The Big Spenders running for the Dem nomination have been talking up a storm about expanded social programs, new green initiatives, free stuff for college kids and other deserving folks, and a bigger and better Welfare State generally. So its not surprising that the GOP spinmeisters have reverted to their tried and true talking points, warning about how the Dems are fixing to saddle America with a socialist dystopia if given half the chance in the 2020 elections.
So you might call the chart below a WTF moment. It shows the annualized rate of Federal spending gain since 2012 when the American economy had pretty much stabilized after the Great Recession and its aftermath, and it suggests the GOP might want to retool its talking points or, failing that, take our old haunts at OMB to task for printing Fake Numbers.
In fact, if you are under the delusion that the GOP is still the party of fiscal prudence, to say nothing of rectitude, these figures pretty much have to be fake.
After all, during the 12 months ending in September 2019, Federal spending rose at a $307 billion per annum rate or 118% faster than the $141 billion rate of gain recorded under Obama in Q4 2016; and more than 5X the $60 billion average rate of spending gain between Q4 2012 and Q4 2016.
Annualized Rate Of Federal Spending Change ($ billion)
The purpose of the above chart, however, is not simply to point out the Trumpified GOP’s utter dereliction of duty when it comes to its fundamental raison d’ etre. That is, resisting the encroachment of the state on capitalist prosperity and personal liberty, which once upon a time it pursued with zeal and relish.
The more crucial point is that the twin threat of the Warfare State and Welfare State now has a complete hammerlock on both political parties. Yet even as the Trumpified GOP has embraced “guns and butter” with LBJ-style elan, it has also doubled down on its anti-tax allergy as exemplified by it’s $1.7 trillion tax cut paid for on Uncle Sam’s credit card.
Accordingly, the GOP has now become the far the more dangerous party fiscally. As a newly complicit Big Spender and long-standing tax-cutter, it has been transformed into a veritable battering ram for runaway public debt.
It has become a fiscal miscreant, actually.
And the latter, of course, has played right into the hands of the Keynesian fools who control the nation’s central bank. Against all evidence and economic logic, they fanatically believe that pegging the money market interest rate to the second decimal place is their sacred duty.
They are not loathe, therefore, to pump literally insane amounts of fiat credit into the bond pits in order to suppress any interest rate in any precinct of the money and debt market which gets out of line. In recent months, especially, their zeal has put you in mind of bloody-eyed hunters clubbing baby seals.
Needless to say, in their zeal to club interest rates down to their policy targets they ignore entirely the fact that they are massively monetizing the public debt, thereby enabling the bipartisan fiscal debauch to rage unabated and the GOP specifically to remain AWOL on its most important function.
For instance, as of June 30, 2019 the Federal debt held by the public stood at $16.19 trillion. That compares to $17.16 trillion on Monday (January 13th) and means that the bond pits have been flooded by $969 billion of new Treasury paper in the interim.
For want of doubt, this means that Uncle Sam has been emitting new debt at a $1.8 trillion annual rate since last June.
And it also means that the change in interest rates between these two dates is absolutely wacky. All of that new treasury paper came on top of surging credit take downs by Wall Street speculators, who got back into the Fed front-running business as soon as Pitiful Powell threw in the towel last winter and signaled that interest rate normalization and balance sheet shrinkage (QT) were done, and that it would soon be reeving-up the printing presses once again.
In an honest market, therefore, interest rates would have been rising smartly in order to ration off excess demand and induce additional supplies of real money savings.
Of course, in a market totally pickled in Fed liquidity injections, the very opposite happened. The Fed funds rate actually declined from 2.40% on July 3rd to 1.54% on Tuesday.
So the Print-A-Thon has resumed with a vengeance. Not only has the Fed’s balance sheet already expanded by $400 billion from its August lows (with $60 billion per month of T-bill POMOs in the pipeline), but the Eccles Building has now abandoned any pretense at all that the size of its balance sheet matters or that massive scale monetization of the public debt troubles it in the slightest.
In fact, the upward notch at the right margin of the chart may prove to be one of the greatest inflection points in financial history.