SPX - Federal Tax Receipts - Deficits Set to Explode!
TL;DR: What this means, in simple terms, is that the US debt is already at nose bleed levels and has been PRIOR to the global shutdown, the shutdown just making it worse and is impacting the stock market, which is a big driver for US receipts, this in turn with push the deficit higher, i am anticipating deficits that are at levels seen in the GFC (10% or higher) and i expect those to continue for quite some time.
To better understand why the Fed and the US government are pulling out all the stops to "save" the markets, one first must first begin to understand the incestuous relationship between the financial markets and the US government.
Now, that is a long, long story, far too long for here and certainly not on this medium.
But, this chart summarizes the relationship quite nicely:
This is the SPX (blue line) overlaid with the US federal receipts (US income) and the lower baseline chart is the surplus (green) or deficit (red) expressed as a percentage of GDP.
As you can clearly see, US receipts are currently very correlated with the stock market stock market, however, this was not always the case.
US receipts and SPX (log scale)
It is when the market and indeed the economy started to become "financialized" i.e. moving money around became a segment of the economy, that this relationship really took off.
This is most likely due to governments preferring to opt for "easy" money rather than encouraging productive labor and real economic growth (harder to fudge that it seems).
Back to the chart at hand
The other point of interest is the surplus/deficit as a percentage of GDP, you will note that each financial crisis, the tech wreck, GFC and undoubtedly the global shutdown when that data is made available, the deficit never was able to "normalize" it was always started from a higher low, in other words, the deficit is in an uptrend.
This leads to the obvious conclusion that if the deficit was 10% in the GFC, then what will the deficit be when the entire global economy is shutdown for a period of weeks or even months?
Also, the astute of you will notice the period of "surplus" and whilst it is nice to think warm and fuzzy thoughts about a time when the US wasn't spending money like a drunken sailor, when you look at the Federal debt over the same period, you will notice an INCREASE, not a decrease, i.e. there was no true surplus that paid down debt.
There was NO surplus
What makes this truly terrible however, is when you look at the overall level of debt that the US has.
US Federal Debt as a Percentage of GDP
We are already well over 106%
So much for the "best economy ever"
What this means, in simple terms, is that the US debt is already at nose bleed levels and has been PRIOR to the global shutdown, the shutdown just making it worse and is impacting the stock market, which is a big driver for US receipts, this in turn with push the deficit higher, i am anticipating deficits that are at levels seen in the GFC (10% or higher) and i expect those to continue for quite some time.
This is not even touching on the issue of confidence in the US monetary system, or the fact that the US is now officially dependent on artificially low interest rates to service it's current debt load, notwithstanding the added burden from the shutdown.
This is one of the key reasons that the stock market MUST be re-inflated, at all costs.
The government and the Federal Reserve (because they are separate entities) both know that main street is f*cked to put it bluntly, the impact from the shutdown is causing small and mid sized businesses to bleed, this will crush GDP and exacerbate the debt issues.
Sooooo, they will inflate the stock markets, to alleviate some of the pressure on the whole thing, but it will ultimately cause a host of other issues down the line, far too many to discuss at this time.
That, and the Fed never misses a chance to bailout their buddies, it is one of the small pleasures that they derive, that and debasing the currency supply for the rest of us.
-TradingEdge
To better understand why the Fed and the US government are pulling out all the stops to "save" the markets, one first must first begin to understand the incestuous relationship between the financial markets and the US government.
Now, that is a long, long story, far too long for here and certainly not on this medium.
But, this chart summarizes the relationship quite nicely:
This is the SPX (blue line) overlaid with the US federal receipts (US income) and the lower baseline chart is the surplus (green) or deficit (red) expressed as a percentage of GDP.
As you can clearly see, US receipts are currently very correlated with the stock market stock market, however, this was not always the case.
US receipts and SPX (log scale)
It is when the market and indeed the economy started to become "financialized" i.e. moving money around became a segment of the economy, that this relationship really took off.
This is most likely due to governments preferring to opt for "easy" money rather than encouraging productive labor and real economic growth (harder to fudge that it seems).
Back to the chart at hand
The other point of interest is the surplus/deficit as a percentage of GDP, you will note that each financial crisis, the tech wreck, GFC and undoubtedly the global shutdown when that data is made available, the deficit never was able to "normalize" it was always started from a higher low, in other words, the deficit is in an uptrend.
This leads to the obvious conclusion that if the deficit was 10% in the GFC, then what will the deficit be when the entire global economy is shutdown for a period of weeks or even months?
Also, the astute of you will notice the period of "surplus" and whilst it is nice to think warm and fuzzy thoughts about a time when the US wasn't spending money like a drunken sailor, when you look at the Federal debt over the same period, you will notice an INCREASE, not a decrease, i.e. there was no true surplus that paid down debt.
There was NO surplus
What makes this truly terrible however, is when you look at the overall level of debt that the US has.
US Federal Debt as a Percentage of GDP
We are already well over 106%
So much for the "best economy ever"
What this means, in simple terms, is that the US debt is already at nose bleed levels and has been PRIOR to the global shutdown, the shutdown just making it worse and is impacting the stock market, which is a big driver for US receipts, this in turn with push the deficit higher, i am anticipating deficits that are at levels seen in the GFC (10% or higher) and i expect those to continue for quite some time.
This is not even touching on the issue of confidence in the US monetary system, or the fact that the US is now officially dependent on artificially low interest rates to service it's current debt load, notwithstanding the added burden from the shutdown.
This is one of the key reasons that the stock market MUST be re-inflated, at all costs.
The government and the Federal Reserve (because they are separate entities) both know that main street is f*cked to put it bluntly, the impact from the shutdown is causing small and mid sized businesses to bleed, this will crush GDP and exacerbate the debt issues.
Sooooo, they will inflate the stock markets, to alleviate some of the pressure on the whole thing, but it will ultimately cause a host of other issues down the line, far too many to discuss at this time.
That, and the Fed never misses a chance to bailout their buddies, it is one of the small pleasures that they derive, that and debasing the currency supply for the rest of us.
-TradingEdge
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