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Wednesday, November 19, 2008

Really Briefly

You can get Daily Treasury Statements at this link. In Table IV of the DTS you see federal tax deposits. Recent activity:
Aug 2008 136,464 5,095 116
Sep 2008 142,759 57,889 53
Oct 2008 142,514 9,668 662
08 Aug/Sep 279,223 62,984 169
08 Sep/Oct 285,273 67,557 715
FY TD 09 208,673 11,003 717

Aug 2007 140,381 5,430 139
Sept 2007 129,269 77,015 57
Oct 2007 144,841 11,081 714
07 Aug/Sep 269,650 82,445 196
07 Sep/Oct 274,110 88,096 771
FY TD 08 206,546 12,381 776

YoY Changes:

August -2.8% -6.2% -16.5%
September 10.4% -24.8% -7.0%
October -1.6% -12.8% -7.3%
Aug/Sep 3.6% -23.6% -13.8%
Oct/Sep 4.1% -23.3% -7.3%
FY TD ** 1.0% -11.1% -7.6%
** Oct – Nov 14th

WIET 3 Mo 1.7%

WIET = Withheld Income and Employment Tax. CIT = Corporate Income Tax. FUT = Federal Unemployment Tax.

You can use WIET as a proxy for incomes. FUT is a good forward looking barometer on employment, because it is very sensitive to changes in the number of jobs, and especially sensitive to changes in the number of part-time jobs.

Anyway, looking at WIET combined with CPI, it is obvious that employment income is falling significantly behind the cost of living. Today's CPI showed a 12 month overall CPI of 3.7%, a 12 month energy index of 11.5%, and a 12 month food index of 6.3%. However, inflation is now falling rapidly. Under normal circumstances, the consumer trough would be found roughly at the point where WIET YoY - 12 month CPI turns into a positive number! We look to be at least six months out from that.

The major factor in falling inflation is falling energy prices, which dropped 8.9% last month. One thing I noticed in the stores was that the price of food staples was dropping a bit, but the price of slightly higher-grade food immediately rose when gas prices dropped significantly. That 12 month food index may not drop that much.

Needless to say, screwing around with programs that increase the cost of energy (ethanol, carbon caps, wind subsidies) is exactly the wrong thing to do. Increase energy costs and you extend the recession. Really!!!

I also strongly question whether trying to prevent foreclosures for borrowers who are deeply underwater in their homes is worthwhile. I don't see the payback for anyone except those holding the debt. Economically speaking, those people who are very underwater will mostly be able to rent more cheaply, and therefore will recover their overall economic position more quickly.

This isn't a credit crunch. It's the bursting of a credit bubble, and the cure for that is destroying debt and recovering spending income.

Note that the WIET trends shown above will be important for the discussion of the retirement trust funds.

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