Surprise Budget Surplus and Austerity

[melveyr]

http://www.reuters.com/article/2013/02/ ... E520130212

This surprise makes me a little more bullish on Treasuries. A lot austerity related language in the State of the Union address as well.

[goodasgold]

http://www.reuters.com/article/2013/02/ ... E520130212

This surprise makes me a little more bullish on Treasuries. A lot austerity related language in the State of the Union address as well.

Talking the talk is one thing, walking the walk is another .

[notsheigetz]

http://www.reuters.com/article/2013/02/ ... E520130212

This surprise makes me a little more bullish on Treasuries. A lot austerity related language in the State of the Union address as well.

Talking the talk is one thing, walking the walk is another .

Not so surprising that transferring $98 billion from the private economy to the government resulted in a windfall for the government. I'm sure it's totally unrelated but Walmart is reporting the worse January sales ever.

As for the austerity talk, I didn't listen to any of it but whatever this president had to say about austerity I would rank alongside "The era of big government is over" and "read my lips, no new taxes" for credibility.

[moda0306]

http://www.reuters.com/article/2013/02/ ... E520130212

This surprise makes me a little more bullish on Treasuries. A lot austerity related language in the State of the Union address as well.

Talking the talk is one thing, walking the walk is another .

Not so surprising that transferring $98 billion from the private economy to the government resulted in a windfall for the government.

Does that mean when the government spends that this is a windfall for the private sector?

[Pointedstick]

Not so surprising that transferring $98 billion from the private economy to the government resulted in a windfall for the government.

Does that mean when the government spends that this is a windfall for the private sector?

Of course... but the devil's in the details. It has to spend on the domestic private sector in a depressed or slack industry. Purchasing foreign goods doesn't help your domestic private sector, and purchasing goods from a domestic industry that's already running at full tilt or close to it will just crowd out private spending in the short-to-medium term until they ramp up more productive capacity. But if the spending drops off after the new capacity appears, there will be a bust as it sits idle.

[goodasgold]

Good points about "era of big government is over" and "read my lips: no new taxes."

I am reading the "Permanent Portfolio" book now, and the chart on pg. 149 detailing the decline in the value of the dollar is enlightening. The dollar has dropped about 80% (yes, EIGHTY percent) during this time period, during which every president has reverently affirmed his commitment to "protecting the value of the dollar."

I thank Harry Browne for pointing out the advantages of owning gold, and this component of the PP may be much more valuable as the U.S. hurtles toward bankruptcy. More and more, I am thinking of taking Harry's advice and salting away some gold abroad, before capital controls are imposed by whatever U.S. president, Repub or Dem, pushes the panic button a la Argentina.

[Pointedstick]

I thank Harry Browne for pointing out the advantages of owning gold, and this component of the PP may be much more valuable as the U.S. hurtles toward bankruptcy.

Nah, not gonna happen. Or at least there's no reason for it to happen unless the politicians decide they want to "declare bankruptcy" and blow up the world economy. That's why we hold gold too. 

The U.S. will always have money to pay bondholders, even if it's with printed, inflated dollars. This was one of Harry Browne's big realizations way back when everyone was holding gold and talking about how the government was going to run out of money. The U.S. will no more run out of money than the scoreboard at a football game will run out of points. And as long as the economy remains in the crapper and private credit creation is low, the government deficit spending can continue without even any serious inflation risks.

[goodasgold]

The U.S. will always have money to pay bondholders, even if it's with printed, inflated dollars.

But what will those inflated dollars buy? Sooner or later, foreign creditors will get a clue, leading to disaster for the U.S. and the world economy. And, speak of the devil, check out what Argentina is doing right now:

http://blogs.the-american-interest.com/ ... ensioners/

In 2008 Argentina confiscated all private pension plans ("for the good of the people") and merged the confiscated funds with the government pension plan, ANSES. Now ANSES is screwing both the former private pensioners and public pensioners as well by refusing to raise pensions to match inflation, and by skewing the inflation statistics to boot (for which Argentina is being threatened with expulsion from the IMF.)

Smart Argentines sent their dollar holdings (and precious metal holdings) outside the country before this catastrophe occurred, and we may benefit from their example.

[notsheigetz]

Nah, not gonna happen. Or at least there's no reason for it to happen unless the politicians decide they want to "declare bankruptcy" and blow up the world economy.

Happy to hear it....

[Pointedstick]

@goodasgold

Throughout the history of the 20th century, there's been a background level of inflation that has ranged from low to not-so-low. Demand for treasuries has remained high even when inflation was at 15%. So in answer to your question, those inflated dollars will buy fewer goods, which is why bonds return you coupon payments. It's all a bet that future inflation will be lower than the current coupon payments over the duration of the bond. And that's not even getting into the capital value of the bond as interest rates change--a concept we exploit for the PP, which often confuses people who look at bonds entirely for their periodic payments.

You're confusing the issue by bringing in retirement plan confiscation, which, while abhorrent, has nothing to do with the desirability of bonds relative to inflation.

Argentines have much bigger things to worry about than their bond returns. If the United States government becomes as bad as the Argentine government is, the same thing will probably apply here too.

@notsheigetz

I'm not saying that the U.S. government isn't stupid, corrupt, violent, or a de-civilizing menace to human freedom. I'm simply saying that nothing can force it to default so long as it remains a currency sovereign at the head of the world economy with the world's reserve currency and the world's largest, most powerful military force backing those advantages. As long as those conditions remain in place, any U.S. default will be by choice, not necessity. We're not Greece or Stockton, CA.

[Reub]

Nah, not gonna happen. Or at least there's no reason for it to happen unless the politicians decide they want to "declare bankruptcy" and blow up the world economy.

Happy to hear it....

LOL! Everything can look so good just before you hit the iceberg!

[moda0306]

We hit the ice berg in 2008. People have been flailing in freezing water ever since.

[MachineGhost]

We hit the ice berg in 2008. People have been flailing in freezing water ever since.

Touche!