Tag Archives: U.S.Debt

SEMI-MONTHLY FISCAL/MONETARY UPDATE – “REAL” US GOVERNMENT DEFICITS MUCH HIGHER THAN STATED

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FISCAL/MONETARY SEMI-MONTHLY UPDATE – 10/16/2016

It is especially instructive to take a hard look at some numbers that are getting very little attention from the politicians as they debate their way to November 8th.

Everyone knows that the accumulated federal debt is too high, and the annual deficits must come down at some point, or this country is going to sink into financial oblivion. I personally think it is fair to say that the U.S. cannot lead the world, or at least set an example for the world, in hardly any sense if we cannot get our financial house in order. Everyone also knows that our national deficit ballooned from 2000 until 2009 largely under the influence of two wars, and also that our deficits have come down materially after the mideastern involvement was wound down (for better or worse). The current administration is fond of saying that the deficit has been decreased from $1.413 trillion in the fiscal year ending 9/30/2009 to “only” $438 Billion in Y/E 9/30/2015. Most recently, it is estimated to have risen to $587 Billion as of the year just ended 9/30/16, and most economists estimate that it will rise in the next 5 to 10 years unless economic growth picks up materially.

Aside from the fact that the deficit is projected to continue rising from this point forward, unless tax revenues rise substantially, from higher tax rates and/or a materially better economy the problem is:

Government accounting doesn’t equal real world cash coming and going. Stated simply, the government uses “accrual” accounting, not charging certain cash expenditures to the current period, capitalizing those expenses, putting them on the balance sheet (increasing the debt, which these days carries a very low interest rate, and doesn’t hurt much) rather than alarming “the folks” with large “deficits”.

It goes like this: In the latest fiscal year, the stated deficit was about $587 Billion, but the Debt at 9/30/16 was $1.4 Trillion, UP $1.250 Trillion from a year earlier. That’s a cool $663 Billion that was “capitalized” somehow, rather than expensed (Can’t alarm “the folks”). OK, you say, “but that’s just one year, it probably balances out over a longer period.” Not exactly. Here are the numbers since 9/30/2007.

U.S.Dept Yr. Deficit Increased Increased Debt
($Trillions) ($ Trillions) Debt Minus Year’s Deficit
Equals Capitalized
At 9/30/2007 9.008
9/30/2008 10.025 0.459 1.017 0.558
9/30/2009 11.910 1.413 1.885 0.472
9/30/2010 13.562 1.294 1.652 0.358
9/30/2011 14.790 1.299 1.228 -0.071
9/30/2012 16.066 1.100 1.276 0.176
9/30/2013 16.738 0.680 0.672 -0.008
9/30/2014 17.824 0.485 1.086 0.601
9/30/2015 18.150 0.438 0.326 -0.112
9/30/2016 * 19.400 0.587 1.250 0.663
Total increase 10.392
Total Deficits 7.755
Capitalized 2.637

One last point, the cumulative deficit as of today 10/17, from the treasury department website, indicates that the latest number is $19.7 trillion, so the deficit is apparently $300 billion higher than the last government estimate as of 9/30. Political discourse is one thing, reality is another.

So this is not a function of one year. Over the last 9 years, ending 9/30/16, the deficits have added up to $7.755 Trillion, but the Cumulative Debt has risen by $10.392 Trillion, a difference of a not so modest $2.637 Trillion. The point is: The annual deficits we are running, and the debt we are accumulating,  is a lot larger than any of our politicians are willing to admit.

Take all of this under consideration as we watch the next several weeks of political discourse unfold, including the discussion (or lack thereof) of entitlement reform, defense spending, government subsidized health plans, immigration reform, tax policy, etc.etc.

SEMI-MONTHLY FISCAL MONETARY REPORT – GOLD CONSOLIDATES – ECONOMY STAGNATES – CANDIDATES HAVE NO CLUE

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SEMI MONTHLY FISCAL/MONETARY REPORT – GOLD CONSOLIDATES – ECONOMY STAGNATES – CANDIDATES (as far as we can tell) HAVE NO CLUE

The capital markets, including the gold market, were little changed during September. Our portfolio was up slightly better than gold bullion which was up 0.7%. For the year, we are outperforming gold bullion which is up 23.8%. As we have said before, we have participation with both gold bullion and the miners, and our portfolio should move more than bullion itself, especially on the upside. We expect the capital markets, as well as the gold market to be more definitive once the US presidential election is concluded. Neither candidate has indicated any policies that would be negative for gold.

It might be a good time to go back to economic basics, of paramount consideration within the political landscape. We continue to believe that the US debt will eventually strangle (completely) our economy, which has grown steadily but very slowly for a decade, not coincidentally since the debt burden accelerated. Zero interest rates, have helped our government to keep the annual deficit to “only” $600 billion in the latest 12 months, still growing faster than the lackluster economy, but has also penalized the saving public in the process. That is why so many “mature” individuals, normally of retirement age, continue to work. Many investors put their “heads in the ground”, assume their IRAs and 401ks will be OK over the long term, especially since they have done well since the ’08-’09 decline. The more conservative (I would say “realistic”) investor, understands that the stock and bond market performance has been (the Fed admits) largely supported by Central Bank easy money policies. The investor like myself, more aware of monetary history, has been less willing to “reach for yield” in an increasingly risky environment.  For every million dollars a family has in the bank, if they want to keep the funds “safe” in US Treasury securities (which will not “default”, just be inflated away), they earn: maybe $6000 annually with a 1 year maturity, less than $10,000 per year for 5 years, about $16,000 annually for 10 years, all of it taxable. Not too many families currently have many millions in liquid savings, so it is understandable that the savings rate is (out of desperation, perhaps) going up as interest rates come down, and workers don’t retire. The Central Bank P.H.D. model, which calls for better consumer spending with lower interest rates, and higher inflation at some point (to inflate away the government debt) is not working. This is true not only in the US, but in Europe, Japan, and China, the world’s largest economies. I say again, the model is not working. When you are in a hole, the remedy is not to “keep digging”.

As we listen to the economic portion of the debate by the two presidential candidates, and their plans, or non-plans, to adjust government spending and get the projected rise in the yearly deficit under control, keep in mind the following inconvenient facts. The U.S. government has spent about $4 trillion in the fiscal year just ended. Pensions (Social Security, etc.) amounted to $1,105B (26.9%), Health Care (Medicare,Medicaid,etc.) was $1,124B (27.4%), Defense was $817M (19.9%), Welfare (Families, Unemployment, Housing, etc.) was 9.8%, Interest on the Debt, even with very low interest rates,  was $318M (7.7%). There is not the political will, in either party, to materially reduce spending within the above categories, and this represents the bulk of the budget.  In our view, it won’t happen until after the next financial crisis, which we believe will be much larger than the last. Most asset classes will be much lower and gold related securities will be much higher at that point.

It should be clear to all that our convictions have not changed. We are always available for your questions/concerns.

Special Note : If you are interested in this subject matter, you can view, FOR FREE, the three youtube videos I produced, only 3 minutes each, with links on our Home Page. Even more illumination you will get from Harry Browne’s books, the most profound of which we provide for free with a paid subscription to this website.