Payroll Week
February 3rd, 2010 by 
reality
ADP payrolls came in at -22,000 this morning, indicating that employment is more or less flat on a seasonally adjusted basis. Who knows where the government’s report will come in, there are more adjustments than data content in it.
This modest improvement in the employment picture has been achieved at the cost of massive federal government deficits, and the budget just rolled out shows no relief in the future, even with an improbably optimistic forecast of future economic growth. The federal deficit is running over 10% of GDP. What this really means is that the underlying economy is so weak that over 10% of spending has to be supported by borrowing. Needless to say, that isn’t sustainable. What’s more, tax collections are weakening and are well below the Treasury forecast so the number in the plan is a better than best case scenario.
But the drumbeat for more spending continues to echo in Washington,whose denizens will do anything to avoid short term pain. Doubtless it will continue to do so. Economists, led by the Fed, continue to insist on their Keynesian idiocy where saving, in their view, should be a capital offense. Consume everything, is their mantra. Meantime the Tea Party momentum continues to build.
Posted in Debt, Economics, Employment, Government, Strategy & Scenarios, The Economy, The Fisc | 
3 Comments »
February 4th, 2010 at 7:33 am
Realty, I have been wondering about the 10%+ GDP deficits, closer to 15% by my back of the envelope calculation using what I consider to be more realistic assumptions.
Greece is in trouble at 12.5% GDP. So why are we not in trouble? Seems like just a matter of time.
When someone keeps borrowing more to pay previous loans, you stop lending to them, right? I am not going to argue with the market about lending to the US government, but I keep reaching the conclusion that I would be a fool to lend money to the government (or anyone for that matter) for 1+ years.
The crises cometh, and the debt will be wiped one way or the other.
February 4th, 2010 at 10:58 am
dag reality,
this will all end badly. debt will have to be wiped out indeed. there are 3 options available in my opinion.
option 1: drastically cut spending and increase taxes, meaning political suicide, so lets forget about it because that will not happen
option 2: default in ons way or another, for instance by “consolidating” outstanding debt (perpetuals at a 1% rate, or something like that – put the “debt” on a shelve and forget about it – we have seen that in europe after both wars)
option 3: inflate it away, the “painless” solution that only wipes out the savers, quantité négligable as we all know
i bet they are all hoping for massive inflation
luc
February 4th, 2010 at 11:46 am
I’m sure they are hoping for massive inflation. The Japanese have been trying to get inflation going for years, without success. Japan is still in deflation, now almost twenty years after their credit bubble popped. The Fed will try too, but it will not be successful either.
Eventually their Keynesian views will be discredited. But their will be much pain associated with learning that they are wrong.