2013 spending, budget, and monetary policy discussion

[Kushinator]

I present to charts; one is the budget deficit since Obama's time in office, and the other is the official budget deficit established by congress. Since the 2013 data is incomplete, i used a simple geometric mean of previous data to fill in the rest of the year. All data used can be found here.





So what does it tell us? The budget deficit that can be attributable to the Obama administration (yearly) is likely to decrease by 51% in 2013. During his presidency, the budget deficit will have declined by 65%. The official U.S. budget deficit is likely to come in at $686 billion, a 35% decrease from the year prior.

A bell should be ringing for the more astute members here. Since January 2013, the Federal Reserve has purchased about $359 billion in Treasury securities, while the debt specific supply of Treasury securities since January 2013 is $315.3 billion, meaning the Federal reserve is facing a whole new dilemma. They are losing their ability to control long term interest rates, given their current policy tools. As the Fed's demand for USTS's continues to exceed debt specific supply on a consistent basis, two things can occur. First, a dual pricing mechanism can emerge with respect to the Maiden Lane transactions and the rest of the secondary Treasury market. Primary dealers are fully aware that the Fed's purchasing program is likely to exceed the net debt issuance of the U.S. Treasury. Durations that receive the least targeting of Fed purchases (longer dated securities) will have a downward pressure in prices as secondary dealers crowd into where the Fed action is most aggressive. Which creates the need of a future twist program to smooth out the yield curve (point 2).

One thing is certain. The notion of a U.S. debt crisis has been completely overblown.

The data on asset purchases can be found here.

 

[WCH]

I present to charts; one is the budget deficit since Obama's time in office, and the other is the official budget deficit established by congress. Since the 2013 data is incomplete, i used a simple geometric mean of previous data to fill in the rest of the year. All data used can be found here.

View attachment 67152022



View attachment 67152023

So what does it tell us? The budget deficit that can be attributable to the Obama administration (yearly) is likely to decrease by 51% in 2013. During his presidency, the budget deficit will have declined by 65%. The official U.S. budget deficit is likely to come in at $686 billion, a 35% decrease from the year prior.

A bell should be ringing for the more astute members here. Since January 2013, the Federal Reserve has purchased about $359 billion in Treasury securities, while the debt specific supply of Treasury securities since January 2013 is $315.3 billion, meaning the Federal reserve is facing a whole new dilemma. They are losing their ability to control long term interest rates, given their current policy tools. As the Fed's demand for USTS's continues to exceed debt specific supply on a consistent basis, two things can occur. First, a dual pricing mechanism can emerge with respect to the Maiden Lane transactions and the rest of the secondary Treasury market. Primary dealers are fully aware that the Fed's purchasing program is likely to exceed the net debt issuance of the U.S. Treasury. Durations that receive the least targeting of Fed purchases (longer dated securities) will have a downward pressure in prices as secondary dealers crowd into where the Fed action is most aggressive. Which creates the need of a future twist program to smooth out the yield curve (point 2).

One thing is certain. The notion of a U.S. debt crisis has been completely overblown.

The data on asset purchases can be found here.

That's not our debt just spending over what we actually took in.

Debt vs Deficit - What Does It Mean?

 

[CalGun]

I'm not sure why you would say the US Debt crisis has been completely overblown? The debt is declining thanks to a Republican Congress that continues to say no as often as it can and an increase in revenues when the social security 2% gift was ended.

The creation of money by the FED has in the past lead to inflation. I don't think you can find anywhere in your charts where the funds created by the FED and used to buy debts that no one else would buy is eventually going to bite us in the back side. How can you honestly think the nation can increase its money supply so dramatically and not have a long term ramification? What happens when the worlds producers of oil, goods and supplies don't want the paper we call the dollar any more? I think the only thing keeping the wolves at bay today is that the only other two currencies in the world capable of world trade are worse off than our own ( Euro / Yuan). Our currency is the world reserve currency. Talk to me about "debt crisis" when that causes the world to seek another reserve.

 

[WCH]

http://www.usdebtclock.org/

Check out the last number. Currently that's what we owe.

 

[Kushinator]

That's not our debt just spending over what we actually took in.

Debt vs Deficit - What Does It Mean?

Not sure why you decided to respond as though i mixed up the terminology.

 

[WCH]

Not sure why you decided to respond as though i mixed up the terminology.

You said the debt crisis was overblown.{it's not} Makes me think you don't realize the difference.

 

[Kushinator]

I'm not sure why you would say the US Debt crisis has been completely overblown? The debt is declining thanks to a Republican Congress that continues to say no as often as it can and an increase in revenues when the social security 2% gift was ended.

The debt is not declining. The rate of debt growth is declining as the deficit is declining. In reality, we have a divided Congress as the majority Republican House is balanced out by the majority Democrat Senate. Blaming the current administration for deficits while simultaneously praising Congress for a decline in deficit spending is contradictory.

The creation of money by the FED has in the past lead to inflation.

Current monetary policy objectives are unprecedented. Any type of historical comparison will fail on account of the geo-political, demographical, and financial differentials.

I don't think you can find anywhere in your charts where the funds created by the FED and used to buy debts that no one else would buy is eventually going to bite us in the back side.

This comment comes of as highly uninformed. Support the notion that nobody would purchase Treasury debt in the absence of current policy objectives. What is the current spread between a 10 year Treasury and a AAA rated 10 year corporate bond?:lol:

How can you honestly think the nation can increase its money supply so dramatically and not have a long term ramification?

Velocity and various money multipliers are stuck in liquidity trap territory.

What happens when the worlds producers of oil, goods and supplies don't want the paper we call the dollar any more?

They will face immense revenue shortfalls. The world depends on U.S. consumption.

I think the only thing keeping the wolves at bay today is that the only other two currencies in the world capable of world trade are worse off than our own ( Euro / Yuan). Our currency is the world reserve currency. Talk to me about "debt crisis" when that causes the world to seek another reserve.

You obviously have no idea why the U.S. dollar is the world's reserve currency.

 

[CalGun]

Perhaps because you wrote the "debt crisis was overblown" in your original post that it was prudent you understand the difference. I'm sure you do, but its easily misconstrued by many that want to ignore the real problem.

Not sure why you decided to respond as though i mixed up the terminology.

 

[Kushinator]

You said the debt crisis was overblown.{it's not} Makes me think you don't realize the difference.

Debt is the codomain of accumulated deficits. As the growth rate of deficit spending declines relative the the growth rate of real output, debt (as a % of said output) must decline.

 

[JayGatsby]

As long as we can keep inflation down then the debt isn't the main issue. If we were spending money in more productive ways (Infrastructure, insert idea here) then we should be seeing some faster growth and even faster debt reduction. The increase in employment should come before inflation begins and debt is a huge issue. I really think too many are hesitant to invest because no one knows how we are going to approach this. Congress is so unpredictable and dysfunctional that not many are confidant enough to start rebuilding our economy. But of course they can put all that Fed money in the stock market and watch it boom. We really should be increasing capital gains rates so maybe we will start investing in america, and making a corporate rate that is actually progressive and lower. I'm against raising all other tax rates, we need to keep picking up steam, I'm really surprised more Democrats arn't against them to... Now is not the time for austerity, now is the time for growth. Big spending cuts will only hurt the trend too, but even a liberal can agree there is a lot bs spending around!

 

[Kushinator]

As long as we can keep inflation down then the debt isn't the main issue.

That is not entirely accurate. Modest inflation (actually any inflation) will eat away at debt as the payment stream for the majority of all debt is fixed. Hence, if we have 4 years of 4% inflation, on the fifth year we will be paying with 17% less buying power.

If we were spending money in more productive ways (Infrastructure, insert idea here) then we should be seeing some faster growth and even faster debt reduction.

No disagreement here.

The increase in employment should come before inflation begins and debt is a huge issue. I really think too many are hesitant to invest because no one knows how we are going to approach this. Congress is so unpredictable and dysfunctional that not many are confidant enough to start rebuilding our economy.

Inflation expectations are anchored extremely low for an extended amount of time. The 5 year breakeven rate (the rate of inflation necessary to bridge the gap between a 5 year Treasury and a 5 year TIPS) is back below 2% while the 10 year breakeven rate has been below 2% since 2010. Much of this sentiment can be traced back to labor market weakness, as production has eclipsed pre-recession highs while total employment is still at 2006 levels.

 

[JoeTheEconomist]

The budget deficit that can be attributable to the Obama administration (yearly) is likely to decrease by 51% in 2013. During his presidency, the budget deficit will have declined by 65%.

You pick an interesting benchmark for the word decrease.

The more astute members hear a different bell. There is no one buying Treasuries other than the Federal Reserve.

 

[Glen Contrarian]

You pick an interesting benchmark for the word decrease.

The more astute members hear a different bell. There is no one buying Treasuries other than the Federal Reserve.

Actually, households bought $200B worth of treasuries during the first quarter of 2012. The same reference shows that long-term mutual funds are currently buying an average of $20B of treasuries per quarter, and that foreign countries are buying - at least as of the end of last year, an average of about $400B dollars worth of treasuries per month. Granted that this is not even the majority of treasuries, since the Fed has - again, according to the reference - about $1.7T in holdings as of last December.

During an auction of treasuries last month, "Indirect bidders, an investor class that includes foreign central banks, purchased 48.6 percent of the notes, the highest since August 2011, compared with 46.4 percent in June and an average of 38.6 percent for the past 10 sales."

There was a reference from the WSJ that stated that the Fed was buying up 61% of all treasuries, but that was from March of last year and the above references show that while the Fed is still buying a bare majority of treasuries, the idea that "no one is buying treasuries other than the Federal Reserve" is obviously not the case.

 

[Kushinator]

You pick an interesting benchmark for the word decrease.

The deficit is really not an interesting benchmark.

The more astute members hear a different bell. There is no one buying Treasuries other than the Federal Reserve.

Nonsense!

All Maiden Lane purchases are in the secondary market, where new supply of Treasury securities is isolated via primary dealers. At any given time, the secondary market is roughly 100 times larger than the primary market. The ratio between Fed Treasury purchases and net treasury issuance (on a monthly basis) will push up to 1 by the end of the year. More than $2 trillion in Treasuries were issued in QII 2013.

 

[donsutherland1]

That's not our debt just spending over what we actually took in.

Debt vs Deficit - What Does It Mean?

His point was that with federal deficits declining, the risk of a debt crisis is also receding. I'm sure he'd agree, the reality is that the U.S. never faced a near-term debt crisis. Any debt crisis lies in the long-term if the nation's long-term imbalances are not addressed. No debt crisis was or is imminent.

 

[WCH]

His point was that with federal deficits declining, the risk of a debt crisis is also receding. I'm sure he'd agree, the reality is that the U.S. never faced a near-term debt crisis. Any debt crisis lies in the long-term if the nation's long-term imbalances are not addressed. No debt crisis was or is imminent.

The interest alone will eventually kill us. Just like any other long term debt that can't be paid back.

And truthfully, I don't trust those numbers. The FED makes crap up.

Treasury Ran $98 Billion Deficit in July--But Debt Stayed Exactly $16,699,396,000,000 | CNS News

We won't face a real debt crisis until the creditor call in the loans. Waiting.....

 

[Kushinator]

The interest alone will eventually kill us. Just like any other long term debt that can't be paid back.

You are not considering how inflation or economic growth will eat away at interest expenses.

And truthfully, I don't trust those numbers. The FED makes crap up.

Treasury Ran $98 Billion Deficit in July--But Debt Stayed Exactly $16,699,396,000,000 | CNS News

We won't face a real debt crisis until the creditor call in the loans. Waiting.....

Your source is highly misinformed.

 

[head of joaquin]

There is no one buying Treasuries other than the Federal Reserve.

Why do you insist on posting blatant falsehoods here, where people are smart enough to notice? This might go over at Hannity.com however.

 

[head of joaquin]

His point was that with federal deficits declining, the risk of a debt crisis is also receding. I'm sure he'd agree, the reality is that the U.S. never faced a near-term debt crisis. Any debt crisis lies in the long-term if the nation's long-term imbalances are not addressed. No debt crisis was or is imminent.

Precisely, the debt fetish rhetoric was simply an attempt by conservatives to impose the type of Shock Capitalism they prefer by promoting a false crisis.

In a couple years nobody will remember how wrong their predictions were, just as nobody remembered how false conservative predictions were about the "cake walk" in Iraq. Conservatives count on the short memory span of the US electorate.

 

[donsutherland1]

There is no one buying Treasuries other than the Federal Reserve.

Joe,

That isn't the case. For example, here's the data for major foreign holders of U.S. debt:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

 

[Deuce]

U.S. National Debt Clock : Real Time

Check out the last number. Currently that's what we owe.

No it isn't. They literally get to make up that number. It compares current budgets and funding to future population growth. I.E. it assumes zero growth in revenue. Which is stupid. They also get to define any timeframe, you could say it's infinity dollars if you use an infinite timeframe.

 

[cpwill]

As long as we can keep inflation down then the debt isn't the main issue.

Sort of. So long as we can keep growth in GDP ahead of growth in Debt, we are good.

If we were spending money in more productive ways (Infrastructure, insert idea here) then we should be seeing some faster growth and even faster debt reduction.

Wholeheartedly agreed. I'm so happy to see you join the coalition to remove money from the directing hands of politicians, who allocate it according to political incentives rather than incentives related to productivity, and back into the hands of the market, which allocates it according to precisely the formula you propose.

 

[Samhain]

You are not considering how inflation or economic growth will eat away at interest expenses.



Your source is highly misinformed.

The treasury department monthly report takes cash on hand into consideration, where the debt to date website is the raw number.

 

[Kushinator]

Sort of. So long as we can keep growth in GDP ahead of growth in Debt, we are good.

Nominal... or real?

Wholeheartedly agreed. I'm so happy to see you join the coalition to remove money from the directing hands of politicians, who allocate it according to political incentives rather than incentives related to productivity, and back into the hands of the market, which allocates it according to precisely the formula you propose.

Not all private sector price discovery methods are ideal. For example, in competitive markets, cost-plus pricing ensures inefficiency.

 

[cpwill]

Nominal... or real?

Since it is an annual number I would say that main important thing would be to ensure the same standard is equally applied. However, I would say real is your better measurement over time. If the deficit is 1% of GDP but growth is 3% of GDP, that's sustainable. If the deficit is 5% of GDP and growth is 1.8%; that is not.

Not all private sector price discovery methods are ideal. For example, in competitive markets, cost-plus pricing ensures inefficiency.

No one ever said that the private sector was perfectly efficient. On the contrary, it involves massive and repeated waste of resources into unfruitful enterprises as the learning process occurs through negative feedback and old less productive venues choke and die. Like Democracy, market allocation of resources is the worst of options.... except for all the others.