There’s something happening here
What it is ain’t exactly clear
There’s a man with a gun over there
Telling me I got to beware

I think it’s time we stop, children, what’s that sound
Everybody look what’s going down

There’s battle lines being drawn
Nobody’s right if everybody’s wrong
Young people speaking their minds
Getting so much resistance from behind

It’s time we stop, hey, what’s that sound
Everybody look what’s going down

-Buffalo Springfield, For What Its Worth

>

Life — and investing — is all about probabilities. We don’t know what is going to happen in the future — certainly not with any degree of confidence. What we can surely asses is a range of possibilities as to what might happen; we can also assign a range of probabilities to various outcomes.

This morning, we are taking a look at the shifting probabilities of various outcomes:

Markets: Following a 2 year rally that saw the indices double, markets this year have been unable to develop any upward momentum, gaining a mere 2.3% YTD. Experience has taught us to give a bull run (even a cyclical bull market) the benefit of the doubt, as they tend to go further and last longer than most people assume or is reasonable.

Alas, this bull cycle, after a screaming move higher, is starting to look tired. In terms of potnetial outcomes, this sideways phase could be a consolidation before the next move upwards. Or it could be a topping process setting up the next substantial drop. Prior to current action, I was more inclined to see the glass as half full. But here we are, a mere 5% from recent highs, and my probability is starting to shift. Whereas I was 70/30 consolidation versus topping, that assessment is now closer to 60/40 — and gaining speed.

The lines to watch are the 200 day moving average and the YTD start.

>
click for larger chart

>
Economy:  We avoided the double dip scare in 2010, as the data suggested a deceleration of growth rather than an outright contraction. The 2011 economic data series may be prtending something more serious.

Consider: Employment (watch layoffs ticking higher), retail sales (watch auto sales closely), GDP, industrial production and manufacturing: All are softening. The one bright spot is corporate earnings, but even they have an asterisk, with the lion’s share coming from cost cutting and overseas growth — not domestic top line growth.

Its the demand, stupid.

The probabilities of an ordinary business cycle recession are increasing. Its been terribly obvious that the bulk of the growth has been primarily Fed induced, not Federal stimulus spending. While the Austrians scream that Keynsian stimulus has failed, what they really mean is Friedman’s Monetarism has failed to magically produce a self-sustaining recovery (which does not disagree with Friedman at all).

Given that its now 2 years plus since July 2009, when the prior contraction ended, this would not be a double dip, but rather a stand alone 1938 type recession. My odds of a recession within 18 months went from 10%  to 30%.

Policy, Taxes, Regulation:  You can count on idealogues to do the wrong thing at the worst possible moment, and this time is no different. The Austerians are not satisfied with producing a government induced recession in Europe through severe cost cutting at a time of weak growth and low employment, they have brought their brand of lunacy to the States as well.

If the Federal Government accounts for 20-25% of the US economy, and we shrink that to 15-20%, guess what? You just reduced the overall size of the economy by 5%. The private sector will not magically create demand for that missing piece. Hence, an increasingly likely economic slowdown or outright contraction by philosophy.

I keep saying I am not a Democrat because I have no idea what their economic policy is, and I am not a Republican because I know EXACTLY what their economic policy is. That is our policy choices: Inept cluelessness on one side, and hapless fantasy-based lunacy on the other.

~~~

Whoever would have suspected that Stephen Stills was a trader — concerned about the Fed (the man with the Gun), resistance levels, and contrary crowd beliefs (Nobody’s right if everybody’s wrong).

Yes, something is happening here. It is our jobs as investors to figure out what it is likely to be happening, and make adjustments accordingly.

The odds are shifting.

Category: Economy, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

102 Responses to “There’s Something Happening Here . . .”

  1. Doug Kass may have mentioned this song sometime ago — its totally his sort of vibe

  2. Sircornflakes says:

    That is the immediate problem, demand.

    There is no magic bullet on the horizon as there is a global lack of growth to spur on the private sector as is needed.

    What’s more, corporations who are already squeezed will look evermore to seek out lower input costs (labor) and jobs will be created elsewhere.

    My own view is that we are looking at a generational situation of lower standards of living and sub par growth.

    Hope the economy can prove me wrong.

  3. ancientone says:

    I would love for some Republican to explain to me how cutting government spending boosts economic growth, and how government spending hinders it. It is truly frightening to me that one of our two major political parties bases their economic policy objectives on what appears to be pure ideological fantasy, AND THEY GET AWAY WITH IT!

  4. ilsm says:

    “We are star dust, we are golden
    We are stuck in the devil’s cauldron’
    And we’ve got to get ourselves back to the garden.

    I was in college when thess were new. Crosby went on to CSN, and later added Neil Young.

    The confidence faerie is bankrupt. The faeries’ money should be going to liquidating the bad assets on the fictions the banks call balance sheets, including mark to market all that MBS.

    Were I president, treasury would be auctioning its MBS today.

    Liquidate wall st and nationalize the fed.

    “We’ve got to get ourselves back to the garden.”

    Woodstock was 42 years ago, man!

  5. theexpertisin says:

    Well articulated post, Mr. Ritholtz.

    I would characterize the Democratic Party as the Party of Good Intentions, and the Republicans as The Party of Self Reliance. I don’t have a problem with either notion. What I do have a problem with are those who dogmatically reject any broad ideas from the other side.

    Fortunately, informed voters instinctively know how to correct bad policy every two years at the ballot box (Dems sweep in 2008 promising hope and change, Republicans sweep in 2010 promising to check too progressive an agenda). Although much of the rest of the world marvels at our political gyrations, in The Big Picture (attempt at humor) our form works. That’s why at the end of the day our national sense of self confidence has always returned, refreshed, from adversity.

  6. BusSchDean says:

    Some of us can remember when it first came out. Little did we know it would fit a future situation like this. Of course, we were not actually thinking too much about the future back then anyway.

  7. MayorQuimby says:

    Barry the only lunacy I see is the free lunch insanity touted by those who suggest gvmt deficit spending is a panacea for our problems. Instead, these deficits ARE our problem and a growing one at that.

    I would rather shave 10 percent off of GDP to force the structural issues out into the open after which we can default the bad debts, clear the system and end TBTF.

    But make no mistake, by trying to dig our selves out of a hole (borrow out of debt), we are making the inevitable contraction BIGGER over time. It won’t be ten percent when it comes, it will be fifteen or twenty.

    ~~~

    BR: Cutting spending during a weak economy is a recipe for recession. Does 1937 mean anything to you?

  8. VennData says:

    Now that the show is over, everyone wants to get re-elected. With 2.4 over ten years, only 21B in cuts “this year,” with the rest like one of those TBA time slots on your TV guide the gov’t will be in their spending like crazy.

    The GOP’s number one job being to not raise the “temporary” Bush tax cuts on the rich meant no real cuts in spending.

    “Talk about kicking the can down the road, this is probably the biggest can that’s ever been kicked — appointing another commission to do the heavy lifting another day,” Yale University economist Stephen Roach

    http://www.reuters.com/article/2011/08/01/us-usa-debt-economy-idUSTRE7700QI20110801

    We’re all Keynsians now.

  9. Robespierre says:

    “I keep saying I am not a Democrat because I have no idea what their economic policy is, and I am not a Republican because I know EXACTLY what their economic policy is. ”

    Democrat’s economic policies are easy to understand once you realize that Democrats are Republicans who are pro-choice. There use to be other differences (anti-war, pro gay marriages, etc) but as Obama has abundantly shown they no longer apply

  10. investorinpa says:

    At what point will the Fed announce QE 3? I guess my position is that I am expecting that announcement sooner than most, expect to see a short term bounce, and then will sell into strength. I understand Barry’s logic of selling during uncertainty, but bigger picture….we all saw the debt ceiling debate not going to end till the wire (today), the economy keeps wavering back and forth between more bad data and then a sprinkling of improving data. I’ve kept to about 20% cash for much of the past 3 years as I learned my lesson 10 years ago of being 100% in the market. I just don’t see the Fed standing pat and in the next 4-5 days expect to see them putting out QE 3 “Bigger and Badder” rumors.

  11. Petey Wheatstraw says:

    “We don’t know what is going to happen in the future — certainly not with any degree of confidence.”

    If you’ve ever been in a car crash (let’s say a deer in full flight runs out onto the interstate, directly into your path), there is a certain moment leading up to impact when you understand, at least to a point, exactly what the future holds (maybe not the precise outcome, but that there WILL be a crash).

    We have been in such a situation, economically (seemingly in slo-mo due to the magnitude of it all), since 2000, or so.

    Restoring liquidity to the consuming classes is the only means of both settling debt and restoring velocity to the (vastly but still inadequately inflated) money supply, but that would mean diluting/redistributing the cash hoarded by the non-productive/leech class*.

    That won’t happen.

    While “the markets” might have risen, the cost of reinflating them was on the back of the taxpayer, not due to any organic or self-sustaining growth (if it was, we would be seeing both employment and wages rising). Again, the consumer is key, and is missing from The Big Picture.

    *America’s top wealth holders not only driven us to the point of bankruptcy under conditions almost inconceivably favorable to them, they have failed to create jobs, moved production capacity and jobs away from the US, and usurped the power of government in order to line their own pockets. I believe they have taken far more wealth than they have produced.

  12. crutcher says:

    As anyone here who remembers me knows, I’m a wild left communist. But I still can’t figure out why cutting government spending is necessarily a negative for economic output. I can see short term problems with dislocation, but isn’t our system ultimately a matter of allocating capital where it gets a return, and lives or dies by that standard? We Marxists do respect the power of capital, and hate to see it unproductive. Who can’t agree that those who waste/steal capital and resources ought to experience consequences? In AND out of gov’t.

    There is a huge opportunity for common ground here all over the political spectrum.

  13. mark says:

    “The probabilities of an ordinary business cycle recession are increasing.”

    Seems to me there would be nothing ordinary about another recession. Remember that all the usual tools have been used post-WWII to moderate the business cycle are no longer available. The rates controlled by the monetary authorities are at a hard limit and fiscal policy is so constrained that even an extension of long term unemployment benefits seems to be off the table. Let’s not forget the extend and pretend policies that leave many financial institutions and sovereign nations in very precarious positions.

  14. Petey Wheatstraw says:

    investorinpa Says:

    “At what point will the Fed announce QE 3?”

    After the self-kneecapping and public display of political dysfunctionality that was the debt ceiling mess, announcing additional QE would seal our reputation as fiscal lunatics (not that we won’t do it, but we won’t, or shouldn’t, announce it).

    Once you have destroyed you own national credit, a currency backed only by “good faith and credit” had better have some really good PR behind it.

  15. VennData says:

    The key metric here is the debt ceiling was raised, not cut. Deficits will continue, astronomical deficits.

    So, get all those blues,
    Must be a thousand hues.
    And each just differently used.
    You just know.

    -Buffalo Springfield, Bluebird

  16. JerseyCynic says:

    “Every normal man must be tempted at times to spit upon his hands, hoist the black flag, and begin slitting throats.” – H.L. Mencken

    IT’S TIME TO HOIST THE JOLLY ROGER

    Adam and the Ants –
    http://www.youtube.com/watch?v=x5JRXBq9J44

  17. wally says:

    The lunacy I see is the insanity touted by those who suggest cutting gvmt spending is a panacea for our problems.

  18. UncleMilty says:

    The problem with using gov’t (borrowing from China and) spending to stimulate demand is that, at some point, it must be paid back. If 1.5T deficits won’t stimulate demand, does it really make sense to borrow 3T?

    Every dollar the gov’t spends, it must take in taxes. Money not taken in taxes would have otherwise been spent in the economy. Other than a short-term burst to compensate for a temporary drop in demand, I struggle to see where Trillion dollar deficits will get us out of this mess.

    Balancing the budget is not a formula for disaster. If it is, than aren’t we better to suck it up and take our medicine now rather than wait for the debt to double over the next 10 years and then decide we have to live within our means?

    The time for a measured and sensible solution was in the 90s when we could have fixed this without anyone getting hurt. Those days are long gone…

  19. wally says:

    It looks to me like being contrarian at this point means to be bullish? Does it not?

  20. Mike in Nola says:

    Seems to be a lot of oldsters here this morning. Thought of BS last week in the context of the fake debt hysteria: the part about 1000 people in the street, singing songs and carrying signs, mostly say hooray fo our side.

    The policital problem we have stems largely from the identification of Obama. The Dems still haven’t figured out they elected a Republican. Obama may have been fatherless but he grew up in a prosperous family and never had the “black experience.” The blacks still haven’t figured that out yet and think he can do no wrong because he looks like them. Clinton may have been a little conservative, but he did experience what it was like to be poor growing up.

    OTOH, the Republicans, esp. Joe Six Pack who have been indoctrinated into Obama’s socialism by Fox don’t realize he is carrying out the agenda of the Republican extreme right run by the rich. They also don’t realize it will be disastrous for themselves when it starts going into effect and will blame it all on Obama’s socialism and the need for more of the same austerity just like in Greece.

    Yves Smith posted this link yesterday and it seems to explain a good bit of what’s happening.
    http://feedproxy.google.com/~r/NakedCapitalism/~3/NDo2SmKlJVg/matt-stoller-what-presidency.html

  21. krice2001 says:

    I don’t feel liek singing today so I’m not going to add any lyrics.

    Seems to me that the debt ceiling agreement likely means that a relative level of austerity (e.g. declining government services) and slow growth will continue. The Republicans in Congress seem to have succeeded in convincing the President and Congressional Democrats that cuts are what are now needed. It’s come down to a battle of how much, how fast, and who exactly sees those cuts.

    While the President and Congressional leaders may be breathing a big sigh of relief, my concern is that all this fear of becoming the next Greece means we move closer to being the next Japan – with a prolonged period of malaise. Then again, maybe that’s already in the cards.

  22. bram says:

    >I just don’t see the Fed standing pat and in the next 4-5 days expect to see them putting out QE 3 “Bigger and Badder” rumors.

    Yup. QE3 will be just as ineffective as QE2… but that’s all that can be done at this point.

  23. bram says:

    > my concern is that all this fear of becoming the next Greece means we move closer to being the next Japan

    You should have credited Mosler for using his quote. Real nice.

  24. VennData says:

    And speaking of Hostage Politics:

    ….did you know that we don’t need solar power? That it’s too expensive? And that the Saudi’s are just businessmen and we can easily makeup our 15M bbl/day oil shortage by harvesting whales and drilling in Democratic districts….

    http://www.exxonmobilperspectives.com/2011/04/28/exxonmobil-earnings-the-real-story-you-wont-hear-in-washington/

    ….and they want you to forget your history: there was a grand time in antebellum America when we never wasted any time or money subsidizing anti-Christian “Sun God” power. Michele Bachmann’s right, it was a time that slave families were happier, healthier, and didn’t need welfare.

    http://www.washingtonpost.com/blogs/under-god/post/read-the-marriage-vow-pledge-signed-by-michele-bachmann-and-rick-santorum/2011/07/08/gIQAwT7K4H_blog.html

  25. krice2001 says:

    @ Bram — Who’s “Mosler”?

  26. VennData says:

    The real Third Rail of American Politics: “Temporary” tax cuts for the rich.

    Reach for it – even try to touch it – and you set off a global financial meltdown.

  27. constantnormal says:

    If you can read those lyrics, and NOT hear the music, then you’re either incredibly ancient, or you’re TOO DAMN YOUNG.

    HEY! YOU KIDS! GET OFFA MY LAWN !!!

  28. gloppie says:

    “The private sector will not magically create demand for that missing piece”
    But that’s exactly what uber-liberals would have you believe, that poor ol’ Market can’t compete with big bad evil wasteful gubernmint!!!!
    I’m with Mr. Crutcher; whenever the government spends money on projects, it does not spend it in a vacuum, or with itself, the money returns to the markets through business or consumers.
    I agree that the government is not the most efficient allocator of capital, but we have learned recently that most banks, hedge funds and other Wall Street are not either, haven’t we?
    So who to vote for; Big Business (GOP) or Big Government (Dem) ?

  29. Moss says:

    Uncertainty has increased.
    The US monetary expansion machine is paused, the US political scene is chaotic, Europe is teetering, Japan is nuclear, China is flattening , the Middle East is bubbling. There is always something happening and what it is is very clear. Everyone is wondering if the Fed has an Ace up their sleeve and when it may be played. If it is not played then the consolidation probabilities lessen.

  30. DC says:

    Fun times ahead. The best part will be watching both Dems and Repubs twist themselves into knots trying to avoid the forced cuts to defense spending that will be triggered by the inevitable failure of The Super Committee to achieve anything remotely resembling consensus.

    Defense spending is the gift that has kept on giving for decades in Congress. It’s also the core of much of the last large-scale metal-bending manufacturing in the US. When that shit hits the fan there will be so much wailing on K Street that the lobbyists will be heard on the dark side of the moon (had to work in a lyrical reference).

  31. kapusta says:

    “MayorQuimby Says:

    I would rather shave 10 percent off of GDP to force the structural issues out into the open after which we can default the bad debts, clear the system and end TBTF.

    But make no mistake, by trying to dig our selves out of a hole (borrow out of debt), we are making the inevitable contraction BIGGER over time. It won’t be ten percent when it comes, it will be fifteen or twenty.”

    To MayorQuimby – You still don’t understand the full picture. Do you know why the US enjoyed a budget surplus in parts of last centry, say from 1998 to 2001? It wasn’t because of cuts in spending. It was because of the increased revenue from higher taxes and stronger economy. So how do you get a stronger economy and higher taxes?

  32. Global Eyes says:

    Today’s lead post has spawned many good replies. Stephen Stills and BR-who woulda thunk it?

  33. rktbrkr says:

    Next stop Hooverville!

    But at least the Teabaggers got the wars exempted from cuts. Wars for ever and ever amen!

    http://www.bloomberg.com/news/2011-08-02/debt-agreement-puts-u-s-on-path-to-end-stimulus-just-as-economy-falters.html

  34. davver1 says:

    “The private sector will not magically create demand for that missing piece. ”

    Hasn’t it done exactly that many times throughout history. The same sky is falling rhetoric was used after WWII ended.

    If the private sector doesn’t create demand because we have zombie banks because the government has an active policy to support zombie banks you can hardly blame the “private sector”.

  35. louis says:

    I’m amazed how quickly history is repeating. To watch all those bank puppets talk like Hank Paulson on the White House driveway was disturbing.

    The new normal is do this or the world will end. Anyone have numbers on private security firm spending in Silicon Valley?

  36. MayorQuimby says:

    @kapusta

    Ahhhhh another free lunchist. Love it. How wonderful it must be to live in fantasy land where a person can eat themselves skinny, dig themselves out of holes etc.

    You are wrong. Surpluses can occur into deficit spending so long as real gdp grows at a rate faster than the incurring of debts, plus interest ie you grow faster than you spend over time. If we knew a $20 Trillion GDP was in the offing for 2013, 2014 etc. than it is perfectly fine to deficit spend today assuming the numbers work out. There are limits to everything of course.

    But you don’t just “CHARGE IT!”. Deficits ALWAYS come at a net loss. Your mistake is in assuming they don’t.

    ***KEY SHORT VERSION: USA grew IN SPITE of deficits, not because of them.***

  37. constantnormal says:

    MayorQuimby …

    Hmmm … looks like a classical “half-empty/half-full” argument to me. Just one little test:

    What would it take to convince you that the other side of the argument is right?

    And the same question to kapusta …

  38. [...] lot of things are possible, I can only go by what the data says is more probable.  (Barry laid out the case for lightening up at The Big Picture this [...]

  39. droubal says:

    Visualize a map of the U.S. Money is being vacuumed out of every nook, and where does it go?
    Washington, of course. Then is spreads out to the banksters in New York. No wonder real estate prices haven’t fallen in Washington, New York, Boston, etc. That part of the country has always been well positioned in gov’t cash flow. They are all happy to keep the borrowing going, they are recipients.

    That money is leaving the rest of the country poorer and enriching gov’t and banksters.

    Debt is the problem. Jobs are still leaving, real estate still going down, consumers won’t borrow.
    Businesses won’t hire; no product demand, and they don’t know what gov’t is going to do.

    We are in a leaky boat headed out to sea. It’s going down, no matter what. Do you want to stop and try to fix it while we are a mile off the coast or just keep going, to have it sink 10 miles out?

    That’s our choice.

  40. Casual_Observer says:

    Here’s what I know–I don’t know. That’s why I went 80% defensive early last week. I might be wrong but at least I won’t lose money if I am (setting broad-based inflation aside of course). One thing I’ve learned from 2002 and 2008, my losses hurt worse than my gains help.

  41. farfetched says:

    Nah, it’s not going down. We can still hijack the yachts of the wealthy bankers and throw them overboard while everyone is still close to shore. We better grab a paddle soon though. They have a wily Kenyan Captain, Captain Onixon, that defected from the galley slaves. There are tales he has a silver tongue and sings a sirens song, so be careful to not listen to his words but watch his deeds. Like his old name sake, he claims “I am not a republican”.

  42. Lukey says:

    Ah, Buffalo Springfield – my first rock concert! Great memories!!!

    As for the economics in the post, I’d suggest that there are certain times (and this may well be one of them) where an economy can become “over-stimulated” and reach the point where it is immune to further stimulus. The government spending is just crowding out the private economy and growth stagnates. It could happen!

    Also, it would seem to me that austerity might have a better chance of having a beneficial effect on the economy if used before a nation reaches the limits of its ability to borrow (think Canada) rather than relying on further (ineffective) stimulus just because the capacity to borrow is still there (think Japan).

  43. MayorQuimby says:

    constant-

    It isn’t about sides. I will admit that we can deficit spend to pad the recession but ONLY IF (considering where we are) we are looking forward to an incredibly large burst of sustained economic growth ie war, exploration of space etc.

    If not, then massive deificit spending is making things WORSE, not better. Our structural issues are undermining our attempts to paper over the….same structural issues and the losses incurred by too much deficit spending!

    There are limits constant and if you push too hard, things break. If you keep pushing, it all can break.

  44. [...] The Big Picture — There’s Something Happening Here . . . [...]

  45. louis says:

    They still have done nothing to the first guest at the party- HOUSING. He is still in your backyard sleeping in the bushes with vomit all around him.

  46. MayorQuimby says:

    louis-

    What can they DO with housing? Make it MORE expensive?! Um, I don’t think that will help when things are too expensive.

  47. wally says:

    A bit manic again today, Quimby? S’matter… your guys poke a hole in the bottom of the boat? Need to defend the mistake?

  48. DC says:

    More good fun: Ain’t it classic that the ratings agencies that facilitated the economic catastrophe are now the guys holding the gun to our heads? Headlines all over the place about the fear of the losing AAA status, and no doubt with good reason given the thin ice we’re on.

    But how did we let these guys off the hook for their abject failures just years ago, only to let them now kick us when we’re down? Wonder what S&P and Moody’s had to say, if anything, when Cheney blithely told us that deficits don’t matter? One thing is clear: once the ratings agencies conclude there’s a problem, you can bet they’re late.

  49. constantnormal says:

    @MayorQuimby …

    I would contend that while you are correct, the federal deficits are several items behind other problems that are greater, and have a greater impact on the economy — like consumer indebtedness and unemployment. The federal deficit is a more significant problem currently than it has been ONLY because we have lost a boatload of tax revenue, from unemployment, the decade-plus wage stagnation of the middle class, and the refusal of the wealthy and the corporations to pay taxes. In short, it is CRYSTAL CLEAR that this is primarily a revenue issue, and NOT a case of the feds going on a drunken spending spree (at least no more than they have for the past 30-40 years).

    So massive cuts are going to accomplish what exactly? Reduce spending while maintaining income tax revenue?

    It will be interesting to see how you’re going to have that happen. The federal employees who will get whacked, along with all the remoras sucking up goobermint contracts who will be laid off and will not be paying taxes, and when benefits cuts hit the sheeple, they are certainly going to cut back their consumer spending to compensate (not being able to print their way out of deficits as Uncle Sam can), reducing the level of economic activity still further.

    This “cure” is likely to be far, far worse than the disease, at least in the short term, and probably in the long term. It could easily be a cure that kills.

    I agree that we have to get rid of programs that are not working or make them work. But surgery with an axe is ill-advised, for any kind of surgery.

    My preferred approach would be not to eliminate government, but to make it better. A more difficult task, but not impossible. Whereas, surviving the elimination of government might well be impossible.

    I guess we’ll find out shortly.

  50. Greg0658 says:

    wow .. that was a heavy thread

  51. Julia Chestnut says:

    It is pretty interesting to look at the government hiring. While private sector employment was shrinking fast, several sectors of the government were gearing up. It dimmed the blast heat from the furnace of the recession, at least a little. Of course, there were lots of anecdotal tales of seeing hundreds of resumes for every single government job opening – but I suppose that’s to be expected in a terrible job market.

    Since appropriations were held up for the second half of FY 2011, that hiring has come to a grinding halt. Ordinarily, Spring is a big hiring time for the Feds — not this year. With a further horrible brawl scheduled over 2012 budgets, this monstrous stupidity about austerity — there has been a noticeable drop in the postings on USAJOBS during this year. If your goal is to starve out the government and make certain that it can’t do its job, you couldn’t possibly come up with a better strategy than the one currently being employed in Congress and the White House.

    If your goal is to help cushion the blow of unemployment to an economy on the skids, well. . .I submit that was never even a policy consideration.

  52. market_disciple says:

    As an alternative, besides equities, one should consider gold (Silver too if one can stomach the volatility) and swiss franc as a part of his/her portfolio.

    BR, when are you coming down to Chicago for your TBP conference? I’m sure Chicago investment/trading community would love to see you.

  53. DeDude says:

    @crutcher;

    Not all government spending cuts are negative for economic output, but the ones supported by GOP are almost all very negative. Cutting our military’s foreign adventures and bringing the troops back to US would not have much negative effects (most of those expenses go to foreigners or to rent-seeking via Haliburton etc.), but that is not what teapartiers want. Cutting support for poor people is directly taking money out of consumption (70% of GDP). The same goes for cutting support to states (which may be called spending cuts, but really just is cost-shifting). States translate reduced Fed support to cutting jobs for teachers, firemen, police, etc because they have to balance budgets.

    @UncleMilty;

    The 1.5T did stimulate demand without it we would be in the greatest depression. However, deficit spending is not supposed to fix structural problems, only cyclical problems. There is a very measured and sensible solution to the problems, end the wars and the Bush tax cuts. The great thing about that is that it will come as long as our do-nothing congress just do nothing. Wouldn’t that be something if grid-lock turns out to be the only way out (automatic cuts in defense, automatic increase in taxes on the rich).

    @davver1;

    Private sector will create demand only after the costumers ask it for more products or services. That is the history for the past 100 years. But there is nothing to suggest that the public sector costumers have anybody to hand the gavel over to.

  54. constantnormal says:

    A little game I liken to “fantasy football” — call it “fantasy goobermint” …

    How about if an executive order were to be issued (insert laugh track here) that required all goobermint contracts to be awarded to only companies that are paying taxes (on a 3 year running average) equal to 20% (just a number — pick a better one) of their gross profits (over the same period)?

    Don’t want to double-tax corporations paying taxes in other places? Fine. They can deduct those amounts from their tax bill as credits. That takes care of companies moving profits to low-tax areas via accounting alchemy.

    Now watch Jeff Immelt choke on his Dom Perignon and smile …

  55. Lukey says:

    @constantnormal

    “In short, it is CRYSTAL CLEAR that this is primarily a revenue issue, and NOT a case of the feds going on a drunken spending spree (at least no more than they have for the past 30-40 years)”

    You have just there undermined your entire argument. It is a CUMULATIVE spending problem. Look at a spending as a percent of GDP graph. It starts taking off in the 1930′s, spikes during WWII then returns to its 1930′s trajectory and never looks back. On the other hand, revenues as a percent of GDP, regardless of what tax policy was, roughly averages just under 20%. Eventually those two trends are going to create a problem for you. But I don’t see how you can say it is a “Revenue” problem (as revenue has kept pace with GDP increases while spending went parabolic).

  56. rvirmani says:

    There is no way out of the “demand deficit”:

    Basically the game is proceeding as the “banksters” want it to. You either face a 10% recession now, or much worse in the future.

    They have built up China and are taking the US down piece by piece. (I am not some conspiracy nut). Having done business in China it is clear that China was built up.

    As long as we are in a debt based money system (and refuse to address this issue). Politics is simply a waste of time.

    It would take less than 1 year to be out of this mess, if we simply do what Milton Friedman recommended: End the Fed, write off the debt, and increase reserve requirements of the banks slowly to 100%. Avoid hyperinflation, by using “non-debt money” to replace debt money.

    If they fail , let them fail.

    All other “analysis” and solutions amount to moving deck chairs on the titanic.

    It is unfortunate that few people see through the “game” and get caught up in trying to predice economic cycles in this ponzi scheme.

  57. leonardcrook says:

    How Lyndon Johnson Would Have Done It.

    LBJ would have called in the top House Republicans–no doubt greeting them in the bathroom–and presented them with a list of all Federal expenditures in their districts–including Social Security and military bases. “Now John. Now Erik. I’m sick and tired of this pussy-shit crap you boys are pullin’ up there on the Hill. I’m tired of you boys swinging your dicks like you got something to swing.

    “So here’s what I’m gonna do… I’m gonna cut 40% of the federal government. Just like you want. And I’m gonna start right here.”

    He hands them the list, broken down by Congressional districts, starting with Boehner’s, then Cantor’s, then on down the list to the most junior member of the Republican caucus.

    “Now, Erik, I’m sure you’re gonna scream like a little girl about this. That’s OK. Cause the more you scream, the more I”m gonna cut. I’m gonna cut so damn deep that you’re gonna be like the UT cheerleader who wandered into the A&M locker room. You’re gonna love me, Erik. You’re gonna love me.”

    Then, Lyndon would have dismissed the crew and called Mitch McConnell and Rand Paul to talk about tobacco subsidy checks.

  58. DeDude says:

    @Lukey;

    Why would you presume that governments need would be constant as a share of GDP even as society grows increasingly more complex?

    I presume that we can agree that governments need would naturally increase as we moved from war being a “everybody grab their musket and run to the front” event to modern warfare. So why wouldn’t similar modernization in other aspects of society, escalate the relative need to solve problems at the collective level rather than at the individual level.

  59. MayorQuimby says:

    constant-

    I’m not suggesting we have ‘massive cuts’, but remember that not only do deficits come at a net loss over the long term – gvmt inefficiencies and waste minimize the stimulative effects of deficit spending.

  60. [...] Barry Ritholtz, “Alas, this bull cycle, after a screaming move higher, is starting to look tired.”  (Big Picture) [...]

  61. farfetched says:

    Onixon is from Chicago, can’t he run as JBJ? Dead people vote there all the time, you would think we could run a dead President with balls. Lord knows we haven’t had one of those in 40 years.

  62. wally says:

    “deficits come at a net loss over the long term”

    I have no clue what you are trying to say here. Obviously some deficits bring future returns.

  63. MayorQuimby says:

    wally-

    it is incredibly simple. It costs $60K of future revenue to spend $50K today. Borrowing is always a net loss. Always.

    You can grow enough gdp to mask this loss as we have done as our real economy expanded. but structural issues are preventing such growth going forward so deficits are actually doing more damage because debt interest grows exponentially – even at low rates.

  64. constantnormal says:

    @Lukey

    “But I don’t see how you can say it is a “Revenue” problem (as revenue has kept pace with GDP increases while spending went parabolic).”

    Please cite your data sources, as mine say different:

    http://www.ritholtz.com/blog/2011/07/federal-debt-too-little-revenue-or-too-much-spending/

    http://www.ritholtz.com/blog/2011/08/our-problem-in-pictures/

    http://www.ritholtz.com/blog/2011/08/bloomberg-the-debt-deluge/

    Now, I’m not saying that we do NOT have a debt problem, clearly we do. But shooting the patient in the head is not going to cure him. And while you might have some strong disagreements with the Keynesian notions of goobermint deficit spending to support the economy in a recession, we can probably agree that deficit spending outside of a recession is a Bad Thing, an unnecessary and harmful stimulus. But that’s not where we are now.

    I guess we’ll have to see if you change your tune when it is YOUR ox that gets gored, when you lose your job in the ensuing national collapse.

    Because you should be happy, we are clearly going to follow the path you favor, whacking away at such luxuries as Social Security, Medicare, unemployment insurance, etc — while never cutting any subsidies to the corporations or wealthy, never adding a single dollar of tax revenue from the corporations or the wealthy, both of whom have re-engineered the tax code to escape the bulk of their tax burdens.

    Why so glum, cutters? Is is because we are not going to try and completely pay off the national debt over the coming decade? Cheer up, we’ll get there, the momentum is clearly in your favor.

  65. AlexM says:

    The market is telling us in the past few days that reducing government spending will not be a net positive for business and GDP. Germany’s market is telling us the same about Europe.

    Despite all the partisan sniping, and incorrect conclusions that abound here and in the media, the markets are speaking quite loudly and clearly.

    As always, the reaction to the news is more important than the news itself.

    History (the recession of 1938) does repeat itself, I always wonder why people don’t educate themselves about economic history. Ignorance is bliss!

  66. constantnormal says:

    @MajorQuimby —

    “Borrowing is always a net loss. Always.”

    So I guess you are saying that when you are diagnosed with the big C, you won’t borrow to cover that which your health insurance will not cover? After all, “borrowing is a net loss. Always”.

    Do you own a home? Did you borrow to get it? Did you pay cash for all your vehicle purchases? Any student loans? (THERE is an expense that borrowing REALLY IS a net loss).

    And I suppose you only own stock in companies that don’t borrow for capital expenditures. You must own a lot of AAPL shares, I salute your wisdom.

  67. MayorQuimby says:

    Alex- That is not necessarily true. The whole buy the rumor sell the news thing…

    But I think it is pretty funny that nearly everyone is unhappy because the bill cuts too much or too little.

    I’m in the too little camp – I mean – we are going to add SEVEN TRILLION more in debt over the next 7 or 8 years on to an already debt saturated American taxpayer. It is sheer folly. Lunacy in my opinion. But you all want to delay the inevitable at the expense of making the inevitable far worse. So be it.

  68. Joe Friday says:

    theexpertisin,

    I would characterize … the Republicans as The Party of Self Reliance.

    Please.

    Corporate Welfare (including the Military Industrial Complex and farm subsidies for the already wealthy) and tax cuts for the Rich & Corporate, are far and away the largest part of government expenditures. Socialism for the Rich & Corporate is not “Self Reliance”.

    Don’t listen to their propaganda, WATCH WHAT THEY DO.

  69. Joe Friday says:

    In response to Quimby:

    BR: Cutting spending during a weak economy is a recipe for recession. Does 1937 mean anything to you?

    One need not go back three-quarters of a century. Look what austerity is doing real-time to the economy in Britain.

  70. constantnormal says:

    @AlexM

    “I always wonder why people don’t educate themselves about economic history. Ignorance is bliss!”

    A simple story that fits one’s preconceptions is always preferred over the difficult task of understanding the complexities of the real world through history. Funny how the concerns that drove the collapse in 1938 mirror the ones we currently face so well. A weak-as-a-kitten economy, a lotta government support, and the urgent feeling that they needed to reduce the deficit immediately … one wonders how long the Depression might have lasted if Hitler had not provided all that business in the reconstruction area. Who will fill that role in the world stage this time around? Could it be US? Hard to say, it’s early in the process … but the Brown Shirt memes are strong … and we wants our oil …

  71. Joe Friday says:

    Lukey,

    You have just there undermined your entire argument. It is a CUMULATIVE spending problem. Look at a spending as a percent of GDP graph. It starts taking off in the 1930′s, spikes during WWII then returns to its 1930′s trajectory and never looks back. On the other hand, revenues as a percent of GDP, regardless of what tax policy was, roughly averages just under 20%. Eventually those two trends are going to create a problem for you. But I don’t see how you can say it is a “Revenue” problem (as revenue has kept pace with GDP increases while spending went parabolic).

    Guess you missed the entire discussion of numerators and denominators then, eh ?

  72. wally says:

    “Borrowing is always a net loss. Always.”

    Good grief. I guess that believing stuff like that explains where so many other of your opinions come from. Personally, I believe equations have two sides and ledgers have two columns… you have to add things up to net them out. If you don’t, fine, but people who think like you are doing a lot of harm these days by trying to impose illogic on everybody else.

  73. Chad says:

    @mayorquimby

    “gvmt inefficiencies and waste minimize the stimulative effects of deficit spending.”

    As someone who has worked in government & private industry (completely unrelated to govt) the idea that private industry is efficient is just more ideological “belief” from the foolish right. Both are inefficient, with government being a little more inefficient in some cases, but in general they have a much harder job to do than making some random very specific & limited widget. Private industry is not some holy utopia.

    This is all coming from someone who used to drink the red kool aid, but learned to think for himself.

  74. 4whatitsworth says:

    Well, it all sounds well thought out but I hope your wrong. I suppose we will see.

    It seems to me like there is demand out there however there are some really beaten up sectors that need to recover like construction and housing. This chart from one of my favorite blogs comes to mind http://www.ritholtz.com/blog/wp-content/uploads/2011/01/NPR-Chart.png

    Here is what I see:

    1) The demand that is there is real the stimulus really did not do much so we are already in a mostly unassisted recovery. Here is a real life example that sums up how our government squandered the opportunity to help rebuild Americas infrastructure. Recently I was hiking at Marin Headlands in the bay area and there is an old lighthouse that has a bridge to it that was closed. When I asked why they did not have Obama dollars to fix it one of the park rangers said they did and are finally going to do because they had to use the money or lose it. This was a small easy to execute project I can only imagine what happened to the large projects.

    2) The internet and world wide connectivity is an underestimated force that will continue to create the right type of demand for sustained growth.

    3) The big problem is what to do with the blue collar crowd these folks deserve to and need to work we made so much new crap that nothing is broken yet our houses and cars are in good shape. If the government could find a way to spend infrastructure dollars well this could change quickly.

    4) Finally, the restaurants are busy and the service is good until I see that begin to change (The sound of forks and knives) I don’t think this cycle is over.

  75. Joe Friday says:

    constantnormal,

    Funny how the concerns that drove the collapse in 1938 mirror the ones we currently face so well. A weak-as-a-kitten economy, a lotta government support, and the urgent feeling that they needed to reduce the deficit immediately … one wonders how long the Depression might have lasted if Hitler had not provided all that business in the reconstruction area.

    A) As BR referenced earlier, it was 1937, and it wasn’t a “collapse”, but it certainly was a downturn.

    B) Please stop (I assume unintentionally) regurgitating the propaganda from the American RightWing that it took the build-up to WWII to end the Great Depression (with it’s accompanying inference that FDR’s New Deal failed), as the Great Depression was over by 1939, well before any build-up to the war or as they used to say well before any “rumors of war”.

  76. Joel50 says:

    Inept cluelessness on one side, and hapless fantasy-based lunacy on the other.

    It’s a close call, but I’ll take the inept cluelessness of the Democrats. Cluelessness at least implies an open mind that could be persuaded to take steps that might supercede the ineptitude. Not so for the hapless, fantasy-based lunacy of the Republicans. The only remedy for that is medication, and the people who need it too often protest that they don’t at all — it’s everyone else who’s the problem.

  77. Joe Friday says:

    4whatitsworth,

    1) The demand that is there is real the stimulus really did not do much

    That is historically inaccurate. As I have posted here previously:

    * Before the stimulus bill was enacted in early ‘09, the GDP in the 4TH QTR of ’08 was a NEGATIVE 6.8%.

    * After the stimulus bill was enacted, 1ST QTR ’09: -4.9% > 2ND QTR ’09: -0.7% > 3RD QTR ‘09: +1.6% > 4TH QTR ’09: +5.0%.

    * That’s a swing of about 12% GDP from negative to positive.

    * The almost 750,000 a month job losses during the previous administration prior to the stimulus was replaced by an average of almost 200,000 a month job gains. That’s a reversal approaching a MILLION jobs a month.

    The stimulus worked like a charm. It was just too damn small.

    4) Finally, the restaurants are busy and the service is good until I see that begin to change (The sound of forks and knives) I don’t think this cycle is over.

    This is a misnomer I hear over and over again.

    An economic downturn does not mean there are economic ghost towns with nothing but tumbleweeds. If a restaurant’s business is off by 10%, it would not be obvious to the casual observer. If a restaurant normally serves 100 meals a day, you could park across the street and not tell (without actually counting) from the cars parked in the parking lot or the customers walking in and out, that the restaurant was now only serving 90 meals a day.

    Check out how many national restaurant chains have gone under or have filed bankruptcy lately.

  78. DeDude says:

    @MayorQuimby @ 1:16

    “it costs $60K of future revenue to spend $50K today. Borrowing is always a net loss.”

    Yesterday I walked you through how the TIPS rates (negative on 5 year and almost zero on 10 year) means that the 50K becomes 47K after 5 years and 51K after 10 years. But I guess if the facts don’t support your opinion there must be something wrong with the facts (and then you can just ignore them).

    For those whose opinions are based on facts it is clear that if you can borrow for free on a 10 year timeframe, at a time when unemployment is way above average, then it is a no brainer to stimulate by conducting the next decades infrastructure projects on borrowed money.

  79. AlexM says:

    Major,

    I am agnostic as to what the numbers are; as an investor and trader I am much more interested in the impact on the markets as that exposure is something I can control.

    As far as selling/buying the news, we are very oversold and it remains to be seen how much has already been priced in.

    We are testing the lows so everyone will be watching to see if the sell off is finished or if we bounce and fail from here.

  80. MayorQuimby says:

    @wally-

    ALWAYS.

    @Dude-

    You are a ponziest. But ponzis eventually run out of steam and when they do they don’t retrace, they COLLAPSE.

    Those inflation numbers do not occur without making things worse. Unless inflation is tied to solid productivity and collateral, it is a bubble and will collapse and snap back. Short version – gvmt can’t ‘inflate away debt’ unless we grow the real economy THAT MUCH FASTER than our debt increases including interest. So theoretically we CAN inflate away the debt but not by deficit spending and certainly not by printing.

    “But I guess if the facts don’t support your opinion there must be something wrong with the facts (and then you can just ignore them).”

    Bullshit. How did that work during the housing bubble? Gvmt mandated inflation ramped prices of oil, housing – etverything with cheap liquidity and all it did was push MILLIONS into bankruptcy and foreclosure. If capital formation is tied to solid collateral and lending standards with high downpayments then credit growth is indicative of a strong economy. Since it wasn’t, it wass doomed to collapse as are any attempts to inflate debt away.

    You can see it in front of your face!!!! Why the need for QE3? QE4? 5? When does the insanity stop?!

    Borrowing money comes at a loss thanks to usury. Multipliers are crashing and so is velocity. You guys might get another 2 or 3 or even 10 years in this system but it IS failing because it has peaked already. Consequently, we need to reset things or just make them worse over time.

    Spam away but don’t shoot the messenger. And I will be laughing when you all crave a $52 Trillion national debt, $10 gas and negative interest rates as if destroying purchasing power of an already broke and saturated-with-debt consumer is mathematically going to win you all points. It is RIDICULOUS.

  81. farfetched says:

    Here’s some of the private enterprise “efficiency” some people are so fond of.
    http://www.bloomberg.com/news/2011-08-01/americans-pay-more-for-health-care-get-less-chart-of-the-day.html

    “Americans pay more for health care than Sweden and France, spending more on hospital visits, prescriptions and diagnostic-imaging tests, yet don’t always get better results, according to the Commonwealth Fund.
    Spending more than twice as much per capita as Germany, Sweden and France still leaves the U.S. with the worst record among 12 developed countries on hospital admissions for asthma, congestive heart failure and diabetes complications, according to the fund, a private policy and research foundation based in New York. The U.S. scored best on survival rates for cancers such as breast and colorectal.
    The CHART OF THE DAY shows the U.S. spent $7,538 per capita on health care in 2008, most among the 12 nations and 50 percent more than second-place Norway, according to the Commonwealth Fund’s July 27 report, using data from the Organization for Economic Cooperation and Development.”

    Clearly the government inefficiency argument is a discredited meme. You can bet your life on it.

  82. DeDude says:

    Mayor; the reason I used TIPS is that they take any and all dependency on inflation out of the equation. The calculations work to give you the same result (interest free loans) whether the inflation is 1% or 10%. The bonds and the underlying tax-base used to pay them back inflate with the same % so you don’t have to do complicated “real” types of corrections to the numbers.

  83. Joe Friday says:

    DeDude,

    For those whose opinions are based on facts it is clear that if you can borrow for free on a 10 year timeframe, at a time when unemployment is way above average, then it is a no brainer to stimulate by conducting the next decades infrastructure projects on borrowed money.

    Indeed.

    This is an opportunity of a lifetime. The federal government should be borrowing with both hands and making some of the cheapest investments we will ever see with a spectacular ROI of jobs and economic growth. The multipliers would be remarkable.

  84. MayorQuimby says:

    Inflation is not sustainable if it is not originated at the point of a solid bank loan. It just undermines future capital formation not to mention creates distortions in purchasing power and therefore spending within the economy.

  85. wally says:

    Now you’re on an ‘inflation’ rant?

    Having fun today being a verbal fun boy? An e-streaker? Woo-hooo, look at me now!

  86. DeDude says:

    Once again at 3:30PM it is high time for the Mayor to take his nap.

  87. MayorQuimby says:

    That’s funny I was going to say it’s time you woke up.

  88. WoodyW says:

    And then there’s my favorite Buffalo Springfield line:

    “Stick around while the clown who was sick does the trick of destruction”

  89. UncleMilty says:

    Regarding DeDude’s “sensible” solution:

    I hear all the time that the answer to all our problems is to end the wars and kill the Bush tax cuts. The problem is that those two items won’t plug the hole and they won’t stimulate growth. Actually, much of the military spending goes to soldiers and US defense contractors/suppliers. That kind of sounds like stimulous to me. A significant portion of the Bush tax cuts went to middle class folks in the form of a juicy 10% bracket and increased refundable credits. Gee, that sounds like stimulous too, doesn’t it? So which is it? Is stimulous good or bad? Is it working or not?

    We’re at a point where we have to make some nasty decisions about living within our means. The top 25% already pay 90% of the income taxes and nearly half of American’s don’t pay any income taxes at all. At some point, the middle class needs to decide if they want to pay for generous entitlement benefits or not, because there aren’t enough rich people to give the middle class a free ride into retirement, nationalized health care, debt service/repayment, etc.

  90. DeDude says:

    @ Joe Friday;

    Even in normal times it is pretty simple. When the economy is down you have plenty of labor and materials so prices for both are down. That is the “buy low” time to invest in infrastructure. For society there is an extra bonus; the people hired for the jobs don’t have to be paid unemployment support. When the economy later has recovered, it is more expensive in labor and materials, so now you stop all optional infrastructure investments (because it’s the “buy high” time). The savings are the difference between buying high vs. low (plus the added bonus of saving on unemployment support). The only question is whether the interest cost of the loan to get the work done earlier (while the economy is down) somehow is bigger than these savings (and collateral benefits). When the TIPS give you a free 10-year loan it should be a no-brainer. I am as amazed as you are that there are adults who cannot comprehend this.

  91. louis says:

    •You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it’s a Gift to reduce the Debt Held by the Public. Mail your check to:

    Attn Dept G
    Bureau of the Public Debt
    P. O. Box 2188
    Parkersburg, WV 26106-2188

  92. 4whatitsworth says:

    Joe Friday,

    On the stimulus working..

    I am not an economist and I am not sure how one would go about finding the real dollars spent vs invested vs just lost on stimulus. Granted this blog is a bit right wing but here is what it says http://blog.heritage.org/2009/02/12/true-cost-of-stimulus-327-trillion/

    Let’s say the stimulas was 789 Billion US GDP is 14 Trillion so that about 6% if you just gave it away. You say we got 12% benefit but don’t forget we also had QE1 & QE2 and that was a trillion dollars or so. My guess is that was the other 6% you reference. In my view the problem is that not much of this created any sustained economic difference and more of it would be just more of the same.

  93. Greg0658 says:

    UncleMilty I agree the MIC is stimulus to the home front .. but only if we don’t burn it up in foreign war zones .. build it and show it off in parades (+ vehicles running on 85% ethanol ;-) .. and keep the guys eating here in the states
    .. then when the world starts falling apart because there are no cops on the beat .. we can sell some gently used parade vehicles at full price to foreign nations

  94. daredevil23 says:

    @farfetched
    An excellent comment. One can hear the crickets chirping as all the “Wasters” go quiet and pretend that you and your post never happened!

    Also,
    I once heard that the “war on drugs” would only get serious when government agents went into the corporate boardrooms, courtrooms, and legislatures and fulfilled arrest warrants. Which of course hasn’t happened yet…

    Similarly, the “war on debt” will only get serious when EVERYTHING is on the table…. closing military bases, ending foreign wars, cutting entitlements, eliminating corporate welfare, closing tax loopholes, VAT, raising revenue, etc… until then it’s just power politics where the largest “contributors” from the corporate/PAC world bribe/get their way and everyone else without deep pockets pays…

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  96. DeDude says:

    @UncleMilty;

    It is very hard to both plug the hole and stimulate the economy at the same time. I think the short time priority should be stimulate the economy, then when we have good growth it will be much easier to plug the hole (increased tax revenue will do part of it automatically in a growing economy).

    To stimulate without increasing debt to much you have to move money from non- or less-productive activities to highly productive (stimulatory) activities. Soldiers on foreign soil do less to stimulate US economy than soldiers on bases in the US. Fat profits handed out to rent-seekers like Haliburton is less stimulatory than building infrastructure in the US.

    The Bush tax cuts were heavily tilted to high income investor class people. It is true that a few drips landed on lower income consumer class people. However, as a stimulus it was absurdly wasteful. We should let the all run out and then use real stimulatory tax cuts for a few years as needed to help accelerate growth. We could give fair tax cuts where everybody get a $1000 refundable tax credit, and child tax credits, and increases in personal exemption amounts, and reduced social security taxes. All of those are much more stimulatory than the Bush tax cuts because they are targeted at the consumer class.

    The old Fox talking point about how (buh-hu) the “poor” rich people are so much richer than everybody else that they end up (buh-hu) having to pay all the income taxes, does not fly among people here. If its such a big problem then lets give all that income to the poor – then they will be paying more in income taxes and the rich will be helped with this horrible burden of having all that income so they have to pay all that income tax.

  97. [...] I would suggest to nimble traders that they closely watch the quality of any rally after the slide of the past 8 days. From that, you must decide whether to jump back into the fray, or use the opportunity to lighten up your equity exposure. [...]

  98. Joe Friday says:

    4whatitsworth,

    I am not an economist and I am not sure how one would go about finding the real dollars spent vs invested vs just lost on stimulus.

    The CBO, the White House blog, and Krugman have all put out some details.

    Granted this blog is a bit right wing

    Heritage is a fake RightWing front group.

  99. yiyita says:

    Luckily life is not like investing! There are always new possibilities as long as we are open to them and don’t let our “baggage” make us generatlize about all outcomes being the same. We have choices and risks to take but what happens is usually not going to destroy whole economies. Roll with the punches and if you don’t take a risk, you will never find happiness just commiserate about the past. Circumstances are always different.
    In govenment where greed and power we are bound to repeat the McCarthy era in one form or another. We blame others for our misery or loss of income when the blame should be focused on the greed of the super wealthy and the “look the other way” attitude under the Bush administration as well as the first block of the TARP in 2008. It’s more like football there are good teams and bad teams and power but individuals don’t always follow those in power. You had the greed of the 1920s big income disparity like now and the depression and the country almost collapsed with the Tea party equivalent not wanting to fund any programs. We don’t learn from history in politics. Personal and individual situations thankfully are more varied though I do like the Steven Stills song reference!

    JoeFriday says
    August 2nd, 2011 at 1:55 pm
    theexpertisin,

    “I would characterize … the Republicans as The Party of Self Reliance.

    Please.

    Corporate Welfare (including the Military Industrial Complex and farm subsidies for the already wealthy) and tax cuts for the Rich & Corporate, are far and away the largest part of government expenditures. Socialism for the Rich & Corporate is not “Self Reliance”.

    Don’t listen to their propaganda, WATCH WHAT THEY DO.”

    Propaganda comment is spot on. Propagana is a term that begun with the Pope, trying to sell the Catholic Church based on some half truths. I have to agree with this 2nd comment. Basically they are painting minority rule and taking America hostage red, white and blue when it is just taking the country down due to lobbyists. Who pays their bills, how they will get re-elected by the special interests like Fox News who really started the tea party with the help of the Koch family