Republicans are once again playing stupid, dangerous games with America’s sovereign credit

 Read: https://newrepublic.com/article/163067/republicans-debt-ceiling-blackmail-credit-default

'In recent years, a number of idiotic right-wingers have actually endorsed defaulting on the debt. Some argue that the people who lent money to the federal government were fools who deserve nothing. Others contend that it will force a massive slashing of federal spending and that the budget will be balanced overnight—bills could only be paid as tax revenue flows into the Treasury (which it does on a very irregular basis). They don’t care that the Treasury lacks the legal authority to decide who gets paid and who doesn’t or that there’s no rational way for it to do so if it had such authority.'

I will only comment that default is inevitable, although I don't see this happening for at least another 20 years.  It would be better to try to extend this date through cutting spending.  The author of the above piece assumes that the government will never default unless done voluntarily.  A partial default would actually be a good thing, and thinking about these issues is a wise move, not a "stupid, dangerous game".

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Does the President have inherent authority under the 14th Amendment to raise the debt limit?

When Republicans came very, very close to defaulting on the debt 10 years ago, a number of legal scholars argued that the Fourteenth Amendment and the president’s inherent constitutional authority could be used by President Obama to simply ignore the debt limit and sell whatever bonds were necessary to finance the spending Congress had already authorized. These included Garret Epps of the University of Baltimore, Michael Abramowicz of George Washington University, Eric Posner of the University of Chicago and Adrian Vermeule of Harvard, Neil Buchanan of the University of Florida and Michael Dorf of Cornell, Jacob Charles of Duke University, and numerous others. Former President Bill Clinton agreed.

https://newrepublic.com/article/163067/republicans-debt-ceiling-blackmail-credit-default

I think he probably does but this is not a good thing.  It would be the equivalent of a king raising taxes without the consent of Parliament.  

The recession only lasted 2 months

See: https://www.zerohedge.com/economics/nber-tells-14-million-jobless-americans-recession-officially-ended-april-2020-shortest

"The committee has determined that a trough in monthly economic activity occurred in the US economy in April 2020," says the Business Cycle Dating Committee of the National Bureau of Economic Research.. "The previous peak in economic activity occurred in February 2020. The recession lasted two months, which makes it the shortest US recession on record."

I think there could be a double-dip, like the early 1980s.

44 to 48 year cycle

 I've mentioned before that there seems to be a 44 or 48 year cycle, with Trump being a repeat of Nixon and Harding.  And now we have the incompetent Biden, who reminds us of Jimmy Carter and Herbert Hoover.  (I am skipping over Ford and Coolidge).

So just for fun, let's look at events 44 years ago, and then 48 years before that.  (I am not trying to say that there will be a stock market crash this fall or the start of another Great Depression, but I am looking for other commonalities).

July 2021 - Inflation is back like it hasn't been since the 1970s, with the CPI (consumer price index up 5.4% over the last year).  Gas prices are soaring (the energy index is up 24.5% over the past year).  New York was heavily flooded by Tropical Storm Elsa.  The Covid pandemic continues.

July 1977 - The CPI for July 1977 was 0.49% for an annualized rate of 6.83%. The New York City blackout of July 13, 1977 lasts for 25 hours, resulting in looting and disorder.  There was a fake swine flu pandemic in 1976.

July 1929 - Nothing comparable happened.  The inflation rate for 1929 was 0.0%.  There was an influenza epidemic in 1928-1929 which killed an estimated 50,000 people in the United States over what would be expected (excess mortality).

Ok, so much for that theory.  But I wonder, did inflation ever soar during the roaring 1920s?

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Update: Politico sees a comparison with FDR.  So look at July 1933.

In a city of interest groups, “the descendants [of FDR's cabinet],” as they refer to themselves in frequent press releases and op-eds, are among the more unusual. They are determined to polish the legacy of America’s 32nd president by pushing the 46th to embrace a legislative agenda as transformational as the New Deal. They want Joe Biden to embrace the idea of an “activist” government.

https://www.politico.com/news/magazine/2021/08/01/fdr-cabinet-descendents-new-deal-biden-progressive-500659

Another CBO update

 See: https://www.cbo.gov/publication/57344

This is similar to their previous update, but this has more graphs.  The funniest thing about it is this joke: "After spiking in 2021 and falling in 2022, inflation increases in 2023 and remains slightly above the Federal Reserve’s long-run goal of 2 percent for several years."  The chart shows inflation spiking to about 2.5% in 2021 and then dropping back to 2% in 2022.  They need to talk to the Department of Labor which just showed inflation at 5.4% for the last year.  So this report is pure fantasy.

Total Societal Collapse by 2040

 Read: https://www.dailymail.co.uk/sciencetech/article-9788957/MITs-1972-prediction-collapse-society-track-happen-2040-study-reveals.html

'At around 2020, the condition of the planet becomes highly critical. If we do nothing about it, the quality of life goes down to zero,' [MIT Professor Jerry] Foster said in a 1973 ABC segment.  'Pollution becomes so seriously it will start to kill people, which in turn will cause the population to diminish, lower than it was in the 1900. At this stage, around 2040 to 2050, civilized life as we know it on this planet will cease to exist.'

See also https://www.vice.com/en/article/z3xw3x/new-research-vindicates-1972-mit-prediction-that-society-will-collapse-soon

Inflation officially hits 5.4% which is the highest since 1983

 The official chart the Department of Labor is here: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm .  It shows that inflation for all items was 5.4%, and for energy it was 24.5%.

The cost of living adjustment (COLA) for social security recipients will be announced in October, and it may be as high as 6.1%.  In 1983, the COLA increase was 7.4%.  So this will be the highest increase in 39 years.

The Budget Deficit for June 2021 was $173 Billion

 The federal government incurred a deficit of $173 billion in June 2021, CBO estimates, compared with a shortfall of $864 billion in June 2020. The federal budget deficit was $2.2 trillion [$2,237 trillion] in the first nine months of fiscal year 2021, the Congressional Budget Office estimates—$508 billion less than the deficit recorded during the same period last year.  https://www.cbo.gov/system/files/2021-07/57288-MBR.pdf

There are still 3 months left in the fiscal year, and the total deficit for FY 2021 should be about $2.7 trillion.  If the infrastructure stimulus bill passes, then the deficit will be higher.  The FY 2020 deficit was $3.1 trillion, so it is possible that the 2021 deficit will be higher than that, although the infrastructure bill will be spread out over several years.

Update (7/13/21):  Note that the YTD spending for FY 2021 is higher than this point last year: 5,293 in 2021 v 5,004 in 2020.  Revenues in 2021 are much higher than in 2020 which is why the deficit is lower.  

The latest CBO projections are that spending will drop sharply in 2022 (by about $1.3 trillion).  I consider this highly unlikely.  

The Boiler Room

 

2021 Intergenerational Report from Australia

 Read it at: https://treasury.gov.au/publication/2021-intergenerational-report

This is a 40 year forecast for Australia.  Apparently it talks about the need to be more fiscally stable in the future by cutting spending and raising taxes, and this makes the MMTers mad, because they believe we can have a free lunch forever.  Read: http://bilbo.economicoutlook.net/blog/?p=47857

New CBO Report

 The Congressional Budget Office issued a new report on July 1, 2021.  They project that the fiscal 2021 budget deficit will be $3.0 trillion (up from $2.3 trillion in their previous forecast) .  I estimated the 2021 deficit as $2.7 trillion so their projection is bigger than mine, that is, things are even worse than I anticipated.

For 2022, they project the deficit to be only $1.15 trillion, and then 2023 will be only $789 billion. These numbers are laughable low.  I don't think we will ever have an annual deficit of less than $1.5 trillion again.  

I'm not going to update my forecast right now.  Maybe after the infrastructure bill passes.

M5 as of June 30 2021

 M5 is my measure of money that includes M2, plus debt held by the public, less Treasuries owned by the Fed. Here is the current measure:

As of 6/30/21:

M2 (as of 5/1/21):  20,370.1

Public Debt (as of 6/30/21):  22,329.8

Fed Held (as of 6/30/21): -5,183.4

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Total: 37,516.5

On 5/31/21, this was at 37,042.3 and on 9/30/20 it was at 35,296.8. So for May, it was up an annualized amout of 15.4%.  This number is up 2,219.7 fiscal year-to-date, which is an annual inflation rate of 9.4%.  Needless to say, this is not sustainable.

Inflation is complex and doesn't affect prices equally.  There is inflation in housing prices, energy, food, wages, etc.  But one factor is the rate of increase in the expanded money supply, and as I have shown that is increasing about 9% per year.