A good piece by John Mauldin on the subject of the velocity of money. Might have been better if he had used the full form of  the equation, PQ=MV, would have been easier to talk about prices. But no matter.

As he quotes David Rosenberg, “what has replenished household coffers has been the federal government, astransfer payments from Uncle Sam now make up a record 18% of personal income.” Actually they are not transfer payments. A transfer payment implies that tax revenue is transferred to a receiving party. But the Federal government is not collecting the taxes to cover these payments, instead they are funded by the issuance of Treasury debt, which in turn is at least partially monetized by the Fed.

The latter day Greek comedy shows what happens when a government runs out of borrowing power. The US and the UK are going down the same path. The only difference is that they can, unlike the Greek Treasury, print new money. So they can make matters considerably worse before the roof falls in. But make no mistake, the warning signals are going up. Bloomberg reports that:

The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

And Moody’s forecasts are excessively optimistic, based on an economic recovery that simply isn’t happening. Like President Obama’s budget. Tax revenues will fall far short of plan, and raising taxes will further drive the downward spiral. Not that that will discourage Nancy P et al. for a moment, of course. Tea parties? Don’t make me laugh. Until the mob realizes that both parties are conspiring to work them over, we’ll go on with the endless, fraudulent illusion of choice. Cake, anyone?