3rd Quarter GDP: 3.5% Increase

US Federal Deficit As Percent Of GDP

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Health Care Reform and the Budget Deficit

In the Mid-Session Review of the 2010 Budget issued last August, the Administration estimated that we were on a path that would result in a cumulative deficit over the ten-year budget window from 2010 to 2019 of $9 trillion...

Finally, by far the lion’s share of the projected cumulative deficit is due to policy actions taken in the last Administration. Economists Alan Auerbach and William Gale find that policies from the last eight years that we failed to pay for, including cutting taxes, introducing a new entitlement program for prescription drug benefits, and fighting two wars, are contributing approximately $700 billion per year to the budget deficit. Before those actions were taken, we had been on track to run large budget surpluses over the coming decade.

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Marc Faber: On the Dollar and the Economy

On Bernanke: "He's a money printer. He does that well."

Cartoon: Life Ain't Fair

Cartoon: Bank Failures

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Housing Crisis

Cartoon: Goldman Sachs

Stimulus or Sowing the Seeds of Depression?

Government intervention, in all of its forms, distorts the market place; it directs scarce resources away from productive ventures to unproductive ventures. The measures, taxation, borrowing, and monetary inflation, which the government utilizes to pay for the extravagances of its various stimulus proposals and other constitutionally dubious programs, generate negative economic consequences. Economic prosperity is the product of innovative entrepreneurs who use capital, which is derived from real savings, to produce additional goods and services that market participants can purchase at lower prices. The government stimulus plans encourage capital consumption, which reduces the supply of goods available to consumers, and lays the foundation for an economic depression. The government’s response to the current economic crisis is the identical policies that contributed to the Great Depression. This is not the appropriate foundation for long term economic prosperity, but the inappropriate path to economic ruin.

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My thoughts: An outstanding essay.

Housing Crisis Round 2

These helped frame where we are in the mortgage crisis, which has been the main shark in the water over the past couple of years. You should know where that shark is and whether or not it is hungry…

Clearly, it is not yet safe to get back in the water: Years 2010 and 2011 face big resets in so-called Alt-A and Option ARM loans. What this means is more write-downs and more losses for banks and others who hold these mortgages.

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Cartoon: Pay Czar

Is Limited Government an Oxymoron?

Lessons of 1920-21

History is nothing but a long list of disasters in chronological order. Historians love calamity...

Harding was the last American president to deal honestly with a major financial crisis. Every president since has tried to scam his way out of it.

By the time Harding took office in ’21 the Panic of 1920 was taking the unemployment rate from 4% to nearly 12%. GDP fell 17%. Then, as now, the president’s subordinates urged him to intervene. Secretary of Commerce Herbert Hoover wanted to meddle – as he would 10 years later. But Harding resisted. No bailouts. No stimulus. No monetary policy. No fiscal policy. Harding had a better approach; he cut government spending and went out to play poker...

“No statute enacted by man can repeal the inexorable laws of nature,” he announced. “Our most dangerous tendency is to expect too much of government…”

Harding was not the first to see the economy as a ‘natural’ order…one that you disturbed at your peril. A Taoist named Zhuangzi, who lived about the same time as Alexander, observed: “Good order results spontaneously when things are let alone.”...

Keynes came along a few years later. Keynes was a genius; everybody said so. And he had an answer for everything. Nature? Government could do better. Debt? Don’t worry about it, he said. Why not just let capitalism sort itself out? Without government intervention, it will only get worse, said Keynes.

But Harding had already proved him wrong. Harding did the very opposite of what Keynes recommended. Instead of increasing government spending, he reduced it. He cut the budget almost in half. He slashed taxes too…and cut the national debt by a third...

This lesson was entirely lost on the world’s economists. When the next crisis hit a decade later, they turned to Keynes. Of course, it turned out to be a moral world after all. They got what they deserved.

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Tom Woods and Steve Forbes on the Economic Crisis

Permanent Job Loss

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FY 2009 Budget Deficit $1.42

The Obama administration on Friday said the government ran a $1.42 trillion deficit in fiscal year 2009.

That made it the worst year on record since World War II, according to data from the Treasury and the White House Office of Management and Budget.

Tax receipts for the year fell 16.6% overall, while spending soared 18.2% compared to fiscal year 2008. The causes: rising unemployment, the economic slowdown and the extraordinary measures taken by lawmakers to stem the economic meltdown that hit in fall 2008.

Consequently, the annual deficit rose 212% to the record dollar amount of $1.42 trillion, from $455 billion a year earlier.

As a share of the economy, the deficit accounted for 10% of gross domestic product, up from 3.2% in 2008. As breath-taking as that may be, it's still not in the same stratosphere as the 1945 deficit, which hit 21% of GDP.

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The Dow Hits 10,000

Stocks rallied Wednesday afternoon, with the Dow industrials briefly touching 10,000 for the first time in over a year, following better-than-expected quarterly profit reports from Intel and JPMorgan Chase.

The Dow Jones industrial average (INDU)rose as high as 10,001.58 with about 2-1/2 hours left in the session. It then stepped back slightly, to a gain of 128 points, or 1.3%, to 9,997.
The last time the Dow crossed 10,000 during a trading session was Oct. 7, 2008, when it briefly touched 10,124.03...

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Cartoon: Congress and Lobbyists

Minimum Wage to Decline

Colorado will become the first state to reduce its minimum wage because of a falling cost of living.

The state Department of Labor and Employment ordered the wage down to $7.24 from $7.28. That's lower than the federal minimum wage of $7.25, so most minimum wage workers would lose only 3 cents an hour.

Colorado is one of 10 states where the minimum wage is tied to inflation. The indexing is thought to protect low-wage workers from having flat wages as the cost of living goes up.

But because Colorado's provision allows wage declines, the minimum wage will drop because of a falling consumer price index. It will be the first decrease in any state since the federal minimum wage law was passed in 1938.

"We can't see that there would be any other option" except lowering the wage, department spokesman Bill Thoennes said Tuesday. He said there will still be a public hearing on the question in early November, though the drop appears inevitable. The lower wage will take effect Jan. 1.

Advocacy groups for the poor have been warning of the wage drop since August, when the consumer price index for the Denver area was released. The index fell 0.6 percent between the middle of 2008 and the middle of 2009, mostly as a result of falling fuel prices.

Other states with adjustable minimum wages have seen their consumer price indexes fall, such as Ohio. But Colorado is one of the few states where the law is interpreted to mean the wage can fall. Other states are planning to keep wages flat.

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