poppy" -- George H.W. "Read My Lips" Bush and Obama endorser Colin Powell; also advised both the Democrat and Republican 2008 presidential campaigns, on all matters pertaining to foreign policy. Adept at working both sides of the street simultaneously; current president of the Council On Foreign Relations.
Finally, an article by MHFT I agree with.
Let's face it, both parties are guilty, but is there a better time to actually run up the deficit to some serious money than when a flag-waving, tax-cut loving, big-time military spending Rethuglican is in power? No way, Jose - it is the best time to do this. Slap that flag pin on your dark suit, don the red tie, slick back the dark hair, smile for the cameras and let er rip. Obama is an anomaly in this pattern since he took over as Depression 2.0 took hold, and he is looking at the enormous expenditures to keep the Ponzi going even as tax revenues fail to gain ground as a result. So he gets to be a Demoncrat who gets to run up the deficit. He is a tool of course, nothing more than bought and paid for by Goldman Sachs and the rest of the Banksters - JP Morgan has their man Daly in now as chief of staff to "keep an eye on things" (how sweet is that!) Don't fight the Fed, people, and buy that dip.
It's real simple. Everybody yaps about reaching some goal or some place. If you don't know where you are or what you are, you sure as shit aren't going to get to where you think you want to go.
People who can't listen, can't process new data and can't empathize with another person's point of view are defective and are part of the problem.
If you are the type of person that thinks everyone is an idiot, I'm talking to you. --and may your fecal stained finger fall off when you junk me.
Excellent point:
"While corporate America bitterly complains about American taxes “rates” that are the highest in the world, how many of you know that 30% of the Fortune 500 pay no taxes at all, and are a big cause of our deficit problems? I bet very few."
The CEO's claim they must compete in the world,...yet there is NO competition when it comes to CEO's and their management teams.
It's a closed loop, with directors, management, mutual fund and other captive big block holders of stock, ...all voting their respective shares AGAINST the best interests of the shareholders. And they save they need to create value for the shareholders. What pure BULLSHIT. They give a fuck for themselves and their tribe only.
And yet the propaganda, telling us the opposite is always there.
Every fucking time the GOP is rightly accused of running the biggest deficits, you can see the number of stars rating the post dwindle.
That is how one can tell how godamned screwed up this country is; too many people are totally incapable of LOOKING and ACCEPTING the facts.
That is because there is quite a lot of republicans in disguise.
Gang, gang, gang... If you understand gangs, you understand the US.
Gang: if we wear our colours, we cant hide.
http://paperempire.wordpress.com/2010/12/27/world-tired-of-paying-bill-for-us-military/
This says it all
The entitlement society was created by the Democrats. Clinton enjoyed a brief surplus due to huge capital gains taxes during a stock market bubble; meanwhile he destroyed the U.S. manufacturing base and changed regulations that helped make the bankruptcy of the Country 2000-2008 possible. Bush-Clinton-Bush-Obama... If you're suggesting there is any difference to this crowd you are selling snake oil to the wrong audience Sparky. All our problems are a result of our politicians being bought and paid for by the GLOBAL BANKS. Read more, write less....
Put the cool-aid down. Democrats bear every bit as much blame for the deficit as Republicans. Both parties were spending like drunk sailors. I think most Republicans were dismayed that Bush failed to use the powers of the presidency to enforce some spending discipline on Congress, but don't try to tell us that Ted Kennedy, et al weren't in there going, "F*ck yea! Another $50 billion over here!"
The balanced budgets of the late 90's were wholly a function of taxes from the internet bubble. Politicans were all to eager to assume those gains would go on forever, and spent accordingly. Pay-go was never more than a gimick to prevent reductions in taxes. If the Bush tax cuts were so awful, why did the Treasury take in more in taxes than had been forecast with higher tax rates?!
At least the Republican party has a few voices of fiscal sanity (Paul Ryan, Eric Cantor, Ron Paul). Please tell us which Democrats are equally vocal? Who is the Democrats' Ron Paul???
I bet you lose on the TBT bet, unless you can hold it for three years.
Remember, it's not whether you win or lose that counts, it's whether you can meet the margin calls...
This is the GREATEST country in the world. I am sure we will find the top of the mountain guided by the loving hands of the Lord!
Palin 2012!
I smell a troll
early friday fun...
if you ever had any doubt that the challenges to economic recovery are immense and that there is a kool-aid/tweet for fun uberculture, here is some context...she is famous in her own lunchtime and there is 1/10 of the population who are dumber and another 4/10 who are happy as long as people like her are around.
http://www.snotr.com/video/675/A_blonde_and_a_3rd_grade_geography_question
Why is this crap on ZH. Go blog at Huffington.
-1000.
BTW, thanks for proving my point. You can't be bothered to look at the facts.
+100
Ya, good luck with that. The author doesn't know what he is talking about. Reagan had a democratic congress, while clinton had a Republican congress. And, the tax cuts, the war,and a new entitlement program brought to you by Bush's & his Democratic allies, are not the real cause for the deficits. The real cause is fiat currency backed by debt. With out new debt, it all implodes. We have not had prosperity for a long time, just the illusion of it brought to you by easy credit.
TBT is supposed to be the leveraged inverse of TLT. The 2.5 year return on TLT is 0%. The return for TBT is -45%. Like all leveraged ProShare products, you do not get the performance implied.
TBT is a piece of shit.
I'd like to know how he arrived at this 40% gain figure since Aug. Even if he bought exactly at the 52-wk bottom of $29.77, which is almost certainly not the case, at no point between Aug. 25th and today has it risen 40%. The absolute maximum possible would have been to buy on 08/25 and sold at the exact peak on Dec 15 @ $40.56 for a 36% gain. We know that's not the case, so why intentionally misrepresent something so trivial like that? That doesn't even factor in expenses, decay, or the fact that it seeks a -200% return of TLT for a single day and at the top of the prospectus it even says holding for more than one day will likely differ in amount and possibly even the directon of the target return, along with "The Fund does not seek to achieve its stated investment objective over a period of time greater than one day." Let's assume he knew that and wasn't holding over the whole period. If he closed his position every day and opened a new one every morning, what's the net return after expenses, fees, and comissions?
Agree. I have purchased OTM puts on TLT as an experiment to mitigate the bleed on TBT. I have owned the $90 puts (2012 expire) for a couple of months, TLT has declined but I am still even on the puts. I guess the only way is to outright short TLT; if you can get the shares.
IF MHFT sez: "I am going to make a killing profiting from the coming collapse of the US Treasury market through buying the leveraged short Treasury bond ETF, the (TBT).", and TBT is shit, what can we say about MHFT?
I like where you are going with this.
It sure is good to see that here at ZH, an enlightened and completely non-partisan environment of objective assessment of reality, there won't be any hostile backlash against this potentially non-flattering commentary on Republican administrations.
Heh. I've had this conversation so many times, and it never fails to amuse me.
"Oh, I'm totally independent and don't like either Dems or Repubs...DON'T YOU BADMOUTH REAGAN YOU COMMIE FUCK!"
They say ignorance is bliss. Do you even read the content on this site? Or do you just read the headlines for general "amusement."
I love the content here, because there actually are a few readers/posters here who are nonpartisan.
You should pay some attention to them, because they're the only ones who have anything worthwhile to say.
d.p.
The truth hurts, don't it?
I read the comments and I laugh. Most are concerned and outraged about who to blame. The article is about how to profit: short treasuries. The numbers are undeniable. Bonds are done. By arguing about Demcins and Repubicrats, you are loosing focus.
no question that it is about profit and to that end I have a bit of an inappropriate question:
It is absolutely none of my business but I am curious and my namesake was prone to being seduced by conspiracy theories; MHFT you run a free/subscription site that is promoted heavily across multiple domains, are there any sites that you pay to be a contributor on? I ask because as you know those subscriptions add up real fast and there is nothing better than an implied endorsement. I see you over at Forbes etc..
http://blogs.forbes.com/people/madhedgefundtrader/
Is it real lucrative or does it just cover costs? Guys like Tim Knight and everyone's fav Barry Ritholtz use their sites to attract investors still others rely on ad revenues and traffic hoping to attract investors. The boys over at Xtrends went for the high monthly fee and limited subscriptions as did a couple of offshoots from Knight's popular site. It would be very interesting to see a comparison. Ritholtz would be making tons of dough and Blodget has attracted millions in VC dollars, TechCrunch was just sold to AOL for an obscene amount in the 30mil range...just wondering.
I agree that MHFT is about profit. I visited his site: once. I could see it was hard to navigate and understand what a subscriber would get for his money. No doubt the site is marketed to the "pay the first monthly fee to see you dont like it and make it hard to cancel later due to automatic debit system" crowd.
I agree with that, too. Blame is largely irrelevant at this point, except for the limited purpose of evaluating which of these fuckers are least untrustworthy going forward.
To that end, liberals can go to hell.
Those "conservatives" can go fuck off, since there is no thing as hell.
Madhedgefundtrader -
Too bad you fell down the "politics matter" rabbit hole.
The conservative versus liberal meme is the distraction.
Both political parties have either colluded to help each other get earmarks and stay elected; or sabotaged each other via the taxpayer - whether it was military spending or bailouts or entitlements.
The only consistent theme is the citizenry, and especially the responsible middle class, being dragged down the road to perdition with the stars and stripes playing.
incase no one has realized it the Repubs are supposed to be the Dad Party and The new Dems are supposed to be the Mom Party and mom is supposed to be able to spoil the kids and dads supposed to stop her but what What if Dad is weak and wants to be loved so he spends more than Mom ?
Mom thinks we should put the elderly in a nursing home; Dad thinks they'll be fine out back and that spending 1/3 of their monthly budget on guns is reasonable, but he's not interested in finding a job to pay for them.
Well said - it is a dysfunctional family model for sure.
Who spends the money, Congress or the President?