Balestra Capital: "If Government Programs Were Cancelled, The Economy Would Collapse Back Into Severe Recession"

Tyler Durden's picture

While hardly an opinion that would be questioned around these parts, it is still good to see that even some of the smart money shares our views about the Schrodinger Economy ('alive' and 'dead' at the same time, depending if the BLS or anyone else is observing it) and we are not totally insane vis-a-vis one-time, non recurring government bailouts, which just incidentally have become perpetual and endless: "The Federal government has manfully stepped up to fill the gap left by consumers who have been forced to retrench and who are trying to repair their finances by paying down debt and increasing their savings.  So the next question has to be:  Is this recovery self-sustaining or is the economy still on life support, held together by periodic massive liquidity injections and ultra low interest rates, and accompanied by a dangerous, if not reckless, expansion of government debt?  We think that if government programs were canceled, the economy would collapse back into severe recession." And here Balestra's Chris Gorgone explains quite astutely why anyone betting on a decoupling or perpetual USD reserve status may want to reconsider: "the U.S. is no longer in complete control of its own destiny.  We exist now in a world of increasing correlation in the arenas of economics, finance, trade, politics, etc.  What happens in Europe, China, the Middle East, etc. will have major impacts on American economic, political, and social outcomes.  The world is changing  rapidly.  The old rules that so many investors rely upon may no longer apply the way they did during the great growth years after World War II." Alas, this too is spot on.

More:

From its October 2011 low of 1075 to its high point at the end of October, the S&P 500 stock index has risen 28%, buoyed by improving economic data in employment and manufacturing along with historically low interest rates.  The obvious question:  Is the strong stock market a sign of a strengthening and enduring economic recovery?  Economic data has been improving  for several months, including employment, manufacturing, and consumption reports, abetted by historically low interest rates. 

 

The Federal government has manfully stepped up to fill the gap left by consumers who have been forced to retrench and who are trying to repair their finances by paying down debt and increasing their savings.  So the next question has to be:  Is this recovery self-sustaining or is the economy still on life support, held together by periodic massive liquidity injections and ultra low interest rates, and accompanied by a dangerous, if not reckless, expansion of government debt? We think that if government programs were canceled, the economy would collapse back into severe recession.  With the continuation of these programs the U.S. can probably maintain a reasonably steady state, which could allow consumers to repair their finances over a period of several years and allow a gradually reducing level of government support.  However, the U.S. is no longer in complete control of its own destiny. 

 

We exist now in a world of increasing correlation in the arenas of economics, finance, trade, politics, etc.  What happens in Europe, China, the Middle East, etc. will have major impacts on American economic, political, and social outcomes.  The world is changing  rapidly.  The old rules that so many investors rely upon may no longer apply the way they did during the great growth years after World War II.  The LTRO was successful in delaying a serious breakdown in the European banking system.  However, it has not solved the problems.  The ECB has been accepting dubious, if not worthless, collateral against its loans to banks, which is a roundabout way of printing money.  Japan has finally embarked on a serious effort to stimulate inflation, with moderate success over the past few weeks.  A cynic might say that these are just two more steps in the currency debasement race to the bottom.

As for where Balesta is invested:

We made some gains on our long-term options on the yen in February, and additional gains during first week of March.  There were also modest losses in equities derivatives.  The portfolio is modestly short overall, but long gold, as usual, mainly to protect against continuing debasement of fiat currencies.  We are also short via options (mostly puts) the yen, euro, and Australian dollar against the U.S. dollar. Equities holdings are balanced, with long positions focused on income producers such as utilities and mortgage REITs.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
jm's picture

I agree. So why do people clamor for cancelling government programs?

Tyler Durden's picture

 

Monthly deficits:

and net US tax revenues:

...

It's all the grandchildren's fault for not begging for hyperinflation hard enough.

 

jm's picture

Tell it to Japan.  We got a ways to run yet.

Yen Cross's picture

The MoF is running the FED handbook! Why do you think the Yen has gone from 75 to 82 in (usd/jpy in 2 weeks?) The MoF meets again today. I am long the yen. The BoJ wants a 80 level. They will stall the economy if they lossen up any more right now.

jm's picture

The issue I have in mind is the debt level, not the currency game.  That's your domain, I think.

Yen Cross's picture

The debt level is directly driven by the currency level. Japan is an export economy.

jm's picture

I don't disagree, but the question I ask is this:  if all are agreed that the economy is a disaster, why do people want to fast-track the downward spiral Greece is in by cutting government programs?

a growing concern's picture

What point is there in delaying the inevitable?  Let's go Iceland on their asses and start fresh.  This is not solvable.

jm's picture

Nothing is inevitable, and no one can predict the future.  Many that have a job and think they will not lose said job if gov programs were cut:  thus it is someone else's problem.  Consider that SSI, Medicare and the rest really make it everyone's problem.   

Not sure that Iceland is a solution for any place but Iceland.

 

Fluffybunny's picture

Monetary and Fiscal intervention following the collapse of the housing bubble has prevented the Economy from adjusting from it's previous malinvestments. We all know that the economy will have to re-adjust to a structure that is sustainable without government intervention. The longer we keep this re-adjustment from happening, the longer we're wasting precious resources supporting a scheme that can not hold.

 

You don't keep financially supporting a Ponzi-scheme after you've exposed it. Why would you do it with the global economy?

economics1996's picture

 

Currently 8.7% of the GDP is financed.  That means with a 3% GDP growth rate the economy would shrink in the short term.  3-8.7=5.7% decline.  With the massive monetary inflation it will collapse sooner or later.  It always does.  Housing bubble, 1925-29 monetary expansion, 1862-73, its all the same, bubble/bust.

Here is the data from WWII and after when the government quite spending.

1942-01-01 1616.8 1943-01-01 1881.5 1944-01-01 2033.5 1945-01-01 2010.7 1946-01-01 1790.7 1947-01-01 1774.6 1948-01-01 1852.7 1949-01-01 1843.1 1950-01-01 2004.2

 

economics1996's picture

The best thing that could happen would be for the Federal Reserve to quit printing and the federal government to declare bankruptcy, restructure, move on.

IAmNotMark's picture

But that would require honest, ethic people at the Fed and in government.  Where are you going to find any of them?

JPM Hater001's picture

I'm calling shennanigans...

Weighing in @ 2 years 35 weeks - JAAAAAAAA DOUBLE U!

Weighing in @ 2 years 42 WEEKS - Tyler Durden!

TruthInSunshine's picture

This analysis and article is rubbish.

With 1 out of every 5 dollars expended/circulated in the U.S. economy the result of government transfer payments (e.g. SNAP, unemployment benefits, Medicare, Medicaid, Social Security, SSI,AFDC, etc., etc.), if such government programs were even scaled back by 25%, let alone 50%, we'd be in a far more serious situation than a severe recession; we'd be in a depression. Banning such programs? Ha! The Ponzi that literally makes a mockery of Banana Republics would collapse.

And that tells one all that they need to know about the house of cards that the U.S. economy truly is, thanks to a treasonous Congress that unconstitutionally delegated its sole power to coin money to a decisively acting not in America's best interests Non-Federal Reserveless Non-Bank entity.

Pinto Currency's picture

 

 

Institute sound currency, restructure the outstanding debt, cancel government programs.

The economy would recover. 

 

But there goes big bro.  Can't have that.

Michael's picture

It's not about Power, it's about Ownership.

It's about who owns you, & everything above and below you.

Pinto Currency's picture

 

 

ETF

We live in a collapsing ponzi scheme.  Saying that you can't eliminate the government programs that are part of the ponzi scheme doesn't address the central issues of debt based (unsound) currency and more than 50 trillion in outstanding debt (according to the Fed z1 Flow of Funds report).

BlackholeDivestment's picture

''The best thing that could happen'' is not a choice. ''What shall happen'' ..is; every host in contempt shall perish, their home(s) shall burn and fall away ...as they were. http://www.youtube.com/watch?v=eckzjxXvcQ4&feature=BFa&list=AVGxdCwVVULXeu-Q7_EqwiTqRF0qtwcjuy&lf=list_related  

Funny thing about lawlessness, the host does not escape. 

It is amazing to see streets that do not run red with the blood (yet) of these bankers and their corrupt political hosts, along with any government employee that dares to defend the bastards. Say ''HELLo'' to my little friend, he's ''Greek''. LMAO. It is not surprising, not seeing red, of course, as with ''this''(contempt) market trend forecast, the offense against the blind, defining execution of the trade craft of the market, lol, the ''trend'' is against the foundation for ''this market''. LMAO. Time for blow up ...Bitchez, it's just always a little later ...so it seems. LOL

Gazooks's picture

Best things always begin with instantaneous global-panic driven financial collapse. Add the sudden end of $ reserve status, extended social instability resulting food riots, police state political chaos and war de jour.

Fed spending buys political adjustment time for the inevitable end of $ hegemony, extends our interesting times. It's goin down regardless, careful what you wish for by way of landing.

Move on to what? This ain't no disco.

francis_sawyer's picture

You don't keep financially supporting a Ponzi-scheme after you've exposed it. Why would you do it with the global economy?

~~~

You do it because if you're the "gatekeepers" there are still new economies (think Russia, China, Africa) that aren't fully controlled by central banking cartels...

You don't want to stop until you have every last hamster running full speed on the wheel...

I'm not saying that I APPROVE of all of this, I'm just answering the question of WHY the "ponzi-scheme" (even exposed) is sputtering, but alive & well... It seems most hamsters can't fathom life OFF the wheel...

Fluffybunny's picture

@Francis

Maybe so, but I was sort of trying to justify to him why it would be beneficial for us non-central bankers for another correction to occur.

BlackholeDivestment's picture

''Nothing is inevitable'', yeah right and from ''nothing'' came the ''inevitable''? LMAO, Wise up a bit, will yuh? ...and yes you can ''predict the future'', it is written, measured and confirmed by the ''Truth'', not a choice.

 

There is no Yang. Lol, but for the unbecoming.  http://www.youtube.com/watch?v=qsxqq_89Elg&feature=related

 

.

Red Heeler's picture

"Nothing is inevitable"

I just ran your comment past the Taxman and the Grim Reaper - they'd like to have a word with you . . . .

q99x2's picture

No one can predict the future because there is no future.

Listen to the Ben Bernank. He knows what has happened and will tell everyone nothing about what will be. That is because there is no future. The Ben Bernank makes things the way they are now. We must listen to the Ben Bernank to know now. His slighest gesture has the power to destroy Nations or raise global markets. Nothing absolutely nothing could exist if not for him. Only the Ben Bernank has the power to change the past that we may have a better now.

DoChenRollingBearing's picture

 

The government breaks pension promises in Peru as well.  

My wife's father is a leader of a grassroots protest group ("FONAVI") down there.  He just got his picture on the FRONT PAGE of a Peruvian newspaper.  He is 91 years old and a is great-great-grandfather.  He works the protests about once a week.  Our daughter loves her grandfather to death!

Read all about it (and see the picture) at my blog (article title: "PMMFM..."),  Gmail me at my name if you would like the link, or just use Google creatively...

 

FreeNewEnergy's picture

Hey, DoChen, I dig your mojo, with all the bearings and Peru and all that, but pimping your blog here is a little, may I say, fucking boorish.

And the fact that you do it so often is rather annoying.

Just for the record, I maintain three websites and three blogs, to which I post daily. I don't pimp them anywhere. So please do me and the rest of the real bloggers of the world a favor and STFU about your blog. Most of us don't care and I, for one, will never send you an email to be included in your select list of "readers."

If you would like to understand how a blog works, please take a few moments and check out bradblog.com. Brad has worked tirelessly on his enterprise at great risk to his personal safety and everybody gets to read it and comment on it, not just a select few.

Stick to ball bearings. You're probably better at it than blogging.

No personal enmity intended. Just real bloggers don't like pimpers and I'm actually surprised the Tylers haven't shut you down.

Hope you read this. Really.

DoChenRollingBearing's picture

I did read your comment, thank you.  If I get ENOUGH comments like yours, the Tylers will not have to have to shut me off, I will stop.

I have found most of my blog's readers from here.  But, I DO take note of the negative comments as well, including yours.

I am a Junior Blogger, and have had to learn all of this on my own.  Thanks as well for the reference re blogging.

Peace

Renfield's picture

Do Chen, whatever else may be said about or to you, you always show a lot of class.

dark pools of soros's picture

yeah a lot of us would of just monkey hammered newfreeenergy no matter if he was right or not

jwoop66's picture

I was impressed with his response.   I would have been a dick back. 

+1chen

I do kind of like the other guys post too. 

+1 to both!

I love ZH!

FreeNewEnergy's picture

Do-Chen, glad you read my comment and responded. As far as being a "Junior Blogger" is concerned, one of the first rules of internet etiquette, AKA "netiquette" from the long-ago days of the late 1990s, was "do not spam" and what I called pimping is actually spamming, which is why I made my original comment. I learned early on how to suffer through almost no hits, readers, interest, but persevered by organic growth. It's not easy and it's not quick, so, maybe lesson learned and best of luck. I appreciate your good manners, and, believe me, I can be a very unmannered individual, so I have to give myself props for restraint.

I spent ten years as a self-employed newspaper publisher back in the day. I'm a journalist by nature, and that separates me from a lot of would-be and hopeful bloggers. Content is king and always will be. There are plenty of resources online - some good, some not so much - about blogging success, but my advice is to be relevant and patient and controversial if warranted. The traffic will come if your efforts are worthy.

No offense intended or taken. All the best to you.

DoChenRollingBearing's picture

Back at you.  A 56 year old not trained in computers has a steep learning curve.

And yes, we will see if my blog works out.  I do not take ads or donations.

I am a bearing buyer by nature, not a journalist, but my blog works for some.

+ 1 for restraint!

Blankman's picture

"I'm a journalist by nature, and that separates me from a lot of would-be and hopeful bloggers."

 

- you just bitch slapped bearing for pimping and now you are pimping yourself.    

francis_sawyer's picture

I'm trying to imagine what the scenario would be like if I walked into a restaurant... looked over all the tables filled with patrons... & proceeded to say:

"you sir, you ma'am, yes, the whole group of you sitting in that booth over there, & yes, the piano player... all of you are cordially invited over to my NEW restaurant across the street... Drinks will flow & less blood will be spilt... the atmosphere is cozy & we serve a light fare... Please ~ won't you join me?... (& oh, by the way, if your head didn't get tapped in the little DUCK DUCK GOOSE game I just played, enjoy your meal here... I'll be back next week to do some more recruiting"

Wonder what that would be like...

 

GMadScientist's picture

Fuck Off. You no da boss of the bearing.

When he starts selling shoes, you can get your hackles back up; until then, STFU.

TheFourthStooge-ing's picture

FreeNewEnergy said:

No personal enmity intended. Just real bloggers don't like pimpers and I'm actually surprised the Tylers haven't shut you down.

FNE, while I understand what you are saying, and in the case of some posters here I would agree with you, I feel obliged to say a few words in DoChen's defense. Although he does promote his blog from time to time, a majority of the time his comments address the article to which they are attached or, at the very least, are appropriate in the context of the direction in which a comment thread has drifted. I am much more forgiving of someone who actually participates  in the discussion.

Let me take a moment to contrast this with the actions of some posters here that I've found to be less than useless. We have wanklord, who in the past has repeatedly copied and pasted the same three or four boilerplate screeds, with very minor variations, and has shown no indication that he has ever bothered to return to read any followups to his comments. We had props2009 who simply spammed his crappy capital3x site with one-liners that had nothing to do with the article or comment thread. When his props2009 account was cancelled, he returned as reutersanalyst and did the same thing. The reutersanalyst account now seems to have been smacked down, but he'll probably be back spewing more capital3x spam. We had mattu13048 spamming for his crappy armadamarkets site until his account was whacked. This was followed by ilion spamming for armadamarkets, although he hasn't done that for awhile and actually posts some relevant comments. Then mattu13048 appeared to return as JennaChick, still spamming his stupid armadamarkets site, occasionally throwing in a non-spam comment which at best might be marginally relevant. A new spammer that I discovered yesterday is JenniferS, who seems to comment on articles which are months old, embedding URLs that link back to assorted sleazy sites for things like cheap loans and other garbage.

DoChenRollingBearing actually involves himself in discussions here, and even if you find his blog promotions boorish, I know you'll have to agree that the active participation of the commenters here adds value to the site. We can all be boorish from time to time. I'm certainly no exception. Even posters like AnAnonymous, with his theories on American citizenism, add points of view which we might not otherwise see and which can sometimes be thought provoking.

I have no problem with shitcanning the posters whose participation is limited to littering the site with spam. I'm glad that Tyler doesn't shitcan those who participate, though, because even posters that are agenda-driven shills add value when it results in other commenters exposing their flawed arguments in the light of day. I think after you've given it some thought you'll agree.

No personal enmity intended.

It's cool, bro, we all love this site.

 

surf0766's picture

I would rather sacrific than put it on the backs of a younger generation. The longer we wait, the worse it will be.

StychoKiller's picture

Hmm, WHAT A GREAT IDEA!  I do believe I will...in November.

spankfish's picture

I'm writing in the Greek Riot Dog.

taraxias's picture

Because they are stealing from then 99% to give to the 1%, that's why.

On whose back do you think all this massive deficit is being build?

If you said on the back of the 99% who will paid all back through inflation, you'd be right.

surf0766's picture

It is more like the 50% that still pay taxes not the 99%.

taraxias's picture

No one has the balls to raise taxes and the FED knows it.

Their answer is to continue to devalue the dollar, hence INFLATION. The 1% won't give a shit, the 99% will feel the pain.

surf0766's picture

So there have been no increases in taxes in fed, state , or local in the past 3 years? Wow...

taraxias's picture

I didn't say that, you did.

Whatever increases we have seen are not anywhere near what really needs to be done to deal with our obscene deficit.

No one has the balls to do that, it will be dealt with through dollar debasement.

Dr. Engali's picture

Even if they had the balls it wouldn't work. The level of taxes needed would send this economy into a tail spin and they would pull in less revenue.