Category Archives: Government Spending

NFIB chart, NY Fed debt chart, April tax collections

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Small increase and still down from year end levels, still very low historically, real sales- what matters most- were down:

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Small Business Optimism Rises, But Future Sales Cloud Outlook

The Small Business Optimism Index increased 1.7 points from March to 96.9, this in spite of a quarter of virtually no economic growth. Unfortunately, the Index remained below the January reading. Nine of the 10 Index components gained, only real sales expectations were weaker. But this still leaves the Index below its historical average, oscillating between 95 and 98 but never breaking out except for December, when the Index just tipped past 100, only to fall again.

Debt balances not growing:

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Delinquencies, Foreclosures and Bankruptcies Improve as Household Debt Stays Flat

The Federal Reserve Bank of New York’s Household Debt and Credit Report revealed that aggregate household debt balances were largely flat in the first quarter of 2015. As of the end of March, total household indebtedness was $11.85 trillion, a $24 billion, or 0.2 percent, increase during the first quarter of this year. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.

The slowdown in growth can be attributed to a negligible uptick in mortgage balances, which are the largest component of household debt. Mortgage balances stood at $8.17 trillion in the first quarter. Additionally, balances on home equity lines of credit (HELOC), which were $510 billion at the end of fourth quarter, 2014, were unchanged in the first quarter of this year.

Non-housing debt balances increased by 0.7 percent from the end of last year, largely due to increases in student loans ($32 billion) and auto loans ($13 billion). These gains were partially offset by a $16 billion decline in credit card balances.

I seem to recall something going very wrong after this happened in 2008?

The U.S. budget surplus in April rose to the highest level since 2008 on record revenue as hiring improved during a month when Americans file tax returns.

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Redbook retail sales, Small business confidence, JOLTS, Japan budget

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So now they don’t have Easter to kick around anymore and they’re still weak:

Redbook
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Retail sales picked up slightly in the May 9 week as Easter-effects finally fade, but at a year-on-year plus 2.1 percent sales remain soft. Redbook reports an as-expected Mother’s Day holiday in the week and reports early buying for graduation. Tomorrow the government will post its April retail sales report which is expected to show a solid rate excluding autos.
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About the only things showing hope are some of the surveys, just like last quarter (which is now looking to be revised into negative territory):

NFIB Small Business Optimism Index
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And you have to read pretty far into this story before you realize the numbers were down vs the prior month:

BLS: Jobs Openings at 5.0 million in March, Up 19% Year-over-year

From the BLS:

There were 5.0 million job openings on the last business day of March, little changed from 5.1 million in February, the U.S. Bureau of Labor Statistics reported today. Hires were little changed at 5.1 million in March and separations were little changed at 5.0 million….

Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. … There were 2.8 million quits in March, little changed from February.

JOLTS
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Highlights
Yesterday’s labor market conditions index was very soft as is today’s JOLTS report where job openings fell 2.9 percent to 4.994 million in March from a revised 5.144 million in February. This is well below the Econoday consensus for 5.158 million.

Despite the March fall-off, workers appear to be confident in the labor market judging by their willingness to quit. The quits rate rose 1 tenth in the month to 2.0 percent. The hiring rate in the month held steady at 3.6 percent.

Last week’s employment report for April proved much better than March but was still soft, a description underscored by today’s report. Not soft, however, have been weekly jobless claims which will be posted on Thursday.

They still don’t get it:

Japan seen targeting 1% primary deficit in fiscal 2018

May 12 (Nikkei) — Japan will likely aim to cut its primary deficit to about 1% of gross domestic product by fiscal 2018 through spending cuts and other measures, with an eye toward its goal of achieving a surplus by fiscal 2020. Japan’s potential growth rate currently falls short of 1%, and its primary deficit is expected to total 3.3% of GDP this fiscal year at 16.4 trillion yen ($135 billion). According to conservative calculations by the Cabinet Office, which assume real economic growth of 1% or so and nominal growth of over 1%, Japan would face a primary deficit of 15.7 trillion yen in fiscal 2018 — equivalent to 3% of GDP.

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Index/survey review, mtg purch. apps, GDP

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MBA Mortgage Applications
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Highlights
Up 4 of the prior 5 weeks, the purchase index was unable to add new ground in the April 24 week and was unchanged. The refinance index remains soft, down 4.0 percent. Rates are very low but mostly ticked higher in the week with the average 30-year fixed mortgage for conforming balances ($417,000 or less) up 2 basis points to 3.85 percent.
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Almost 0 and below expectations even with the low deflator, also below expectations which tends to help GDP near term. This is not good, and it’s inline with the Atlanta Fed’s forecast which has been largely ignored by the cheerleaders. And surprise, looks like the drop in the price of oil was an unambiguous negative:

GDP
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BEA Release

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the first quarter reflected a deceleration in PCE, downturns in exports, in nonresidential fixed investment, and in state and local government spending, and a deceleration in residential fixed investment that were partly offset by a deceleration in imports and upturns in private inventory investment and in federal government spending.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.5 percent in the first quarter, compared with a decrease of 0.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 0.3 percent, compared with an increase of 0.7 percent.

Real personal consumption expenditures increased 1.9 percent in the first quarter, compared with an increase of 4.4 percent in the fourth.

The easy comp. with last year’s weather dip helps the year over year increase:
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labor mkt index, ISM services, tax collections, truck sales, lumber

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Presumably this means something to the Fed:

Labor Market Conditions Index
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Highlights
The Fed’s Board of Governors Research Department’s unofficial report on labor market conditions came in weak for March, dropping to minus 0.3 from plus 2.0 in February. There was no text or detail on the unofficial report but highly likely was weighed down by the March payroll number from the BLS. Odds have gone up for delayed rate hiking by the Fed. The March number was the lowest since minus 2.4 for June 2012. The Fed revises the historical data every month.

This survey still looks reasonably firm:

ISM Non-Mfg Index
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Highlights
The factory sector may be soft right now but not the rest of the economy, based on a very strong PMI services report posted earlier this morning and now the ISM non-manufacturing report where the headline index is at a very healthy 56.5. Strength in new orders, at 57.8, is a key plus in the report as is growth in backlog orders, at 53.5 which is relatively strong for this reading. Employment, at 56.6, is very strong and at a 5-month high.

Breadth of strength is especially encouraging with 14 of 18 industries reporting composite growth in the month led by management services at the top and even including construction which, though the slowest of the 14, is still in the plus column. The 4 industries in the negative column include mining and also education.

Weakness in foreign demand for US goods, the result in part of the strong dollar, is increasing focus on the non-manufacturing economy and the ability of the US consumer to keep up the nation’s economic growth. Right now, with employment trends solid, consumers appear to be doing their share.
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Looks like the govt took a lot of $ out of the economy April 1 indicating taxable income was up:
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These seem to peak in front of recessions:
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Sort of a housing indicator:
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Balanced budget amendment getting closer, consumer credit, Redbook retail sales, JOLTS

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the BIG stupid…

Conservative lawmakers weigh bid to call for constitutional convention

Consumer Credit
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Highlights
Consumer credit rose a solid looking $15.5 billion in February but a closer look shows an unwanted $3.7 billion decline in revolving credit. This is the 4th decline in 5 months for the revolving component which reflects consumer reluctance to finance purchases with credit-card debt. This reluctance may be a plus for consumer wealth, given the extremely high rates of interest credit-card companies often charge, but it is a definite negative for consumer spending which has been very soft in recent months.

In contrast to revolving credit, non-revolving credit rose $19.2 billion which is the strongest gain since July 2011. The gain does reflect financing for autos but also an item not associated with consumer spending, and that’s the government’s ongoing and heavy acquisition of student loans.

Year over year showing a (modest) decline in growth:

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This is mainly student loans and the growth rate continues to decline:

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Not much of an Easter boost in retail showing in this chart:

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This was for Feb and inline with Feb payrolls:

JOLTS
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US macro update, FX update

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US macro update:

So looks to me like it’s all gone bad since the oil price crash, exactly as feared, and the Atlanta Fed most recently lowered it’s Q1 GDP estimate to 0.

First, a quick review of the accounting.
GDP = spending = sales = income.
An increase in spending = an increase in sales = an increase in income.

And, on a look back, as a point of logic, is this critical, fundamental understanding:

For every agent that spent less than his income (aka demand leakages) another must have spent more than his income (aka deficit spending/spending from savings) or that much output would not have been sold.

And this also means that to sustain last year’s rate of GDP growth, all the sectors on average need to grow at least at the same rate as last year, and higher if GDP growth is to increase.

Next, in that context, a quick look back at the last few years.

When stocks fell after the 2012 Obama reelection I called it a buying opportunity, as I saw sufficient total deficit spending along with sufficient income growth for additional private sector deficit spending that I thought would support maybe 4% GDP growth.

But that changed when we were allowed to at least partially go over what was called ‘the fiscal cliff’ with the expiration of my (another story) FICA tax cut and some of the Bush tax cuts amounting to what was then estimated to be a $180 billion tax hike- the largest in US history. And the sequesters about 4 months later cut about 70 billion in spending. That all lowered my GDP estimate by that much and more, and I began referring to a macro constraint that would keep an ever declining lid on GDP.

The fundamental problem was that govt, the agent that was spending more than its income to offset the demand leakages, had suddenly removed that support, and I didn’t see any other agent stepping up to the plate or even capable of stepping up to the plate to increase his deficit spending to replace it. Historically it would be housing and cars, but with the income cuts from the decrease in govt net spending I didn’t see those sectors sufficiently increasing private sector deficit spending.

So GDP growth was lower than expected in 2013, and even what we had towards the end of the year looked bogus to me, including the mainstream claiming the rise in inventories this time was a good thing, not to be followed by reduced production, as it meant there were high sales forecasts and it all would be self sustaining. I thought otherwise and wrote about heading to negative growth by year end.

And in fact Q1 2014, originally forecast to grow at about 2%, was first released as positive before being subsequently revised down to less than -2%, with maybe 1% of that drop due to cold weather. At that point I continued to not see any source of deficit spending to offset the demand leakages that were dragging down the economy.

However, what I completely missed in early 2014 was the increase in deficit spending underway in the energy sector as new investment chased $90 crude prices. I knew crude production was expanding, and likely to grow by maybe a million barrels/day or so, but I didn’t realize the magnitude of the rate of growth of that capital expenditure until after prices collapsed several months ago and economists started estimating how much capex might be lost with lower prices.

It was then I realized that the energy sector had been the mystery source of the growth of deficit spending that had been offsetting the drop in govt deficit spending, and thereby supporting the positive GDP prints that otherwise might have gone negative much sooner, and that the end of that support was also the end of positive GDP growth.

So here we are, with Q1 GDP forecasts all being revised down after Q4 was also revised down, as all the charts are pointing south, and all are in denial that it is anything more than a random blip down as happened last year in Q1, along with the pictures of houses and cars covered in snow, as forecasts for Q2 and beyond remain well north of 2%.

But without some agent stepping up to the plate to replace the lost growth in energy CAPEX that replaced the lost govt deficit spending, all I can see is the automatic fiscal stabilizers- falling tax revenues and rising unemployment comp- as the next source of deficit spending that eventually reverses the decline.
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FX:

The euro short/underweight looks to me to be the largest short of any kind in the history of the world. The latest reports confirmed large scale global central bank portfolio shifting out of euro both through historically massive active selling, as well as passively as valuations changed relative weightings. And at the same time, the speculation and portfolio shifting that drove the euro down resulted in the real global economy selling local currencies to buy euro to use to purchase real goods and services from the EU. In other words, the falling euro has supported a growing EU current account surplus that’s removing net euro financial assets from the global economy.

The portfolio shifting has been driven by fundamental misconceptions that include the belief that
1. The old belief that lower rates from the ECB are an inflationary bias and therefore euro unfriendly
2. The old belief that QE is an inflationary bias and therefore euro unfriendly
3. The belief that Greek default is euro unfriendly
4. The new belief that the EU current account surplus creates a domestic savings glut that is euro unfriendly.

The operational facts are the opposite:

1. Lower rates paid by govt reduce net euro financial assets in the economy while net govt spending is not allowed to increase, the net of which functionally is a tax on the economy and euro friendly.
2. QE merely shifts the composition of euro deposits at the ECB while (modestly) reducing interest income earned by the economy and increasing ECB profits that get returned to members to contribute to deficit reduction efforts and not get spent, the net of which is functionally a tax on the economy and euro friendly.
3. Greek bonds are euro deposits at the ECB that are reduced by default, thereby acting as a tax on the economy and euro friendly.
4. The EU current account surplus is driving by non residents buying real goods and services from the EU which entails selling their their currencies and buying euro used to make their purchases, which is euro friendly.

So it now looks to me like the portfolio shifting has run its course as the EU current account surplus continues to remove euro from the global economy now caught short. This means the euro is likely to appreciate to the point where the current account surplus reverses, and since the current account surplus is not entirely a function of the level of the euro, that could be a very long way off. Not to mention that as EU exports soften additional measures will likely be taken domestically to lower costs to enhance competitiveness, which will only drive the euro that much higher.
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personal income/spending, labor charts and comments, ISM, construction spending, earnings chart

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The mainstream assert that the drop in oil prices is an unambiguous positive for the US economy, as it’s like maybe a $200 billion tax cut for consumers. The idea is that the $ saved on oil products get spent elsewhere, increasing real spending. On the negative side they see the fall in capital expenditures as under $100 billion and hurting only a few consumers but not nearly as many as get helped.

So far the data isn’t showing this happening, at least not in a meaningful way.

What they’ve left out is that falling oil prices only shift income from sellers of oil to buyers of oil, and even nominal spending due to that shift increases only to the extent that buyers of oil spend more of they savings than sellers of oil cut back due to loss of income. Additionally, capex reductions are from lack of potential profits, and not from shifting incomes. Putting all this together there is the reasonable possibility that the drop in oil prices turns out to be an unambiguous negative.

Personal Income and Outlays
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Highlights
The consumer sector has been volatile on a monthly basis for spending while income growth has been steadier. Meanwhile, inflation has been weak. Personal income grew 0.3 percent in December after advancing 0.3 percent in November. Market expectations were for a 0.3 percent rise. December matched expectations. The wages & salaries component increased a modest 0.1 percent, but followed a jump of 0.6 percent the prior month.

Personal spending decreased 0.3 percent, following a boost of 0.5 percent in November. Analysts projected a dip of 0.2 percent for December.

Durables fell 1.2 percent on a swing in auto sales, following a rise of 1.8 percent in November. Nondurables, tugged down by gasoline prices, decreased 1.3 percent after decreasing 0.3 percent the prior month. Services edged up 0.1 percent, following a 0.5 percent spike in November.

PCE inflation remained weak-largely due to lower energy costs. Headline inflation decreased 0.2 percent on a monthly basis, following a drop of 0.2 percent in November. Forecasts were for a 0.3 percent drop. Core PCE inflation was flat in both December and November. December matched expectations.

On a year-ago basis, headline PCE inflation decelerated to 0.7 percent in December from 1.2 percent the prior month. Year-ago core inflation posted at 1.3 percent in December compared to 1.4 percent in November. Both series remain below the Fed goal of 2 percent year-ago inflation.
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Note how after tax real income has had two shifts lower and isn’t growing fast enough to ‘catch up.’
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And nominal after tax income growth has actually slowed recently:
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Interesting that this slowed!
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This may also show business has been ‘over hiring’?
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New export orders collapse- who would have thought???
;)

And import orders rose bit, also as expected from the shift in oil income.

ISM Mfg Index
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Highlights
ISM growth had been running hot compared to other manufacturing reports but has slowed down noticeably the last two readings. January’s composite score of 53.5 compares with a revised 55.1 in December and 57.6 in November. October was the fourth quarter’s peak at 57.9.

New orders slowed substantially in January, to 52.9 from 57.8. In contrast, November and October growth in orders was in the low 60s. Weakness in foreign demand is a key factor here as new export orders fell 2.5 points to a sub-50 49.5. This is the lowest export reading since November 2012. Total backlog orders also moved into contraction, to 46.0 for a 6.5 point loss.

Production remained strong in part because of the working down of backlogs. A big headline is prices paid which fell 3.5 points to 35.0 which is very low, the lowest reading since April 2009.

This report is a concern, reflecting weak foreign markets and also troubles in the oil patch. The ISM wasn’t the first to signal slowing but it now heavily underscore prior indications.
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The chart says it all:

Construction Spending
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Highlights
Construction outlays rebounded 0.4 percent in December after dipping 0.2 percent the month before. December was below market expectations were for a 0.6 percent gain.

December’s increase was led by public outlays which rebounded 1.1 percent after dropping 1.8 percent jump in November. Private residential spending rose 0.3 percent after edging up 0.1 percent in November. Private nonresidential construction spending eased 0.2 percent in December after a 0.8 percent rise the month before.

On a year-ago basis, total outlays were up 2.2 percent in December compared to 2.7 percent in November.

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my comments on comments on the CBO report

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STAFF ANALYSIS OF THE CONGRESSIONAL BUDGET OFFICE’S BUDGET AND ECONOMIC OUTLOOK, 2015–2025 “Political differences shouldn’t prevent us from taking bold, decisive action to address America’s dire financial outlook.

Yes, there is an acute shortage of available desired savings as indicated by the slack in the labor market.

Republicans and Democrats agree that being $18 trillion in debt today and facing the prospect of spending more than $800 billion a year on interest payments alone does not lend itself to a prosperous future for our country.

We don’t agree. A prosperous future is not a function of said forecast interest payments.

CBO’s numbers only reinforce this notion.

To the contrary, the inflation forecast and growth forecast together indicate the deficit forecast is far too low-given current institutional structure- to accommodate the nations savings desires, and as a consequence aggregate demand falls short of full employment levels.

The longer we postpone reforms and put off making tough decisions, the deeper the hole we have to climb out of. Let’s not miss the opportunity before us to start down a new path and address our problems head on.”

I agree, the problem of inadequate aggregate demand should be addressed head on, immediately, and decisively with an immediate fiscal expansion- tax cuts and/or spending increases. There is no time to waste as we are sacrificing yet another generation of young Americans on the alter of failed austerity.

– Chairman Mike Enzi “America remains on a financially unsustainable path that threatens the future stability, security, and prosperity of our economy.

The idea of financial sustainability with a non convertible currency, floating exchange rate policy is entirely inapplicable.
What is threatening the future is a deficit that’s far too small to accommodate our savings desires, as evidenced by the low inflation forecast and the low participation rates.

Interest on the debt alone will consume $5.6 trillion of federal spending over the next decade.

This interest is paid routinely by the Fed by simply crediting the appropriate member bank’s reserve account at the Fed.
There are no grandchildren or taxpayers in sight when this routine accounting entry take place.

We have a duty to prevent a clear and present danger, and that means we must take steps now to balance the budget.” – Sen. Jeff Sessions “The new projections released by the CBO should serve as a stark reminder that our country is on an unsustainable economic path. The longer we wait to act, the more difficult it will become to put in place real reforms to control spending and reduce our over $18 trillion national debt.

It is a fact, not theory, that those $18 trillion of net financial assets held by the global economy as ‘savings’ is far less than the desired net savings as evidenced by the unemployment rates and labor participation rates, and an immediate fiscal expansion- lower taxes and/or higher spending- is in order.

This dangerous level of debt remains a drag on the economy and job growth and will only worsen over time if Washington continues to irresponsibly add to the credit card.” – Sen. Mike Crapo “This latest CBO report indicates that we’re headed down an unsustainable path that will put a damper on economic growth and hurt American workers.

Nothing could be further from the truth. When govt cuts taxes and/or increases spending every professional economic forecaster paid to be right increases his GDP estimate and lowers his unemployment forecast.

When a nonpartisan organization like the CBO says that Americans will pay more taxes yet our deficits will rise, something needs to be done.

Yes, we need an immediate tax cut and/or spending increase.

It’s crucial that we get our spending and deficits under control so we can grow our economy and give job creators the certainty they need to expand and hire more workers.” – Sen. Rob Portman “With $18 trillion in debt and the growth of entitlement programs skyrocketing, it is clear the federal government’s current fiscal path is unsustainable. A sluggish economy makes the problem even worse. CBO has warned that this situation could persist if no action is taken.

True! Without an immediate tax cut and/or spending increase the economy will continue to under employ and under pay the American people.

Controlling debt requires making smart choices on spending as well as enacting policies that encourage stronger economic growth.” – Sen. Roger Wicker “I didn’t come to Washington to sit idly by as lawmakers in both parties pretend the deficit is shrinking and that our national debt is not a concern.

True, he came to Washington with no clue as to the functioning of today’s monetary system.

We have a genuine fiscal crisis on our hands. We’re already handing our kids and grandkids a national debt of over $18 trillion and tens of trillions of dollars of unfunded liabilities for entitlement programs. The latest CBO report shows that the deck is stacked to get even worse.

No, in fact their 2% long term inflation forecast is evidence that the built in spending is insufficient to keep the US running at anywhere near full capacity.

We need a sense of urgency to seriously tackle our national debt because of the threat it poses to our economy and national security. As a member of the Budget Committee, I look forward to working with Senate Budget Chairman Mike Enzi and House Budget Chairman Tom Price in the pursuit of a budget that reflects the tough decisions necessary to eliminate wasteful spending, prioritize our resources, and grow the economy.” – Sen. David PerdueSummary CBO projects that the government will collect $3.2 trillion in revenue and spend $3.7 trillion this year, resulting in a deficit of $468 billion in FY 2015 ($15 billion less than recorded in the prior year). Based on current law, CBO projects that the country’s fiscal situation will remain relatively stable for the next few years. After FY 2019, however, CBO projects steadily increasing levels of deficits, debt, and interest payments. By the last year of the budget window, FY 2025, deficits will again surpass the $1 trillion mark, debt held by the public will reach $21.6 trillion, and a single year’s interest payments will total $827 billion.

And the inflation and employment forecasts show that isn’t nearly enough to be adding to savings to support our economy at full employment levels.

According to CBO, federal outlays will total $3.7 trillion in FY 2015, or 20.3 percent of GDP— slightly higher than the 20.1 percent 50-year historical average. Federal outlays are expected to grow to reach $6.1 trillion, or 22.3 percent of GDP by FY 2025, while revenues are expected to remain steady at about 18 percent of GDP. Spending is projected to increase by 2 percentage points of GDP over the budget window. Mandatory spending (primarily Social Security and health care spending) will account for 1.7 percentage points of the increase; net interest costs will contribute another 1.7 percentage points; and discretionary spending will account for a reduction of 1.4 percentage points. CBO projects federal revenues will total $3.2 trillion in FY 2015, or 17.7 percent of GDP—slightly above the 50-year historical average of 17.4 percent. Under current law, total revenues will rise significantly in 2016 to $3.5 billion (18.4 percent of GDP) due mainly to the expiration of business tax provisions that were allowed to lapse at the end of calendar year 2014. After FY 2016, revenue collections will remain steady at approximately 18.1 percent of GDP throughout the duration of the forecast period. In total, over the 10-year budget horizon (FY 2016–2025), CBO expects the federal government will collect $41.7 trillion in revenue. Deficits Over the period FY 2016–2025, annual spending will outpace tax collections by a cumulative total of $7.6 trillion.For the budget year (FY 2016), CBO projects a deficit of $467 billion. Spending will total $3.9 trillion, while revenues total $3.5 trillion. Deficits will begin to climb after FY 2016, reaching $1.1 trillion by FY 2025. Deficits will remain relatively flat at around 2.5 percent of GDP from FY 2015 through FY 2018 (slightly below the 50-year average of 2.7 percent of GDP), then rise steadily to 4 percent of GDP by FY 2025. Debt And Interest CBO projects that debt held by the public will follow a similar path as deficits, remaining relatively stable at about 74 percent of GDP in the near term and then rapidly growing to nearly 79 percent of GDP by FY 2025. In dollar terms, debt held by the public would increase from $13.4 trillion in FY 2015 to $21.6 trillion in FY 2025, a nearly 62 percent increase. CBO notes that while the federal debt increase over the projected window seems modest, it is already high by historical standards—with debt remaining greater relative to GDP than at any other time since the years immediately following World War II.Gross debt, which includes Treasury securities held by federal trust funds, will also continue to rise according to CBO. By the end of FY 2015, CBO projects a gross debt of $18.5 trillion. This number will grow to $27.3 trillion by the end of FY 2025, an increase of 47.7 percent. Gross debt grows less rapidly than public debt because Social Security begins redeeming bonds at a rapid rate toward the end of the projection period.

Yes, and the 2% inflation forecast indicates all of this fall short of providing the savings needed for our economy to sustain full employment.

According to CBO, carrying these high levels of debt has negative consequences for the federal budget and the U.S. economy, including increased government borrowing crowding out private borrowing and leading to increased costs of borrowing for businesses,

That applies only to fixed exchange rate regimes. It is entirely inapplicable to the US with our floating exchange rate policy, as history has clearly demonstrated.

limits to the ability of the government to respond to crises with tax and spending policies,

Any such limit is by political decision, and not an operational constraint with todays floating exchange rate policy.

and increased interest payments.

Yes, which are simply a credit to a member bank account by the Fed.

The federal government is expected to spend $227 billion on interest payments in FY 2015, or about 1.3 percent of GDP. These interest payments will increase to $827 billion (3 percent of GDP) by FY 2025, an increase of 264 percent. These interest costs, a product of continuing to carry such a high debt burden, will put a strain on federal resources and begin to crowd out other priorities.

Interest payments are a matter of the Fed crediting a member bank account. The notion of a strain on federal resources’ is entirely inapplicable. And, in fact, even with those interest payments inflation is forecast at only 2% indicating there is no forecast of excess spending per se.

Enough???

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