Weekend Reading: Fiscal Irresponsibility
Without much fanfare or public discussion, Congress has decided to push the U.S. into deeper fiscal responsibility. Earlier this week, the House passed another Continuing Resolution (CR) to keep the government from “shutting down” prior to the mid-term elections.
“The House on Wednesday passed an $854 billion spending bill to avert an October shutdown, funding large swaths of the government while pushing the funding deadline for others until Dec. 7.
The bill passed by 361-61, a week after the Senate passed an identical measure by a vote of 93-7.”
For almost a decade, Congress has failed to pass, and operate, underneath a budget. Of course, without any repercussions from voters in demanding that Congress “does their job,” the path to fiscal insolvency continues to grow.
The Committee For A Responsible Federal Budget made the following statement:
“We’re pleased policymakers have likely avoided a shutdown and actually appropriated most of this year’s discretionary budget on time. But let’s not forgot that Congress did so without a budget and had to grease the wheels with $153 billion to pass these bills. That isn’t function; it’s a fiscal free-for-all.”
Of course, with trillion-dollar deficits just around the corner, the negative impact from unbridled spending and debt increases will begin to reverse the positive effects from deregulation and tax reform.
The bigger problem with the $854 billion CR just passed by the House, and awaiting the President’s signature, is that it only covers spending from now until December. Such means that by the time we get the full 2019 budget funded, with the annual automatic increases still in place, we will be looking at more than $2 Trillion in annual spending. Such will require further increases in debt issuance at a time when there are potentially fewer buys of Treasuries readily available.
As shown in the chart below, with the major Central Banks reducing their balance sheets simultaneously, some of the more major buyers are being removed from the market.
“Central bank balance sheets have shrunk by over half-a-trillion dollars since March. This decrease in global liquidity – in the face of a global slowdown – raises the risk of policy mistakes much higher than is commonly assumed.” – ECRI
More importantly, next year, sequester-level budget caps will return. The last time budget-caps came into play Ben Bernanke launched QE-3 to offset the economic drag from reduced government spending. Given Central Banks are effectively “out of the game” for now, it is most likely Congress will just bust the budget and then spin it as a “Conservative victory” as they did this year.
As the Committee for a Responsible Federal Budget previously stated:
Debt Is Rising Unsustainably.
Spending Is Growing Faster Than Revenue.
Recent Legislation Will Substantially Worsen the Long-Term Outlook if Extended.
High And Rising Debt Will Have Adverse and Potentially Dangerous Consequences (Will lead to another financial crisis.)
Major Trust Funds Are Headed Toward Insolvency.
Fixing the Debt Will Get Harder the Longer Policymakers Wait.
While the CRFB suggests that lawmakers need to work together to address this bleak fiscal picture now so problems do not compound any further, there is little hope that such will actually be the case given the deep partisanship currently running the country.
As I have stated before, choices will have to be made either by choice or force.
The CRFB agrees with my assessment.
“CBO continues to remind us what we’ve known for a while and seem to be ignoring: the federal budget is on an unsustainable course, particularly over the long term. If policymakers make the tough decisions now – rather than wait until there’s a crisis point for action – the solutions will be fairer and less painful.”
Just something to think about as you catch up on your weekend reading list.
Economy, 2008 & Fed
The ABC’s Of Trade For President Trump by Caroline Baum via MarketWatch
Timing Is Everything by ECRI
Further Tax Cuts, Further Fiscal Irresponsibility by Committee For A Responsible Federal Budget
Aren’t Central Bankers Supposed To Forecast by Rex Nutting via MarketWatch
Underemployment Is the New Unemployment by Leonid Bershidsky via Bloomberg
The Catastrophic Threat To National Security: Debt by Rear Adm. Jamie Barnett via The Hill
How Fed Rate Increases Affect The Economy by Mickey Levy via Economics 21
2-Reasons Surging Deficits Worry Me by Cullen Roche via PragCap
Ford CEO: Tariffs Cost Us $1 Billion In Profits by Tyler Durden via ZeroHedge
The Trade Wars Of Codependency by Stephen Roach via Project Syndicate
Entitlement Crisis Is Looming by Yuval Levin & James Capretta via The Standard
Will The Next Meltdown Be From A Refusal To Curb Debt by IBD
Ken Griffin: The Next Financial Crisis Will Hit In 12-24 Months by Tyler Durden via Zerohedge
Buckle Up – October Is Almost Here by Mark Hulbert via MarketWatch
Howard Marks: The 7-Worst Words In The World by Shawn Langlois via MarketWatch
Do Spectacular Earnings Justing High Stock Prices by Robert J Shiller via Project Syndicate
The Biggest Bubble In The Biggest Bubble Ever by David Hay via Evergreen Gavekal
The “Junkie Market” Is Back Again by Dana Lyons via The Lyons Share
Why Mid-Term Elections Means Stocks Will Surge by Simon Constable via Forbes
The Revenge Of Real Rates by Sid Verma & Luke Kawa via Bloomberg
Are Strong Profits About To End by Ryan Vlastelica via MarketWatch
Will The Fed Trigger The Next Crisis by Jesse Colombo via Forbes
Could This Divergence Lead To A Correction? by Chris Kimble via SeeItMarket
Most Read On RIA
The Two Biggest Threats To This Bull Market by Lance Roberts
15-Bullish Assumptions by Michael Lebowitz
How To Invest For A Hard Landing by Vitaliy Katsenelson
Can You Feel The Complacency by Lance Roberts
Kass: Tops Are Processes – Part Deux by Doug Kass
Party Like It’s 1992 by Lance Roberts
Research / Interesting Reads
Do As They Say, Not As They Do by Jim Quinn via The Burning Platform
Dalio: America Has 2-Years To The Next Recession by Tyler Durden via ZeroHedge
Dotcom Crash Deja Vu by Patrick Hill via The Progressive Ensign
Powell’s Standouts & Zingers by Wolf Richter via Wolf Street
When Will The Everything Bubble Crash by Brandon Smith via Alt-Market
Larry McDonald: It’s Going To Get Really Ugly by Christoph Gisiger via Finanz Und Wirtschaft
How The Crisis Caused A Pension Train Wreck by Yves Smith via Naked Capitalism
Blow To Mainstream Gun Narrative: Homicides Drop by Ryan McMaken via The Mises Institute
10-Years After Lehman: Bubbles & Zombies by Edward Chancellor via ThinkMarkets
5-Books To For The Coming Civil War by Joanne Freeman vis WSJ
Trillion Dollar Deficits In An Age Of Prosperity by Hunt Lawrence via American Spectator
Why We Care About Economic Freedom by Richard Rahn via Washington Times
“There is only one side to the stock market, and it is not the bull side or the bear side, but the right side.” – Jesse Livermore