Monday, May 18, 2009

US Government Spending Consumes World GDP

The final bill for the Global War on Savers will be vastly larger than the final bill for the Global War on Terror.

Peak Nominal GDP
Ballpark figures rounded to nearest Trillion (T) to ease understanding

(updated figures)

World’s 10 Biggest Economies
$17T = EU
$14T = US
$4T = Japan
$3T = China
$1T each(descending) = Canada, Brazil, Russia, India, Mexico, S. Korea

$55T = World
$20T = World except top 3 (EU, US, Japan)
$11T = World except top 10

First, think of all the Chinese things you buy, the jokes that “everything” bought in America is made in China, and think of the total labor of 1.3 BILLION people in China:

US 2009 federal budget ($3T) = GDP of China

The problem with consuming China is that half an hour later Nancy Pelosi is hungry again.

US 2009 federal deficit ($2T) = GDP of India and Mexico combined (or GDP of wealthy Italy, a G7 country)

The $2T deficit is not the US federal government total spending, that $2T is only the EXTRA spending beyond the federal government’s income (overdrawn your account), as in:

“Oops, silly us, we accidentally spent an extra Italy."

That is a deficit nearly equal to every single item produced by Italy, down to the last ravioli.

Remember, an Italy here, an Italy there, and pretty soon you are talking real money.

US 2008 government spending (federal/state/local) ($5T) = GDP of China, India, and half of Russia combined (about 2 ½ billion people) (or GDP of wealthy Japan and S. Korea combined)

US governments spent 5 TRILLION dollars of your money in 1 year alone (more than the total annual output/income of 2 ½ BILLION people) yet moan that they didn’t have enough money to fill potholes or fix leaky school roofs. They accidentally must have misplaced the $5T, or spent the $5T on something else--they can’t quite remember--so this year they helped themselves to another $5T--plus a 6th trillion of your money--just, you know, because.

US 2009 government spending (federal/state/local) ($6T) = GDP of China, India, Russia, and a quarter of Brazil combined (or GDP of wealthy Japan, S. Korea, and half of Canada combined)

US debt today ($11T) = the entire world’s GDP except the top 10 economies (counting the EU as 1 economy), greater than the entire annual production of several continents including all of South America, Africa, and Australia combined.

Obama plans to almost DOUBLE that debt to $20T.

US debt after Obama’s plan ($20T) = the entire world’s GDP except the top 3 economies.

Remember to include US unfunded liabilities that you owe (Social Security, Medicare, etc.):

US Unfunded liabilities ($50T-$70T) = the entire GDP of PLANET EARTH

Obama Fiddles while Rome Burns:

The U.S. Government's unsustainable debt-spending overconsumption and consumer-debt overconsumption policies will cripple not only the US economy but also the world economy.

Sunday, May 17, 2009

Obama's Personal Bailout By Taxpayers?

Debtor in Chief Obama failed to manage his own household family budget well.

Barack Obama ran his own household family budget like a stereotypical overspending, over-indebted yuppie:

It is no surprise that President Obama supports unprecedented spending and borrowing in the federal budget since he has never suffered any consequences from the excessive spending and borrowing in his private life.

And I'm not just talking about the First Lady's $540 sneakers.

A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005 . . .

This means they spent perhaps $80,000 beyond their income from 1999 to 2004. ("President Obama's troubling mantra: In debt, we trust," Richard Henry Lee, Daily News, 5/2/09)

Obama's "Home ATM": Equity Harvesting with Mortgage Equity Withrawals (MEW)

The Obamas took out so many loans that their mortgage exceeded the purchase price of their home, because they used their home as an ATM and ate their home equity via a MEW to cash in on the housing bubble to finance things like $10k in piano and dance lessons and other consumption.

The "home ATM" (MEW) was a major cause of the bubble and, after house/asset prices inevitably contracted to saner levels, the resulting underwater borrowers (owing more than house is worth), foreclosures, and economic crash.

The home ATM (MEW) accounted for 75% of GDP growth between 2003 and 2006. (Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, Barry Ritholtz 2009, hat tip: Eddy Elfenbein, Seeking Alpha)

That unhealthy "growth" was overreaching people overheating your economy by overextending themselves with debt.

Obama is the type of person who CAUSED the foreclosure mess yet somehow he has been promoted to be in charge of fixing it.

A classic political platitude is to say that the government budget should be run like a household budget. If Obama runs the federal budget like he ran his own finances, we are all in deep trouble.

Obama's financial fortunes did not turn around until he became a US senator and cashed in on his new national celebrity:

But in 2005, Obama's book sales soared and the royalties poured in. Michelle explained, "It was like Jack and his magic beans."

Yes, a taxpayer-funded job can be quite a cash cow.

Maybe Obama's next economic recovery plan will make every American a senator.

It is no wonder that Obama's federal budget plans assume that money suddenly will appear out of nowhere sometime in the future and make our deficit problems vanish.

Sudden multi-millionaire Obama again cashed in (now on the presidency) with a lucrative $500,000 book deal signed only 5 days before his inauguration and took a trip to Europe to hobnob with European royalty while mocking average American workers by starting their paltry $13/week tax cut on April Fool's Day.

Ask not what your government can do for you, ask what you can do for Obama.

Taxpayer-funded tourists Barack and Michelle Obama in Europe pose with British Queen Elizabeth II.

Friday, May 15, 2009

The Great Pre-Recovery and other Orwellian Newspeak

Satire Becomes Reality in Our Economic Theater of the Absurd

I previously satirized the fanciful, pollyanish economic spin of the bubble bulls by coining the following phrase:

The Great Pre-Recovery

The Great Pre-Recovery is an Orwellian euphemism for The Great Depression II (our current economy).


The Great Pre-Recovery satirized the real attempt to push nationalization with the term, "pre-privatization"--shamelessly using the term "privatization" to describe the opposite of privatization, the end of private property (government siezure).

Pre-privatized is like a bank robber demanding a pre-deposit at gunpoint.

Bush could have described his Iraq invasion as a pre-withdrawal.

Pre-recovery is the opposite of recovery, before recovery, the lack of any recovery.

Now, truth is as strange as fiction as a real financial analyst uses the "pre-recovery" term:

“The data says contraction is slowing,” said Andrew Richman, who oversees $10 billion in fixed-income assets as a strategist in West Palm Beach, Florida, for SunTrust Bank’s personal-asset management division. “It’s a sign of pre- recovery and it’s negative for Treasuries.” ("Treasuries Fall as Reports Show Improved Manufacturing Outlook," Susanne Walker, Bloomberg, 5/15/09, Hat tip: Mish)
Parody is difficult when real-life "experts"/"leaders" reach new levels of absurdity every day.

More surreal analogies:

A Christman Carol: Ghosts of Christmas
(May 2009)

Orwellian Newspeak (Doublespeak): Doubleplusgood (July 2008)

Vietnam War 5 O'Clock Follies (Nov. 2007)*Correctly Called Recession

Alice in Wonderland (Oct. 2007)

Science Fiction analogies:

Brazil (1985): Spoor and Dowser "fix" the ductwork (May 2009)

Star Trek (1966): Evil-Twin Captain Kirk Asserts Command (May 2009)

Spaceballs (1987): "Lord Dark Helmet" Bernanke Goes to Plaid (October 2008)

Thursday, May 14, 2009

Stimulus Bailout Malinvestment Nightmare To Come

You will be haunted by 3 ghosts, the Ghost of Malinvestments Past, the Ghost of Malinvestments Present, and the Ghost of Malinvestments Yet To Come.

GHOST OF MALINVESTMENT PAST (Pre-Peak Housing/Credit Bubble)

Past is Prologue: America learned nothing from the 1990s Asian real estate bubble and 1997 Asian financial crisis that left Asia littered with derelict"modern ruins," the "ghost towers":


We instead launched our own stock and housing bubbles even as the Asian bubble imploded.

The massive oversupply of residential buildings (houses/homes, condos) and commercial real estate (CRE) (malls, auto dealerships, coffee shops) not only wastes resources in their initial construction but further wastes resources when the resulting infrastructure is destroyed, either by negligence (frozen water pipes in abandoned buildings), vandalism, or deliberate economic decision.

Bulldozing Brand New Houses

The classic joke about the malinvestment of make-work, the absurdity of paying people to dig holes and then paying people to fill those holes, is now a reality as owners are bulldozing brand new houses in Victorville California.

If there is a picture in the dictionary for malinvestment, bulldozing Victorville's housing-bubble homes could be it:


Apocolypse Now Lt. Col. Bill Kilgore says,
"I love the smell of malinvestments in the morning....Smells like...Victorville."


Obama embraces the Vietnam War cliche, "to destroy the village in order to save it" (often attributed to a US major regarding the destruction of Ben Tre, 1968):
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline. . . . The US government is looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature. . . . Local [Flint Michigan] politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area. ("US Cities May Have To Be Bulldozed to Survive,", Tom Leonard, 6/12/09, hat tip: Beemer)

GHOST OF MALINVESTMENT PRESENT (Post-Peak Housing/Credit Bubble)

Sob stories about alleged credit crunches and tight budgets do not match ongoing profligacy.

Multi-Million-Dollar School Swimming Pools Despite Financial Crisis

NYC Co-Op City Harry S. Truman school is trying to spend at least $3 million dollars on an olympic-sized swimming pool:
"People keep thinking of having a pool as a luxury, but it's not," said Truman Principal Sana Nasser. "It's just as crucial as learning arithmetic and reading, as far as I'm concerned." ("Co-op City calls for restoration of Harry Truman High School pools," Tanyanika Samuels, New York Daily News, 6/16/08)
Painting Ourselves into a Corner with Multi-Million-Dollar Art Subsidies Despite Financial Crisis

A public-radio commentator suggested that stimulus should subsidize public-radio commentators, citing New Deal subsidies for writers and artists.

Another public-radio ( NPR) commentator talked of an "arts czar" and "arts corps," praising $50 million for 14,000 NEA art jobs.

During the [Obama] transition, arts advocates floated some big ideas—including the creation of an arts corps to bring young artists into underfunded schools, the expansion of unemployment support and job retraining to people working in creative industries and the appointment of a senior-level "arts czar" in the administration. . . . In January they lobbied for $50 million for the NEA in the stimulus package and prevailed over Republican opposition. The one-time allocation will preserve more than 14,000 jobs, allow for new stimulus grants and leverage hundreds of millions more in private support for the arts. Two million Americans list "artist" as their primary occupation. Nearly 6 million workers are employed in the nonprofit arts-and-culture complex. In the words of the NEA's Patrice Walker Powell, the stimulus vote finally "dignified [them] as part of the American workforce." ("The Creativity Stimulus," Jeff Chang, NPR, 4/22/09)

Strangling the Economy in Red Tape and Parasitic Grants

The "recovery" programs are preventing recovery by converting all economic activity into begging for government hand-outs ("rent seeking"--transfering wealth made by others instead of creating wealth).

Cumberland County Maine grants coordinator Elizabeth Trice (?) is “spending a lot of time” on groping for stimulus funds and wading through a maze of mostly irrelevant material.

Hundreds of county and city officials attended a 9-hour White House Recovery and Reinvestment Act Implementation Conference in Washington DC.

National Association of Counties President-Elect Valerie Brown called the byzantine welfare mess“exciting” and “wonderful.” ("Local Governments Tackle Federal Grant Process," Elizabeth Blair, NPR, 3/25/09)


The grants and other "stimulus" programs will have the opposite effect and mire the economy in a morass of fraud, corruption, rent seeking, squandered labor, wasted resources, misallocation of capital, crowding-out (government spending monopoly starves productive investments of funds), and hyper debt.
The FBI is bracing for a wave of fraud and corruption cases stemming from the government's multitrillion-dollar effort to get the economy moving again, the agency's chief told Congress Wednesday. ("FBI: Stimulus, Bailout Will Lead to More Fraud," 3/25/09)
UPDATE 9/16/09: I hate to say I told you so but Congress presented Malinvestment Exhibit A, Cash for Clunkers.

Obama is trying to perpetuate Bush's "guns and butter" debt bubble while pretending to favor sound economic policy and pretending to solve the economic crisis.

What will America's epitaph be?

Wednesday, May 13, 2009

FHA Pushes Subprime-Style Risky Lending, Car Loans Continue Easy Credit, Producing Underwater Borrowers

FHA uses Obama's home-buying $8k tax credit to push DAP money-laundering scheme to resume risky, lax lending that leads to higher rates of default and foreclosure.

The FHA previously complained that Downpayment Assistance Programs (DAP) circumvented downpayment requirements (often surreptitiously seller-financed through a shell non-profit organization), so the borrower had no skin in the game and was more likely to default.

Now, the FHA is evading its own downpayment requirements to keep the housing/credit bubble going at all costs.

I warned about FHA's risky lending in June 2007:

Congress Christens FHA Our New National Casino

Government's New Housing Math: Seller Pays the Buyer

The American Recovery and Reinvestment Act of 2009 will PREVENT recovery because it DISCOURAGES investment (downpayment on asset) . . .

. . . not to mention that non-rented, owner-occupied residential housing is not a productive investment in the economic sense, it is consumption.


Desperate retailers push easy credit in face of higher inventory/supply and lower demand.

General Motors (GM) announces plans to close 40% of GM dealerships (2,600 by the end of 2010). ("GM Cuts Worry Minority-Owned ealers," Sarah Hulett for Michigan Radio, NPR, 5/13/09)

Michael Johnson's Chevrolet dealership cut staff in half (50%).

Michael Johnson's Chevrolet dealership has an 8-month backlog of vehicle inventory (part of a global supply glut of automobiles warehoused in lots and ports).

Easy credit means car buyers are underwater the second they drive off the lot.

The Chevy dealership was accepting a $1k downpayment on a new $24k Chevy Trailblazer, which is less than 5% downpayment, but a brand new car loses 20% of value the moment you drive it off the lot, leaving the buyer immediately underwater (owing more than the asset is worth, a condition associated with high default and repossession/foreclosure rates).

Continued insufficient, zero, or even negative downpayments shows that the so-called "credit crunch" actually perpetuates risky, lax lending and set the highest US consumer-credit level in history.

Exporting the Unemployed, Debt: Japan and USA, China Cancels US Credit Card

Japan's newest export is unemployed people.

Japan is paying its unemployed to leave the country and never return, offering Y300,000 per unemployed person and Y200,000 per dependent (roughly $3K and $2k). The government is targeting immigrants such as Latin Americans of ethnic Japanese descent, including over 300,000 Brazilians, who had migrated to Japan during a tighter labor market in Japan.

United States exports its unemployed.

Mexicans who entered the United States for work (housing bubble, construction boom) are returning to Mexico because of the U.S. recession, a reversal which reduces real unemployment in the USA but also further reduces demand for housing, house prices, and other consumer consumption (it also adds to the Mexican powder keg's list of woes: lower remittance income from abroad, lower demand for maquiladora output, higher unemployment, lower oil prices/revenue, depleted oil reserves, drug wars, H1N1 "swine flu," etc).

Notice in the illegal-immigrant case how the free market auto-regulates the supply of labor (self-regulating).

Obama plans to export (exile) civilian labor to Afghanistan (the LBJ Vietnam War solution to unemployment).

United States' greatest export is debt (and inflation).

The USA fueled its consumer binge by replacing export of industrial manufactured goods with export of its dollars and debt (causing inflation in other countries)--the export visible in the current accounts deficits of double the "sustainable" level (near 6% instead of the still dubious but popularly cited 3%).

"The U.S. Current Account Deficit and the Expected Share of World Output" (Charles Engel, University of Wisconsin, NBER, John H. Rogers, Board of Governors of the Federal Reserve System, Number 856, March 2006)

China "cancelled America's credit card." (Congressman Mark Kirk (R-IL), House Appropriations Committee)

Obama's record deficits plan to fund his spending binge with a greater export of debt but foreigners have started to balk, first by foreigners net-selling Mortgage-Backed Securities (MBS) as embodied in Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, and now by foreigners net-selling Treasuries as Obama, Pelosi, Bernanke etc. try to guarantee everything under the Sun from toxic Mortgage-Backed Securities (MBS) to Chryler warranties to Joe Sixpack's delinquent credit-card balance under the fancy label of Asset-Backed Securities (ABS).

Update: China is bypassing the dollar with countries such as Argentina and Brazil: "Brazil and China eye plan to axe dollar" (hat tip: RockyR).

Foreigners are beginning to learn that the US government scammed foreign investors with toxic assets.

What happens when the debt conveyer belt stops and the USA loses its greatest export, unsustainable debt?

Monday, May 4, 2009

Obama and Bernanke Enforce Dystopian Farce

"Political Cartoons" Below

Do you have your 27B-stroke-6?

TARPistanian President Obama, Federal Reserve Chairman Ben Bernanke, and the rest of the Rube Goldberg crew seem to be enforcing Terry Gilliam's 1985 dystopian farce, Brazil, with its Central Services government (dis)functionary repairmen, Spoor and Dowser.

"So we can differ on some of the particulars, but . . . doing nothing, that's not an option from my perspective."--Barack Obama, 2/9/09 press conference
Ben "Spoor" Bernanke: "Economies don't fix THEMSELVES!"
Barack "Dowser" Obama: "Don'tfixthemselvessir!"

"[G]et the credit markets flowing again, because that's the lifeblood of the economy."--Barack Obama, 2/9/09 press conference
Ben "Spoor" Bernanke: "This is an H2206, authorizing the compulsory, temporary, requistioning of this economy . . . for unnecessary repairs."
Barack "Dowser" Obama: "Repairs!"

Why the "repairs" are unnecessary:

Credit was and is too cheap.
It's not a credit supply crunch.
Credit levels hit record high.
Government "doing something" is what caused the mess.
The "reforms" perpetuate the problems.
The "solutions" prevent the solution.

Friday, May 1, 2009

Obama Ruined Budget for Obama: Inherited Deficit, Economic Crisis from Himself

President Obama inherited massive deficits from . . . Senator Obama.

"First of all, when I hear that from folks who presided over a doubling of the national debt, then I just want them to not engage in some revisionist history. I inherited the deficit that we have right now, and the economic crisis that we have right now." (Barack Obama, 2/9/09 press conference)
When Obama blamed the other guy, the media apparently chose not to notice that the other guy was also Obama.

Congress controls the purse strings.

Senator Obama voted for spending:
  • $700 Billion Wall Street bailout 2008 (HR1424)
  • $16 TRILLION 2008-2013 (S CON RES 70)
(Barack Obama's Senate voting record)

Majorities voting FOR deficit-deepening bailout:
  • 81% Senate Democrats (including Obama's "Yes, we can!")
  • 73% House Democrats
  • 69% Senate Republicans
Majorities voting AGAINST deficit-deepening bailout:
  • 54% House Republicans
(H.R.1424 roll call votes)

Obama forgot to tell us that the Newt Gingrich-started budget surpluses disappeared when Obama's Democratic party took control of the Senate in 2001.

Obama forgot to tell us that (as a percent of GDP):
  • Deficits increased after Democrats took the Senate in 2001.
  • Deficits decreased after Republicans took the Senate in 2003.
  • Deficits exploded after Democrats took both the Senate and House in 2007.
Republicans Zigged. Democrats Zagged.

Obama the president must be awfully upset at his evil twin Obama the senator who allowed the then biggest deficit in U.S. history.

Evil-Twin Captain Kirk says,

When not doing the seemingly impossible of making Comrade Bush look frugal in comparison, Obama made the following comments in a 2/9/09 press conference which show that, years into the economic problems, he remains clueless and 180-degrees backwards:
"We stand to lose about $1 trillion worth of demand this year and another trillion next year."
No, we stand to SAVE $1 Trillion per year by not buying things we do not need (that is what lower demand means)--but Obama apparently hates savers.
"And what that means is you've got this gaping hole in the economy."
No, we have a gargantuan, excess bubble that has deflated only slightly and still needs to be lanced like a fetid boil--but Obama cannot tell the difference between a bubble and a hole in the ground.
"The auditorium is completely broken down; they can't use it. So why wouldn't we want to build state-of-the-art schools . . . ?"
Because we do not have the money (that is what deficit means), we are already $11 Trillion in debt, and America does not need yet another Roman colosseum (school auditorium).
"I don't think it's accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies based on shaky assets. And because of the enormous leverage . . . That led to a contraction of credit, which in turn meant businesses couldn't make payroll or make inventories, which meant that everybody became uncertain about the future of the economy, so people started making decisions accordingly -- reducing investment, initiated layoffs -- which in turn made things worse. . . . Our immediate job is to stop the downward spiral, and that means putting money into consumers' pockets, it means loosening up credit."
No, loose credit is the problem (not the solution)--and the risky, shaky assets WERE the consumer spending (such as going into debt for RVs--RECREATIONAL vehicles) and unviable businesses (such as oversaturation of gourmet coffee shops that only cannibalize each other)--so we need to LET Joe and Jane unwind their unsustainable debt spending to make things better (spiral down, not lever up again) --but Obama is blocking Joe's and Jane's solutions and perpetuating the plague of loose credit that started the mess.
"We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the "lost decade" where essentially for the entire '90s they did not see any significant economic growth."
No, they did not see economic growth BECAUSE the Japanese government acted TOO boldy in bailouts and stimulus, which trapped resources in zombie companies, wasted resources in malinvestments, and consumed the very resources needed for recovery (crowding out), thereby bleeding and starving the productive private sector--and PREVENTING the recovery.

Obama's "normalizing the credit markets" is trying to normalize an unsustainable bubble. Who knows how many great discoveries or medical cures we already lost because the government is monopolizing the economy for political purposes?