Medicare

Frontrunning: October 15

  • Spot the pattern: Senate Leaders Nearing a Deal (Politico), Senators say debt, shutdown deal is near (USA Today), Senate Leaders in Striking Distance of a Deal (WSJ), U.S. senators hint at possible fiscal deal on Tuesday (Reuters), Senate Debt-Limit Deal Emerging (BBG)
  • U.S. debt ceiling crisis would start quiet, go downhill fast (Reuters)
  • Uneasy Investors Sell Billions in Treasurys (WSJ)
  • BOE’s Cunliffe Says U.K. Is Not in Grip of Housing-Market Bubble (BBG)
  • Letta Mixes Tax Cut With Rigor in Post-Berlusconi Italian Budget (BBG)
  • Japan Seeks to Export More High-End Food  (WSJ)
  • Burberry names Bailey CEO as Ahrendts quits for Apple (Reuters)
  • China’s Biggest Reserves Jump Since 2011 Shows Inflow (BBG)

Frontrunning: October 14

  • Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
  • As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
  • The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
  • China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
  • Vegetable prices fuel Chinese inflation (FT)
  • China Slowing Power Use Growth Points To Weaker Output Data (MNI)
  • London Wealthy Leave for Country Life as Prices Rise (BBG)
  • Gulf oil production hits record (FT)
  • Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts  (WSJ)
  • Weak Exports Show Limits of China’s Growth Model (WSJ)

The Long Game Of Hiking The Debt Ceiling

Government spending has long been believed to have a multiplier effect in the economy.  However, as the chart above shows, the reality is quite shocking.  Each dollar in debt only increased GDP by roughly $0.15.   In other words each $1 in government spending actually has a negative multiplier effect of 85% in the real economy.  The leaders in Washington need to start focusing on the real issues at hand.  While we toss around $100 billion here and there, as if it is left pocket change, the reality is that the rising debt levels will continue to drag on economic growth going forward. Of course, the continued shenanigans in Washington, inept leadership and lack of fiscal responsibility is why there is a continuing increase in the number of individuals who perceive the need for a third political party. Change was promised.  Change is wanted.  Change will happen.  Unfortunately, history shows that REAL change, politically and otherwise, has only occurred under the worst possible conditions.

 

Have We Reached Peak Entitlements?

There is no way an economy that grows by 75% every 25 years can fund entitlement programs expanding by 500% or more over the same time period.  If we are not yet at Peak Entitlements, we are getting close. Short of the Federal Reserve printing $1 trillion a year and distributing it to entitlement beneficiaries directly (with all the unintended consequences of such blatant money-printing), there is no way an economy with stagnant employment and modest productivity growth (roughly 60% in 25 years) can fund entitlement programs expanding by 500% or more over the same time period.

Republicans Fold Again? - Propose Debt-Limit Raise And End Shutdown In Return For Spending "Talks"

It would appear, judging by the market's response and the headlines, that Obama's "unconditional surrender or default" negiotiating tactic has worked... According to AP, the Republicans look to have folded once again:

  • *HOUSE REPUBLICANS SAID TO OFFER PLAN ON SHUTDOWN, DEBT LIMIT
  • *REPUBLICANS SAID TO SEEK TALKS ON REDUCING U.S. SPENDING

The House Republicans are apparently waiting to hear back from the White House on this latest proposal - which amounts to - our translation - "Ok, you can have your government re-opened, and we'll let you raise the debt ceiling... as long as you really really promise to talk about spending cuts at some point in the future maybe possible please."

Jack Lew Rains Fire And Brimstone Over Debt Ceiling Impasse - Live Testimony

Nearly exactly five years after Hank Paulson appeared before Congress dangling a 3 page term sheet ultimatum warning it was his way or the apocalypse, it is time for the sequel. Since we all love the smell of a good Mutually Assured Destruction spectacle in the morning. Which is why we can't wait for Treasury Secretary Jack Lew's presentation before the Senate Finance Committee discussing the Debt Limit, in which he will rain fire and brimstone on anyone who suggests that the Treasury can enter the X-Date without a debt ceiling deal in place, and will most certainly seek to crucify anyone who points out the logical, namely that payments can be prioritized and interest expense is a fraction the revenue the Treasury brings in, and that the end of the world would be nigh should the US actually be forced to live within its means.

Did Paul Ryan Provide A Debt Ceiling Compromise Fig Leaf?

Late last night, Paul Ryan wrote a WSJ op-ed titled "Here's How We Can End This Stalemate" in which some believe he provided the framework for what a possible fig leaf offering on the government shutdown and debt ceiling compromise could look like. While on the surface this may be grounds for optimism, the reality is that Ryan, whose entire proposal is based on the assumption that Obama is willing to negotiate which for now he has shown repeatedly he won't, merely fell back to his traditional "grand bargain" talking point made so clear during the Mitt Romney presidential campaign. What Ryan does suggest is yet another angle to a common bargaining position, one which would be certainly more palatable to Obama: because in order to get both parties happy and reach a compromise, all that would happen is for various long-term assumptions would be changed, with zero actual, real current impact - something politicians are good at, because it does not generate an adverse impact during their tenure (afterwards, it becomes someone else's problem).

Guest Post: It's Definitive - We've Reached Peak Jobs

There has long been a quasi-magical belief in the U.S. that capitalism's intrinsic dynamic of creative destruction will always create more jobs than it destroys. The evidence is compelling that this belief is no longer reality-based. The U.S. has reached Peak Jobs - at least the sort that can support a household.

US Runs Out Of Cash As Soon As October 22 Revised BPC Forecast Shows

The BPC, whose initial analysis of the US default has become the staple "go-to" analysis for Treasury cash obligations and key events in the day surrounding and following the X-Date, has released a new update on when the US runs out of money. The latest: October 22 - November 1. Which means that if it so desires, the GOP can and probably will delay a debt ceiling bargain until the last possible moment which may well be, appropriately enough, Halloween. In the meantime, the US Treasury now has about $40 billion in total cash on hand and available extraordinary measures and declining fast.

David Stockman Explains The Keynesian State-Wreck Ahead - Sundown In America

David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...

What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...

He calls this condition "Sundown in America".

America's Budget Problem In One Chart

In a country in which the aging population wants their (10,000 kcal) cake, and the diabetes treatment for free too, the chart below is what happens.

Government Shutdown? 36 Facts Which Prove That Almost Everything Is Still Running

There really is very little reason why this "government shutdown" cannot continue indefinitely because almost everything is still running.  63 percent of all federal workers are still working, and 85 percent of all government activities are still being funded during this "shutdown". It turns out that the definition of "essential personnel" has expanded so much over the years that almost everyone is considered "essential" at this point.  In fact, this shutdown is such a non-event that even referring to it as a "partial government shutdown" would really be overstating what is actually happening. In the end, this shutdown could turn out to be very good for America.  We have a government that is wildly out of control and that desperately needs to be reigned in.

On The First Day Of Shutdown, The Futures Were... Giddy

If there is one day the Fed's trading desk actually did want futures lower, if only for purely optical purposes and to at least suggest that the government, and not the Fed, is still in charge of the US, it is the day when the US government - for the first time in 17 years - has shut down. They certainly did not want the S&P to be up nearly 0.5% mere hours after Congress and the presidency confirmed to the world that in a world in which "the Chairman gets to work", a functioning government is completely irrelevant. Yet this is precisely what is going on. What is making matters worse is that on the other side of the world, Japan also finally announced the well-telegraphed sales tax increase to8%, offset by a JPY5 trillion yen "stimulus" which however Japan said, much to the Chagrin of Mrs. Watanabe and a 100 pip overnight plunge in the USDJPY, would be funded not with more new bond issuance (and thus without new "wealth effect" generating monetization). It is unclear just how it will be funded but since increasingly more global fiscal and monetary policy is based on science fiction we know better than to ask.

The Debt-Ceiling Fight "Could Get Ugly" - Key Dates And Implications

Even though there is no technical link between the two main fiscal issues – the continuing resolution (CR) and the debt ceiling bill - there is a link in the minds of market participants because prompt resolution of the CR could spell a favorable outcome for the debt limit. On the other hand, a government shutdown tonight could lead the market to be more pessimistic on the chances of a debt default. As BofAML notes, the link between the two issues is fairly complex but the shutdown battle is just the beginning - and, as the suspect "the fight could get ugly."