In the first of an occasional series, The Slog looks at some diverse symptoms of things going badly wrong in the world’s economies.
This isn’t a particularly clever idea for a series, but neither is it miscellany for the sake of it. Most days, I come across facts and statistics casually presented in the media, and think ‘that’s important’. But it’s not enough for a post – and no other related things turn up that day – so effectively the signpost (for want of a better word) remains where it was – old, bent, and behind a hedge where very few people can see it. In the eye of the Owl is designed to collect some of them together now and then – if only to silence the what-are-you-on-about-you-old-misery-everything’s-just-fine tendency.
Raising taxes in a depression
For instance, today – in The Daily Beast of all places – I learned that US Federal Taxes are at their lowest percentage of GDP since the Korean War. This is a crucial fact bnecause it demonstrates the unintended knock-on effect that typifies most economics, and thus ensures that it is a form of alchemic craft rather than science. Credit gets out of hand and bang, three years down the line the national debt is getting bigger because everyone’s unemployed and thus not paying tax. (This is far more fiscally damaging than them getting welfare, a fact that most Tories beyond Iain Duncan-Smith seem unable to grasp.)
Of course, with the Beast you have to verify all their stats, because Tina Brown (while obviously very talented) is really the thinking man’s astrologist; her hubby is a journalist of great depth and distinction, but his missus isn’t. (At the end of the piece, the US National Debt is given as $1.5 trillion. I think Bernanke would open the ’93 Krug if it was anything like as small as that.)
Anyway, the point is this: the US is now in a vicious fiscal spiral from which it cannot escape – without somebody forgiving the debt at some stage further down the road.
Getting off the pension pot
Some of you may remember me wittering on last year about the madness of pension funds being neck-deep in commercial property investments. It’d be hard to imagine a dumber thing to be in, but today I spotted, at Zero Hedge, that 55% of UK pension funds are invested in stock market equities. That’s the highest proprtion in the world by some distance.
The Slog retains its view that equities must take a hammering sooner rather than later, but to be in the stock and commercial property markets right now….well, I only hope you have a SIPP, and keep a close eye on your management team.
The US debt laid end to end
The Congress v Obama wrestling match enters its tenth round with most observers still convinced that the bout is fixed – but they may yet be proved wrong. Bloomberg today confirmed The Slog’s worries of last week by pointing out just how tough the GOP and its Tea Party wing intend to be.
Although senior Republicans have reversed quietly away from the November election pledge to cut Federal spending by $100 billion (nice round number, that) the TP barrack-room lawyers aren’t having any of it. Their nuclear option, of course, would be not to grant any increase in the Federal Debt ceiling…which, despite what Tina Brown thinks, is $13 trillion, not 1.5.
What I would ask you to do, however, is look at the what even the most extreme Tea Partier thinks the cut should be, and then work out that this is just a 130th of the total US debt. Now when a debt is 130 times bigger than the correction Creationists want, you know it’s a big debt. What you know, in fact, is that it’s a loony, mind-bogglingly surreal amount of money to owe…and as a number, really belongs in one of those Discovery Channel programmes about the Universe.
The probability is that the US debt won’t be cut at all, because by the time bond yields have risen, the cost of borrowing will easily have wiped out the savings currently being argued about on the Hill.
And this is the world’s powerhouse economy we’re talking about.