Budget Cuts? Who cares!

@Mannwich:

Your 10:34 from yesterday: "I can't imagine these cuts, if they are passed, will be a stimulus to the economy..."

I got to thinking about this.

See http://jsmineset.com/2011/03/12/sp-500-versus-the-feds-balance-sheet/ which establishes a direct relationship between equity price and QE investment.

The Bernank has indicated that he feels the equities price rise will cause the economy to improve, and the government-supplied numbers are up, validating this.

I think this is inaccurate, and short-sighted. The numbers may be up, but the numbers have to go up a whole lot more to have any effect at all. And here’s why:

Let’s work this backwards. There’s about 313 Million people in the US, extrapolating the numbers from the US Census bureau. There’s about 2.59 persons/household, which makes about 121 million households. There are 43 million households receiving foodstamps. That’s about 1/3 of the household economy that doesn’t make enough money to afford food, and get out of poverty. That’s 1/3 of the household economy that can’t buy stuff to make the economy improve.

Let’s work the numbers backwards a little more. According to census.gov, there are about 37% of 313 million under 18 and over 65, probably at a very low employment rate, That leaves around 197 million employable. According to BLS, the number of working people in the US is 168.7 million. That means there are

197 – 168.7 = 28.3 million unemployed. At least.

The government (BLS) says there are 13.5 million unemployed. Somebody’s lying, by 100% (or 50%). Is it the Census bureau, or is it the BLS? I’ll tell you this, if somebody who worked for me was off by 100%, he’d have his hat in his hand in a hurry. But,

Lets go backwards a little further. Let’s assume that the over 65 and under 18 are uniformly distributed over the number of households. That means 116 Million over 121 million households, or about 1 person per household, more or less. That leaves about 1.5 people/household, of which 28.3 million are unemployed. That would mean:

28.3 / 1.5 = 19 million households unemployed
43 – 19 = 24 million households underemployed, assuming the balance of the 43 million foodstamp recipient households are in the underemployed category.

Assuming it takes around 70000 per year to run a household, and assuming the underemployed are at a 50% of the amount necessary to run a household, that means we’re short around 2.1T of GDP.

So this year, assuming a 2% GDP growth, our shortfall is
2.1T – ( .02 * 2.1T) = 1.8T

We the people have to come up with an extra 1.8T in taxes. Not too bad, right? I think US tax revenue is around 2.1T. So just about doubling our tax should cover it. Not gonna happen, you say?

Next year, we have to add that 1.8T shortfall into the equation, because we have to borrow it, we don’t have the GDP to pay for it. So the next year, the equation looks like:

This years shortfall – GDP growth + last year’s shortfall + last years shortfall * interest rate
Or (assuming a 3% bond interest rate, and keeping the same 2% GDP growth rate,)

2.1T – (14.72T * .02) + 1.8T + (.03 * 1.8T) =
2.1T - .2944 + 1.8 + .054T = 3.659T

The following year, this number is
2.1T- ((14.72 + .2944) * .02) +3,659T + (.03 * 3.659T) = 5.56T

So I programmed this into an excel spreadsheet. In 8 years, the debt load is greater than GDP. In 40 years, we have a debt load of 132 Trillion, only about 4* GDP. We don’t pay it off in 100 years.

There is no out for us. We simply have to kill 43 million households.