I’ve attached a thought provoking article from Barrons – you should be able to read this article without a subscription.
The article explores inflation, consumer debt and the resiliency of the economy. Good food for thought.
Americans Have Quietly Deleveraged. It May Explain the Economy’s Resilience.
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I believe 80% of the Federal fiscal budget is defense and entitlements. Where do you want to cut?
The deficit at $2T is running at about 50% of tax revenues. We have to cut a lot from everything or raise taxes to the point of depression? A blend would be nice but the politicians of both parties don’t even admit the problem.
There would be a good start.
Look at the percentage of the defense budget that is for entitlements! No argument with active military retirees but an office worker in DC or MD, etc. is receiving same retirement benefits. Also look at the projected growth as percentage of budget. Yet, no discussion about this by our policy makers.
PaydayInvestor
I think that number may have been accurate a few years ago, but Federal spending in the last 3 years has grown at a breathtaking rate that isn’t going into military or “traditional” entitlements.
A lot went into COVID early on, and now a breathtaking amount is going into “projects” like the “infrastructure bill”, etc. Don’t know what it will take to get politicians on either side of the aisle to just quit it.
Thank heaven we continue to have at least a divided government so they spend a lot of time fighting with each other instead of spiraling spending up even faster.
I think the Fed prioritized the wrong tightening tool. Raising short-term rates while being timid with QT hasn’t created as much demand destruction as anticipated as there’s a ton of savings out there now earning 5% after earning close to nothing for 15 years.
There has to be a lot of retirees and near retirees being more aggressive with their spending now that the interest income they earn is noticeable.
I would have preferred the Fed being aggressive on Fed Funds & QT, but would have also preferred more aggressive QT and less aggressive Fed Funds vs what we got.
Also cool to see Wolfstreet get a shout out earlier this week. This site (and its predecessors) along with Wolfstreet are the two main finance/investing sites I follow regularly.
I agree on needing more QT but a less discussed problem is that fiscal policy is decidedly expansionary and works against the Fed. Experts like Bill Dudley have been saying that for almost a year. I have given up on tracking “deficit” data and only pay attention to the increase in national debt.
As a retiree I hope inflation and higher interest rates stick around. Being selfish I know, but those of us who don’t have debt, the 5% guaranteed money with the banks with 0 risk is very nice. When the rates go back down, I will have to put my money back at risk in various investments.
The problem with the inflation we are currently seeing, for a retiree, is that while you may be earning 5%, you have an offsetting 5+% devaluation of your principle from inflation.
It may seem like you are earning a lot, but if your money’s buying power is being reduced by inflation, you are (at best) staying even or even losing buying power.
Unfortunately, I don’t think this inflation cycle can’t be fixed by the usual methods (contraction by companies, etc.) because it is being driven by the tidal wave of government deficit spending.
I take a different approach to justify what I do. There is the government data on inflation and there is my personal one. For my monthly expenditures, I am nowhere near 5% annual inflation, and certainly wasnt 9% last year either. My mortgage is fixed at 2.75%, my car payment is fixed at 0%, health insurance free through GF.. Those are my biggest “bills” and they havent moved except for a small $20 a month escrow adjustment for higher insurance over past couple years. Food is noticeably higher but it is relative small percentage of my monthly expenses. My COLAs are CPI indexed and that is where I can tell I have more money left over than I ever have, and that isnt including any investment income. So I guess what I am trying to say is 5% for me anyways is definitely increasing my available dollars. And more importantly zero stress on those investments.
So normal folk pinch pennies while the federal government spends like drunken sailors. Eventually that too will have to slow down or shrink.
Also while mortgage debt has obviously gone down due to low rates consumer debt has been trending up.
Basically one can summarize this as living on “borrowed” time. Not really sustainable to have the non productive aspects of society spending so much to keep us at neutral.
If the goal is to tame inflation by increased interest rates, there by increasing unemployment in the private sector, and reducing final demand. Maybe the better approach would be to just layoff folks in the public sector (perhaps Federal workers) versus increasing unemployment in the private sector. Seems like there would be an additional benefit of reducing the deficit. Maybe a good presidential debate question…
The public sector unions are a significant voting constituency of the dems. Right or wrong- not taking a position- it just won’t happen.
I can’t remember the last time the feds cut any federal jobs, or that the state of CA, where I am) cut jobs either.
As you say, the unions are too entrenched.
Rant: I think gov. employee unions, in general, should be banned.
In a commercial setting, you have a union negotiating with a company on opposite sides of the table.
In a gov. union negotiation, you have the union on one side of the table, and the politicians (who are dependent on the union for “donations”, on the same side of the table, and the people footing the bill for everything (the taxpayers) aren’t even in the room.
:End Rant
That’s what people have been saying for 40 years.
It should but it won’t because the FED would not feel fulfilled if it did.
Seems like that Stephen.