George Rebane

We read a lot around this house.  Breakfast invariably includes the WSJ and our local Union.  Periodically I get on my high-horse about the asinine columns written by financial reporters, and this morning WSJ’s Mark Gongloff piqued my ire with his ‘no information’ piece on the movement of bond and stock prices yesterday.  Like many of his ilk, he uses notions like ‘investors were buying’ and ‘bond holders were selling’ in the attempt to reveal some causal backing to price movements.  What these sophomores apparently don’t understand – or think that the reader doesn’t understand – is that if investors were buying, then other investors must have been selling.    And if investors were buying/selling from/to other investors, then there is no information in the article, most certainly not any revelation of the causal factors behind the published and now obvious price movements.  Who the hell do guys like Gongloff think is on the other end of the trade, the local neighborhood tapeworm?  All this sounds like stuff being composed (composted?) as editorial content straight out of the Tautology Central School of Journalism.

On to brighter things.  This morning’s Union had a good piece of venting by Jeff Ackerman about the ongoing insanity in Sacramento and how it affects our local Empire Mine State Park.  What I wish Jeff would have explained in more detail was the apparent self-funding aspect of the park.  If it is cost neutral to the state, why close it as a cost saving measure?  Something is missing here.  Also Vicki Fortini wrote an excellent piece on the current Tea Party movement across the country that so irritates those neighbors who would like to see our taxes raised.  Jo Ann and I are part of the dangerous horde of Napolitano’s “right-wing extremists” as witnessed by our recent participation in Tea Party events.  But then you knew that.

Roger Altman, former Clinton Deputy Sec Treasury, advises us that we may soon have a national value added tax (VAT) to fund, in part, Obama’s program of hopeless change.  But more revealing in his 30jun09 WSJ ‘We’ll Need to Raise Taxes Soon’ are the latest economic projections that analyze the Obama budgets to pay for America’s great transformation.  It turns out that bloggers like me were on the money when we called out the White House fiscal propaganda artists a couple of months ago.  We will be running deficits close to 4% of GDP through the next decade (that’s about a trillion dollars a year) which will keep our annual GDP growth at about 2%, and give us a national debt of about 83% of GDP by 2019.  Now those of you with a handy ‘back of the envelope’ can join me in this little exercise – pencils ready?

Today’s GDP is about $14 trillion, so in ten years at 2% per annum growth, our GDP will be 14*(1+0.02)^10 = $17 trillion.  And our national debt will then be 0.83*17 = $14+ trillion.  This debt will be serviced at, say, 5%.  So the annual cost just to service the debt will be 0.05*14 = $700 billion which will be 700/17,000 = 4+% of GDP.  Remember, in all this we are not paying down one penny of the overall national debt.  We’re just making interest payments so the Chinese won’t get piqued (the more polite form of pissed).  The punch line is how all this will impact the hunk that the feds already take out of GDP every year.  During times of prosperity and growth, that fraction has been about 20%.  But as the good professor Art Laffer has shown, we’re on the back side of his curve, so taking out more of the GDP in taxes will most certainly increase our misery index (remember that from the 1970s).  Now you can crumple and toss that envelope. 

One thing you can bet the farm on though, reality will be worse, much worse if hopeless change becomes the law of the land.  (The astute reader can immediately see another compelling reason why the dollar must be inflated to smithereens during this interval.)  Compared to government, Madoff was a piker.