Patterico's Pontifications

9/4/2023

Um, About “Bidenomics”. . .

Filed under: General — JVW @ 6:53 pm

[guest post by JVW]

While the assorted band of idiots and lunatics in the White House attempts to take a victory lap over the relatively low unemployment rate and a decreasing level of inflation, the real world threatens to intervene:

The federal deficit is projected to roughly double this year, as bigger interest payments and lower tax receipts widen the nation’s spending imbalance despite robust overall economic growth.

After the government’s record spending in 2020 and 2021 to combat the impact of covid-19, the deficit dropped by the greatest amount ever in 2022, falling from close to $3 trillion to roughly $1 trillion. But rather than continue to fall to its pre-pandemic levels, the deficit then shot upward. Budget experts now project that it will probably rise to about $2 trillion for the fiscal year that ends Sept. 30, according to the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for lower deficits. (These numbers ignore President Biden’s $400 billion student debt cancellation policy, which was struck down by the Supreme Court this year and never took effect.)

You know you’re reading the Washington Post when in the very next sentence they claim that the rise in the deficit is “unexpected,” which is absolute hogwash to anyone who had their eyes open during the Democrats’ spending orgy of 2021-22. The piece quotes former Obama Administration economic advisor Jason Furman, now a professor at Harvard naturally, claiming that our current economic growth rate of 2.1% represents “a good and strong economy.” So the Obama Administration, now manifest under Joe Biden, continues their longstanding campaign to lower economic expectations and convince the American people that mediocrity is in fact excellence, though one imagines that the chattering classes would deride this level of growth as insufficient were a Republican in the Oval Office.

The Trump Administration tax cuts of 2017 expire later this year, and though Democrats will almost certainly cooperate in renewing them for most taxpayers (this being an election year, after all), there will no doubt be a real donnybrook regarding just how far up the income ladder those cuts will be extended. Meanwhile, this rise in the deficit puts the lie to the Biden Administration’s claim that they are paying for all of their spending, which nobody with a modicum of sense should ever have believed.

So why did the deficit explode on us this year? Well gosh, it turns out that maybe the Biden economy isn’t so robust after all:

The Treasury Department is also on track to take in substantially less in new revenue this year, in part because of the stock market’s slump last year. In 2021, amid a cryptocurrency bubble and an explosion in housing prices driven by rock-bottom interest rates, investors recorded huge gains that led them to pay capital gains taxes at record levels. But then the bubble burst, leading to a sharp drop in capital gains tax revenue. Automatic adjustments to the tax brackets to account for inflation also reduced tax obligations for many Americans, resulting in less incoming revenue relative to last year.

And as anyone could have told you, the inflation spike which so flummoxed Janet Yellen had long-term consequences:

Then a number of other spending increases contributed to the rising deficit — Social Security payments increased because they are indexed to inflation; the government spent more on education, veterans benefits and health care; and the bipartisan infrastructure law, as well as the 2022 Inflation Reduction Act, started sending billions of dollars out from the government’s accounts.

The usual gaggle of big-spending progressives are already arguing that this crisis is overblown and that the U.S. can easily handle these levels of debt for years to come. Yet they always are forced to acknowledge that eventually there will be a reckoning (they just hope it will be when the GOP is running things in Washington). I fear we are accelerating that date quite rapidly and it will be sooner rather than later when we have to face up to our irresponsibility.

– JVW

Comments (26)

26 Responses to “Um, About “Bidenomics”. . .”

Oh, and we also are coming up against yet another debt ceiling debate and possible government shutdown. It promises to be a fun autumn.
JVW (1ad43e) — 9/4/2023 @ 6:55 pm
Unemployment will remain low as federal minimum wage is meaningless thanks to inflation. You can’t find workers at 7.25 an hour. Mississippi want to make people work for minimum wage ;but can’t make them work for chump change like they can prisoners.
asset (56a740) — 9/4/2023 @ 9:47 pm
One data point: Collectable comic book prices are down as much as 30% in the last year to 18 months, particularly at the high end (>$1000). This market is pretty dependent on disposable income.
Kevin M (ed969f) — 9/4/2023 @ 10:03 pm
One, Bidenomics is a stupid phrase because it has no meaning.
Two, I’ll feel better about our economy if inflation gets close to 2% and our deficits get under $1 trillion.
Three, when it comes to tariffs, Bidenomics is Trumpnomics.
Paul Montagu (d52d7d) — 9/5/2023 @ 6:47 am
My father taught me that there are two rules that are key to good governance:

1. We are all in this together.

2. There is no free lunch.

He observed that the right doesn’t understand the first of these, while the left is unable to understand the second.

I will gladly vote for any candidate who can show that his public service demonstrates an appreciation of both rules.
John Boddie (18ca17) — 9/5/2023 @ 7:29 am
@1

Oh, and we also are coming up against yet another debt ceiling debate and possible government shutdown. It promises to be a fun autumn.

JVW (1ad43e) — 9/4/2023 @ 6:55 pm

Am I a monster rooting for a shutdown?

At least big spending and changes are halted…
whembly (5f7596) — 9/5/2023 @ 8:40 am
I remember #Funemployment. Politicians always, always lie to support their narrative. Ugh.
Simon Jester (c8876d) — 9/5/2023 @ 9:04 am
New rule: Any year the US budget finishes the year in deficit, one member of Congress is picked at random and take out and shot.
Kevin M (ed969f) — 9/5/2023 @ 9:11 am
I will gladly vote for any candidate who can show that his public service demonstrates an appreciation of both rules.

It used to be that most people understood both of these, but nowadays people don’t even admit that they are “in this” together with their next-door neighbor or that scamming the system is a problem.

It’s not just our elected representatives.
Kevin M (ed969f) — 9/5/2023 @ 9:13 am
That’s a great Shirley Jackson vibe, Kevin!
Simon Jester (c8876d) — 9/5/2023 @ 9:15 am
Real Estate Industry in Panic Mode:

45% Drop in Home Purchases – Bigger Than ’08! Home sales are now down 31% in 2023.

Without transactions, many jobs that are commission oriented are seeing huge declines in incomes. Real estate agents, mortgage brokers, title insurance, home inspectors. All of the various categories are entering a depressions from lack of transactions.

Voting for Biden is voting to destroy America to save it.
NJRob (eb56c3) — 9/5/2023 @ 11:38 am
Voting for Biden is voting to destroy America to save it.

NJRob (eb56c3) — 9/5/2023 @ 11:38 am

Recessions come and go, no matter which party controls the Presidency, and they don’t destroy America.

Terminating the constitution would destroy America. So far, between Biden and Trump, only one has stated an intention to terminate the Constitution.
norcal (cbfd8e) — 9/5/2023 @ 12:03 pm
One data point: Collectable comic book prices are down as much as 30% in the last year to 18 months, particularly at the high end (>$1000). This market is pretty dependent on disposable income.

Kevin M (ed969f) — 9/4/2023 @ 10:03 pm

My friend the baseball card collector and seller, who has over 90 boxes of baseball cards, told me that the market for cards is down markedly.
norcal (cbfd8e) — 9/5/2023 @ 12:05 pm
TBF, there was a big run-up in collectable prices during and after the pandemic.
Kevin M (ed969f) — 9/5/2023 @ 12:14 pm
@14 Yes. He made out big time selling cards during that period. IIRC, he got $7000 for a Mike Trout rookie card. He also got close to that for a Jose Altuve card.
norcal (cbfd8e) — 9/5/2023 @ 12:18 pm
, as bigger interest payments and lower tax receipts widen the nation’s spending imbalance despite robust overall economic growth.

Well, who’s causing that?

It’s not Biden.

It’s Jerome Powell and the rest of the Federal Reserve Board..

But Biden will never say that — nor will the Republicans. Both attribute all good and all bad economic news to politicians.

The Federal Reserve Board is getting to work starting bankrupting the
country-and itself.

https://thehill.com/opinion/finance/3955889-the-fed-is-bankrupt

…The Fed has experienced significant operating losses over the last six months, which have exhausted its existing capital. Those losses represent foregone revenue to the U.S. Treasury…

…When the bulk of the Fed’s quantitative easing (QE) programs took place in 2020 and 2021, market rates on long-term Treasury bonds fluctuated mostly in the range of 1.5 to 2.0 percent. At the time, the Fed was paying interest on bank reserves and overnight reverse repurchase (ONRRP) agreements of 0.15 or less. The Fed profited on the difference between the higher rate it received from its bond purchases minus the lower rates it paid on reserves and ONRRPs.

Now, the Fed has raised the interest it pays to 4.8 percent on ONRRPs and 4.9 percent on bank reserves, but the rates it earns on its QE purchases remain mostly unchanged.

Assuming, as a rough approximation, that the bonds it purchased pay an average rate of 1.75 percent, and the average rate paid on bank reserves and ONRRPs is 4.85 percent, then the Fed is paying about 3.1 percent per year more than it receives on its $7.88 trillion dollar securities portfolio. That’s a loss of $244 billion per year!

A bankrupt central bank?

In traditional layman’s terms, the Fed is bankrupt — and I don’t just mean intellectually.

Like a private bank, the Fed maintains some level of capital as a buffer against losses. When those losses exceed the value of its capital, the Fed becomes insolvent, meaning the liabilities it owes to others are greater than the total value of the assets it holds.

The most recent data show that the Fed owes the Treasury over $48 billion, which exceeds its total capital. The Fed, by common standards, is insolvent.

Deceptively deferred assets

What does the Fed do when its liabilities exceed its assets? It doesn’t go into legal bankruptcy like a private company would. Instead, it creates fictitious accounts on the assets side of its balance sheet, known as “deferred assets,” to offset its increasing liabilities.

Deferred assets represent cash inflows the Fed expects in the future that will offset funds it owes to the Treasury. As the Fed describes, “The deferred asset is the amount of net earnings the Reserve Banks will need to realize before their remittances to the U.S. Treasury resume.” The Fed had already accrued $48 billion in deferred assets, and the amount is only getting larger.

The advantage to deferred assets is that the Fed can continue its normal operations without disruption, although considering the 40-year high inflation, its recent performance has been less than ideal.

The disadvantage is that, at a time when the Fed is already worsening the U.S. fiscal position by raising interest rates (and therefore interest payments on the federal debt), it is further robbing the Treasury of revenues by deferring them into the future. Those deferred payments, of course, must be shouldered by American taxpayers until the Fed’s remittances resume….

….. If any private bank behaved this irresponsibly, regulators, such as the Fed or Federal Deposit Insurance Corporation (FDIC), would force it to close. Bank managers would lose their jobs and incomes.

It is never necessary – or useful- to “fight inflation” by raising interest rates.

If left alone, inflation will go away by itself in a few years like it did in the late 1940s.
Sammy Finkelman (1d215a) — 9/5/2023 @ 2:58 pm
The piece quotes former Obama Administration economic advisor Jason Furman, now a professor at Harvard naturally, claiming that our current economic growth rate of 2.1% represents “a good and strong economy.”

No, it’s not. Maybe PaulRyan can believe that, or that is as good as it gets, but nobody should.

By the way, this figure is never adjusted for population.
Sammy Finkelman (1d215a) — 9/5/2023 @ 3:01 pm
Treasury Secretary Janet Yellen said she was wrong a year ago when she said she anticipated inflation would be “a small risk,” “manageable” and “not a problem.”

She wasn’t wrong

She and everyone else was wrong about how long it would take to adjust.
It was transitory, but it takes a few years for the supply curve to catch up with the demand curve.
Sammy Finkelman (1d215a) — 9/5/2023 @ 3:04 pm
I have heard this diatribe every time a democrat is in office. When a republican in office where you going to get the money to pay for tax cut for the wealthy and defense spending is not asked by conservative media and elected officials. When AOC was asked where are you going to get the money to pay for it. She answered the same place you got the money for tax cuts and military spending. When gorbychave disappear for a week in 1990 every currency in the world dropped in value but two the swiss frank that was backed by gold and the american dollar which is backed by thermo nuclear weapons. When u.s. economy sneezes all the other economies gets sick.
asset (b14b8a) — 9/5/2023 @ 5:31 pm
There’s a good chart of spending, revenue, and deficit levels at https://twitter.com/TheValuesVoter/status/1660164533833420801.
SamG (8d2ed1) — 9/6/2023 @ 10:17 am
https://nypost.com/2023/09/04/credit-card-and-car-loan-defaults-hit-10-year-high-as-inflation-squeezes-families/

Yay. Bidenomics
NJRob (3a7a07) — 9/6/2023 @ 12:05 pm
My previous comment was deleted, not sure why – so re-posting with additional text.

There’s a good chart of revenue, spending, deficit and debt changes over the past thirty years at https://twitter.com/TheValuesVoter/status/1660164533833420801/photo/1. The poster provided control of POTUS, Senate, and House for the periods in questions. As taken from another tweet in the thread: “During this time period, the deficit grew 12 times. The Republicans controlled the House during 8 of those times. Only 2 of those 8 times coincided with a recession. The Democrats controlled the House during 4 of those times. 3 of those 4 times coincided with a recession.”

Also from the thread is this tweet, pointing out the coincidence that most recessions have started under GOP POTUS and most Dem POTUS have taken office in the aftermath.

Another thing to note: of the ~47mil jobs created since 1989, ~47.3mil were created when a Democrat was POTUS.

The “conventional wisdom” that Republicans are better for the economy isn’t borne out by the numbers.

[Apologies, SamG, your comments were caught in our moderation filter. I think the reason is because your email address is similar to — but not the same as — a banned troll at this site, and unfortunately the WordPress filter “matches inside words” and flags them for moderation, so for example, if the word “press” is flagged for moderation then the word “WordPress” would be filtered. I’m trying to figure out a way where I can white-list your email address, but perhaps just approving these comments will trigger that. – JVW]
SamG (8d2ed1) — 9/6/2023 @ 12:54 pm
Inflation isn’t squeezing people who owe money on credit cards and variable-rate auto loans – the Federal Reserve Board is.
Sammy Finkelman (1d215a) — 9/6/2023 @ 1:29 pm
[Apologies, SamG, your comments were caught in our moderation filter. I think the reason is because your email address is similar to — but not the same as — a banned troll at this site, and unfortunately the WordPress filter “matches inside words” and flags them for moderation, so for example, if the word “press” is flagged for moderation then the word “WordPress” would be filtered. I’m trying to figure out a way where I can white-list your email address, but perhaps just approving these comments will trigger that. – JVW]

What a detailed, considerate explanation. Seriously, no snark.
lurker (cd7cd4) — 9/6/2023 @ 4:05 pm
The “conventional wisdom” that Republicans are better for the economy isn’t borne out by the numbers.

This way of comparison omits key details. We have only had two GOP Presidents in the last 30 years, George W. Bush and Donald J. Trump. Bush took office in the aftermath of the Enron scandal and the dot-com market collapse. In the last year of the Clinton Presidency (thank Heaven there has only been one to write about), the NASDAQ dropped from 8,100 in March 2000 down to 3,700 shortly after Bush was inaugurated, with the Dow Jones losing 15% of its value. And then of course there was the terrorist attacks of September 2001 and the subsequent twenty years of combatting global terror. At the end of the Bush Presidency, as the economy had climbed back to late 90s levels of activity, the housing crash ruined everything. And then with Trump, obviously the economy was doing well right up until COVID shut the world down.

So when you look at a bipartisan failure to understand the underlying volatility in the dot com industry in the late 90s, combined with the bipartisan failure to address the problems with bad house loans in the 2000s (recall that the Bush Administration expressed concern about subprime mortgages, only to be told by Barney Frank that nothing was the matter with them), and then with the Kung Flu of 2020, which nobody could have adequately prepared for, I think this whole nonsense about “Republican Administrations create poor economies; Democrat Administrations create good ones” is completely superficial and silly. But I get how easy it is to make that point if you are dealing with a crowd that has a blinkered idea of cause and effect.
JVW (1ad43e) — 9/6/2023 @ 5:28 pm
Why the democratic party establishment are slime and AOC must destroy them. RFK on fox has been told if he campaigns in Iowa and new hampshire his votes in those primaries will not be counted as courts have ruled political parties are private organizations and can set their own rules even though tax payer money to pay for primaries. RFK says they will make him pay for democrats party cost for those primaries. This is why they are more evil then trump.
asset (443bae) — 9/8/2023 @ 11:07 pm

9/4/2023

Um, About “Bidenomics”. . .

26 Responses to “Um, About “Bidenomics”. . .”

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