Fixing the Deficit

Welcome to This Week’s Leyendecker View

Hope clouds observation.
– Frank Herbert in Dune, his 1965 novel.

THINKING OUT LOUD

Fixing the Deficit

The math is easy, the process is not.

In May of this year, a bipartisan group projected that 2024’s federal budget deficit would be around $1.06 TRILLION. But now the most recent estimate suggests this year’s deficit will hit $1.9T. This bipartisan group needs some sharper minds. You think we’ll exceed $2T this year?

A trillion is a million millions. If you stacked up a trillion dollar bills, they would reach 67,866 miles into space. If you spent $40 a second, it would take you 792.5 years to spend it all. But here’s the real stunner—go back a trillion seconds, and we’d be at 30,000 BC.

Yep, a trillion is a lot. And this year it appears our federal government is going to spend an extra $2T without blinking an eye. 

The US federal government currently has about $34T in debt. Ten years ago, it was around $17T. Twenty years ago, it was around $7T. It first eclipsed a trillion in 1982. We’ve been living beyond our means for a long time.

All manner of financial, economic and everyday pundits are warning us that the US has too much government debt and that adding $2Ts a year is not sustainable. Even Federal Reserve Chairman Jerome Powell said a couple weeks ago that we needed to cut our annual budget deficits sooner than later.

OK, let’s start with the easy math. Here’s the standard way we calculate annual gross domestic product (GDP):

GDP = C + I + G + T

C = consumption (consumer spending)
I = capital investment by the private sector
G = government spending
T = net trade, either a plus (trade surplus) or a minus (trade deficit)

Let’s ponder these GDP inputs.

Consumption: Today consumption (consumer spending) is starting to waffle. Consumers no longer have free Covid money from the government, and inflation is eating away at their spending potential.

Investment: President Biden’s Infrastructure, CHIPS and Inflation Reduction Acts have pushed money into the private sector for investment. Hopefully all this cash triggers our domestic economic growth, but when and why?

Government: Today, government spending is at a $2T annual deficit to tax collections.

Net Trade: The US has been in a perpetual trade deficit for years, meaning our dollars are being exported to prop up other countries’ economies rather than being recycled internally. Last year our trade deficit was $773.4B. That’s $773.4B that we sent to other countries via trade.

To make things sort of fair, we need to subtract from our trade deficit the amount of money foreign companies invested in the United States. Totals from 2023 do not seem to be available, yet the BEA suggests 2022 foreign direct investment into the US was about $177.5B. But then there’s the money workers in the US send to their families abroad. In 2023, Mexican workers in the US sent around $63B to their families back home.

Simple, but not totally accurate, math suggests we’re sending other countries a lot more money than they are investing in the US. 

All the deficit and debt hawks think we need to do something ASAP to resolve our inability to live within our means, but no one seems to understand one simple piece of math…

If the federal government is contributing an extra $2T to GDP, then reducing that government spending will require some kind of replacement, either from other GDP contributors, or more fiscal and/or monetary stimulus, or tax increases. Or maybe it’s a combination of all these influences.

We’ve all been reading about and waiting for the Fed to lower interest rates, which is a kind of monetary stimulus. It is intended to incentivize consumption and investment. But we don’t know when rates will fall and by how much. And we also don’t know how our current global challenges may influence inflation. If inflation remains sticky for longer, then rates will likely be higher for longer.

The US is in a pickle. Europe is, too. Private sector economic output is not growing fast enough to take up the slack if the government were to cut spending. No matter who is elected president, if the federal government reduces spending and its annual deficit, there better be some kind of plan to replace that lost federal spending, or recession will be imminent.

THE ECONOMIC VIEW

Consumer confidence rises
Lower inflation helps.

Job creation starts to sputter
Fed clears path for rate cut
How far and fast will they cut?

The post-Covid US factory boom
Is losing steam

INFLATION, DEFLATION OR BOTH?

Pharma prices up 35% in 2023
Don’t get sick!!!

Stamp prices to rise again
Faster than inflation.
Overall mailing costs up 7.8%

Fast food inflation the last 10 years
Have our wages increased 100%?

THE LABOR VIEW

Jobless claims rise somewhat
Job openings fall marginally in June
Hiring subsides, unemployment rise
While productivity growth increases
And wage growth slows

Employers demand workers return to office.
Yet 93% of CEOs are absent

MOUNT OLYMPICS

The Frenchman who dreamed up the Olympics
Fitting they’re in Paris this year.

The economics of hosting
Are not good.

Some highlights…
A “99-yard” run as time runs out
Stephen Nedoroscik nails the pommel horse
Simone Biles anchors USA team to gold

MEANWHILE IN EUROPE

Italy’s PM sours on Brussels
She’s not a fan of bureaucrats.
While Brussels scolds the UK

UK experiences riots
Is Europe a Muslim tinderbox?

Europe’s energy crisis is over
For now, anyway.

THE GLOBAL GAME

Venezuela’s Maduro claims victory
After being way behind in the polls.
Venezuelans take to the streets
Maduro may arrest opposition candidates
He controls the military and the courts.
US says Maduro really lost election
Many Venezuelans are losing hope
Up to one-third want to leave the country.

THE UKRAINE FIRE

Ukrainian drones hit Russian jet
Drones rule, baby!

F-16s arrive in Ukraine
How will they fight drones?

Russians are moving to South America
Fleeing war.

THE GAZA FIRE

Hezbollah rocket kills 12 Israelis
Israel of course retaliates
US & Germany tell citizens to leave Lebanon
Israel strikes Beirut, killing Hezbollah commander
Takes out top Hamas commander in Iran
But there’s internal trouble in Israel
Iran vows revenge
Time to brace for a wider war?

THE SLIPPERY SLOPE

Wall Street Journal reporter comes home
Did Russia win this round?

US launches Tokyo military command
Likely won’t make China happy.

Kremlin unhappy with Olympics ban
Snubbed by Western organizers.

FINANCE

Commodity prices are tumbling
Investors anticipate global slowdown.

Ares raises record $34B credit fund
Do investors now prefer credit over equity?

Investors embrace bond funds
Getting ready for rates to fall.

REAL ESTATE

Manhattan office building is sold
At a 97.5% discount

Commercial property foreclosures boom
Yet our economy and banks seem okay.

TECHNOLOGY

Intel to cut jobs and reduce dividend
iPhone sales are falling
Amazon forecast disappoints
Is big tech about to fall from grace?

Meta’s ad revenue keeps growing
With ads for drugs that kill our children

Microsoft bets big on AI
Yet reports cloud revenue slowdown
Meta’s AI investment surges
Is AI investing destroying capital?

THE CHAT ON AI

The C-suite swoons over AI.
Workers, not so much

AI giving robots better brains
How long before they eclipse humans?
Robots may be the big AI winner

The future of AI
May be coded by AI

OUR GOOD FRIEND, FAILURE

How the US power grid became a mess
Aged infrastructure and more dramatic climate.
Generative AI is certainly not helping

Has the nation-state become irrelevant?
If so, what’s the alternative?

Rural towns are suffering
Can anything turn them around?

THE NEXT NORMAL

We’re running out of generic drug makers
WTF? Who is running this country?

TikTok therapy
Is more lucrative than being a therapist

Is the Chinese mafia
Controlling America’s legal weed industry?

THE WAR ON CARBON

Canada not following Paris accords
Countries have to be practical.
Vancouver backtracks on gas ban
Reality sets in.

There are over 800 carbon removal start-ups
Which ones will survive?

Mexico could be a fracking bonanza.
What’s holding them back?

THE ENERGY TRANSITION

US wind is struggling.
So natgas carries the ball

Plug-and-play solar gaining ground in Germany
Where do solar panels go when spent?

The US Navy has proven nuclear’s value
Why aren’t we paying attention?

THE EV DREAM—OR DELUSION

Is Tesla’s self-driving tech not so good?
Analyst barely avoids accidents

Lithium battery fire traps drivers
A transportation truck burns big.

BMW’s vision of the future
Still runs on gas.

THE CHINA SYNDROME

US tried to knock down Huawei
Did it only make them stronger?

China’s factory activity sinks again
Is a global recession coming?

Chinese self-driving cars in the US
Have 1.8 MM miles of collected data

THE WASHING-TONE

Senate passes online teen safety rules
But the House may not pass it.
Senate votes to improve voter machine security
I thought voter machines were perfect.
Senate kills bipartisan tax bill

TikTok back in the hot seat
For sending China sensitive US data.

Biden want to reform the Supreme Court
Harris does, too
So SCOTUS must support Democratic party values?

THE ELECTION DISTRACTION

Harris backs off anti-fracking
Yet green activists support her
What’s going on here?

Trump goes all in with crypto bros
How practical is crypto, really?

No tax on Social Security benefits
Trump woos the senior vote.

MAKING A BETTER YOU

Why we forget
Most of the books we read.

Help your children experience awe
It helps them thrive.
Maybe raise them like Norwegians

The 7 keys to longevity

Live a longer, better life.

HOW ABOUT A BREAK

Michael Phelps’s 10,000-calorie diet
What he ate during the Olympics.

Ancient Sparta
Practiced a different polygamy style

The oldest known burial site
Was not created by our species
8 of the oldest known human graves

PLANNING VACATION?

US train travel makes a comeback
On my bucket list!

Can taking vacation extend your life?
Maybe so.

The best swimming holes in the US
Mother Nature’s finest.

MUSIC  BOX

Radio Taiga
Yellowknife, Canada is in the middle of nowhere.

“May Ninth”
Soothing vibes from Houston’s Khruangbin.

CASTING AROUND THE PODS

Middle East on the brink
Bari Weiss talks with journalist, Haviv Rettig Gur.

VIDEOS OF THE WEEK

The Netherlands’ floating Bosch parade
A surreal art event.

Purple Rain the movie is 40 years old.
NO WAY!

The Count of Monte-Cristo trailer.
As good as the last version?

FROM THE HEADHUNTER’S KITCHEN

How about some summer shrimp recipes…

Shrimp salad
Shrimp and avocado salad
Shrimp ceviche
Garlic shrimp
Shrimp and grits
NOLA BBQ shrimp
Shrimp burgers
Garlic butter shrimp scampi
Hawaiian garlic shrimp
Spicy shrimp tacos
Shrimp sorbet by AI

The two-finger rule.
How to select the best watermelon

THE RANDOMS

It’s great to get Evan Gershkovich, a celebrated WSJ journalist, back home. But Russia seems to have gotten the better of this trade. The Western prisoners returned were mostly journalists, consultants and human rights activists, whereas Russia got back assassins, cyber attackers and spies.

Did Tucker Carlson’s interview of Vladimir Putin back in February open the door to the prisoner exchange? Carlson directly asked Putin if he’d consider an exchange to get Gershkovich back.

Why are presidential candidates Trump and Harris pandering to the crypto crowd? I don’t get it, since the primary people who embrace crypto are gamblers and criminals. 

As I’ve suggested before, what is the consumer revenue model for AI? Who, what amount and why are you and I going to pay for AI?

Saw a funny sign while driving in rural Texas a few days ago: “Artificial intelligence is no match for natural stupidity.” Har har har…

An article in the Financial Times, “How Britain Can Regain Its Global Reputation,” got me thinking. The UK’s GDP per capita , $46,000, is lower than every US state’s GDP per capita. Wouldn’t it be better for the UK to focus on improving the quality of life for Britains before trying to become a global influencer?

What is to prevent Apple from upgrading my operating system in such a way that it bogs down my desktop or phone, thus compelling me to go purchase new Apple hardware? Oh wait, they’ve done that.

For anyone dismayed by today’s “normal” thinking, remember that governments in Europe and the US led citizens on actual witch hunts for over almost 400 years. Conclusion: Do not assume the world is full of common sense.…or should be.

Where have we historically found wisdom? Where can we find it today? Is AI going to become our source of wisdom?

IN CASE YOU MISSED IT

Lessons Learned, Maybe
July 26, 2024

The Longer the Party Lasts
July 19, 2024