Endless QE

[quadraphonics]

And that is why Billy T finds himself revising and pushing out his Armageddon dates.

Has he been pushing that out? I know that he did so some years back, but lately he seems more to just be sticking his head in the sand (ignoring the actual trends in American manufacturing, inflation, bond markets, Chinese growth, etc.).

He repeatedly fails to acknowledge the roll politics plays in his prognostications.

Well, not quite. Rather, he has been trying to hand-wave away that aspect (declarations that W decisively killed the USA 10 years ago, blithe insistence that Congress will never do anything useful, etc.). He also relies on some unsupported screwball assertions about entitlement spending tracking real growth (which makes no sense - if the growth isn't larger than inflation, then it isn't real growth. If it is larger than inflation, then it makes inflation-linked entitlement spending more affordable) to imply that only politically-unacceptable things like massive cuts to Social Security can address the deficit. So he seems to be aware that there is a political aspect, but he also seems determined to wish that part away with superficial dismissals of various flavors.

 

[Billy T]

And that is why Billy T finds himself revising and pushing out his Armageddon dates. He repeatedly fails to acknowledge the roll politics plays in his prognostications.

Not very accurate. In fact completely false. I have never changed date of my forecast "run on dollar" from "on or before Halloween 2014." I have never set a specific date for the world´s worst ever depression in US & EU, in part because even more than a year into recession or depression, economists don´t agree on when it started or even on how to defined a depression´s start.* Thus, I typically say the depression follows quickly after the run on the dollar and usually add: (months, not years) or something like that.

It is quite remarkable, and somewhat just luck, that in nearly seven years I have seen no need to change my predictions.

I certainly do recognized the Political aspects of US economic troubles. I have frequently noted the "fiscal cliff" and the debt ceiling and also pointed out that they take effect by Jan 2013. I have even predicted what will happen for both, and need not make any change it that either:

The fiscal cliff is the the end of the year date SET BY CONGRESS, for drastic cuts in spending and tax increases, but what Congress can set, Congress can change, so as they will not agree on every much what to do, they will agree to kick most of the can down the road until at least June 2013 was and is my prediction.

Certainly no action by Congress on debt ceiling will be taken before the new Congress is seated. As the ceiling will very likely come before they are, the Treasury can and will pay games with the books to stay legal for several months of paying bills. When it no longer can do that I don´t know what happens if no deal is reached and probability of that is small, I hope and expect, but depends on the election results. Quite possibly this obvious non-functional political nature of the US government will cause (probably Moody first) a further reduction in US credit rating, which will increase the cost of carrying the US´s growing debt. If nothing is done about the debt ceiling and treasury can no longer find some accounting tricks to play, then US defaults and the run on the dollar starts in a few months at most. (well within my predicted window)

I have even stated more than one thread on the political aspects of US´s problems - Perhaps the most fundamental one starts with the 1832 observation in Democracy in America (See: http://www.sciforums.com/showthread...ments-stable&p=2573119&viewfull=1#post2573119) and in thread "How DUMB can US Voters be?" which I started just before GWB was starting to run for his second term and morphed into mainly my opposition to his stupid corn to alcohol program soon after he was elected (by the Supreme Court blocking the recount in Florida).

As most recent (today´s C. Schwab newsletter) data shows, we are right on schedule for Armageddon. Quoting from Schwab:

"... the final look at 2Q Gross Domestic Product, the broadest measure of economic output, showed the quarter-over-quarter (q/q) annualized rate of expansion of 1.7% reported in the first revision was revised {down} to a 1.3% pace of growth, versus the unchanged reading that economists had forecasted. 1Q GDP growth was 2.0%. Also, personal consumption was downwardly revised to a gain of 1.5%, from the 1.7% increase reported in the second reading, ... On inflation, the GDP Price Index came in as expected at an unadjusted 1.6% rise, from the 2.0% advance seen in 1Q, while the core PCE Index, which excludes food and energy was revised to a 1.7% rise from the unchanged 1.8% increase that was expected, versus the 2.2% growth in 1Q. ..."

Again: 2% or less percent growth will not take care of debt growing at 10% annually. Plus "Big Mac" jobs don´t produce the tax revenue that the factory jobs, now in Asia, did. Fact that there are 3 million LESS jobs now than ~4 years ago yet 10 million more American, also makes me see no reason to change my predictions. The retiring wave of baby boomers, now switching out of their highest tax paying years to be net collectors FROM the government was well know to me long before I made my predictions - a factor which helped me set the date, but is not the major cause of the run on the dollar.

* I like the joke definition: Recession is when you neighbor loses his job, Depression is when you lose yours. Both have happened for many Americans already.

 

[quadraphonics]

It is quite remarkable, and somewhat just luck, that in nearly seven years I have seen no need to change my predictions.

No, that's not remarkable. That is exactly what occurs when a person starts by committing themselves to a particular conclusion, and then simply works backwards from there. Which is obviously how you operate. You will never see any need to change your predictions, because you are not engaged in the business of scientifically evaluating your predictions. You are only engaged in a bullshit exercise of siezing onto anything that you think might bolster them, and minimizing/avoiding anything that would negate them. That, and constantly congratulating yourself on how smart and insightful you are, while disrespecting anyone who challenges your line.

Fact that there are 3 million LESS jobs now than ~4 years ago

There are more Americans working today than there were when Obama took office. The USA has added nearly 4 million jobs since employment hit the bottom of the trough in early 2010.

Which is to say that you are hiding a lot under that "~" there. If you measure from exactly 4 years ago, the number of jobs has declined. If you measure from slightly less than 4 years ago, there has been an increase in jobs. But, what is so magical about comparisons to 4 years ago? The normal context for such a number is to evaluate a President's performance over his term - and Obama is in the positive by that measure - so why are you including massive job losses at the end of the Bush administration? If you aren't looking to analyze Presidential performance, but simply look at secular trends in unemployment, then comparing employment now to a single cherry-picked reference point is not useful or serious. You should be doing an actual statistical analysis of the entire data series to get a meaningful picture of what's going on.

Snapshot style comparisons with single reference points that are cherry-picked from the middle of a massive economic disruption are simply an exercise in bullshit. You can make those things say anything you want simply by slightly moving the reference point. If you compare to 5 years ago, we're down like 4.5 million jobs. If you compare to 2.5 years ago, we're up by 4 million jobs. All this tells us is that there was a massive economic disruption between 5 and 2.5 years ago - and that anybody who tells you that such a snapshot gives a meaningful long-term trend with predictive power is bullshitting you.

yet 10 million more American

Despite that, the US labor force is smaller today than it was when Obama took office. This is mainly because Baby Boomers are retiring in recent years. The population is not simply growing, but also aging, so the rate of workforce participation is shrinking.

That and the fact that we have more jobs than we did when Obama took office are why the unemployment rate has gone down over that time.

The retiring wave of baby boomers, now switching out of their highest tax paying years to be net collectors FROM the government

Good thing we over-taxed them on their payroll taxes for decades, and saved the difference to cover exactly that eventuality, then.

 

[Billy T]

... There are more Americans working today than there were when Obama took office. The USA has added nearly 4 million jobs since employment hit the bottom of the trough in early 2010. ... If you measure from exactly 4 years ago, the number of jobs has declined. If you measure from slightly less than 4 years ago, there has been an increase in jobs. But, what is so magical about comparisons to 4 years ago? The normal context for such a number is to evaluate a President's performance over his term - and Obama is in the positive by that measure - so why are you including massive job losses at the end of the Bush administration? If you aren't looking to analyze Presidential performance, but simply look at secular trends in unemployment, then comparing employment now to a single cherry-picked reference point is not useful or serious. You should be doing an actual statistical analysis of the entire data series to get a meaningful picture of what's going on. ...

You seem to think I am making a typical right-wing Republican attack on Obama. I am not. He has clawed* more than half way back from the job destruction GWB made. I don´t recall exactly but under GWB more than 10 million jobs were destroyed. - Or perhaps more accurately GWB´s tax relief for the very wealth let them build more modern factories in Asian (mainly China back then but now more in Vietnam and Indonesia as Chinese wages are greatly increased from GWB´s time as POTUS.) to move, not directly destroy, US jobs to Asia with the side effect that their lower labor cost and better factories closed US factories or forced "out-sourcing" so GWB did in fact "destroy US jobs" too but getting an exact figure is impossible.

My point was not political, but just to note that lack of jobs for growing population and replacement of high pay factory jobs with "Big Mac" jobs is part of why the US continues to decline with growing numbers of American on food stamps or receiving other forms of "need based" financial aid, especially the rapid growing disability claims. (Many who can´t get a job are getting "sever back problems" etc. - Know how to play the system. I forget the exact data but disability payments have doubled in only a few years because of US´s economic problems, IMHO - a positive feed back mechanism on the road to collapse.

* Done with Bernanke´s printing presses helping of course. I.e. when you just kick the can down the road instead of take some immediate pain, the net effect is almost always greater pain in the end. Obama is just like all other politicians - he prefers to delay pain until he is out of office even if that makes it worse. As I think a terrible depression will be in full force by late 2015 and that Obama is smart, I predicted he would not seek a second term and that has proven to be false.

As I usually do, I just ignored your personal attack first paragraph - I try to stick to economic considerations but will note that one does not "scientifically evaluate predictions." One waits to see if they do or don´t come true. I just noted that one of mine has proven to be false.

 

[Aqueous Id]

I agree with all I have quoted, and that if pigs could fly we could save on pork delivery costs.

If you mean air traffic is up, I'd say you're right.

My point, well documented, is that we with 100% debt to GDP ratio now are well past to point where recovery was possible and losing more ground (or should I say fuel for the air plane is leaking from the tank) with every passing year.

What then is the transfer function that takes us from that data to the real world? If debt is killing us, how is it that we continue to grow in spite of it?

What economic forces do you see that will even stem the current losses (from sound economy) much less turn it around?

The same forces that brought us out of the 2008 crash? Stimulus and QE were probably the most significant. You would have to define losses. Debt is only one kind of loss. Worse is the loss of hope, which seems to characterize you and perhaps the 8%-10% of unemployed US workers. I would say that another 40% of Americans are a loss. That leaves about half the nation to drag the rest of the country forward. The thing is, that 50% has a lot of inertia. The will to survive is pretty damn strong economic force. But I do see it unfolding all around me. I live in a large urban setting. The roads are more choked than ever during rush hour. I see fewer clunkers than ever before. That is, the marginal people with trashed out cars are either in shelters, riding public transit, or they've upgraded. But the abundance of wealth in rolling stock on the roads is clear. And that includes trucks, heavy machinery, trains, ships and planes which seem to moving at the speed of wealth. Industrial occupancy looks to be at around 80% of max, and the employee parking lots have empty spaces, but I see no decline lately. Craigslist is teeming with new job ads every day. Dow Jones is over 13,000, which says investors don't agree with you. Maybe you're just wrong. Maybe you're relying too much on gut feel and the technical guy's tendency to weave a worst-case scenario into every stressful scenario without allowing for all the automatic controls (and the manual overrides) to compensate.

Yes kicking the can down the road does "advert" current disaster but makes it worse in the end. Greece has averted collapse for 3+ years.

So has every other nation in the world. Why pick Greece? Ah: worst-case analysis.

 

[Billy T]

... If debt is killing us, how is it that we continue to grow in spite of it?

Two answers:
(1)GDP growth is about same as inflation - in Q2, most recent data 1.7% vs 1.6% so real growth is 0.1% in most. BTW, for Q2 the 2.2% of your chart has been revised down to 2.0%, but I forget what the Q1 inflation rate was. Point is debt is increasing at 10% AND interest rates are increasing some too, but neglect that factor, as Fed can still control them, but not for more than a few years. I would guess that over the life of a new 10 year bonds (new rates each year of new issue) the the average rate will be at least 5% but again lets forget the growing interest rate and even assume that the real GDP over inflation effct were five times higher than in Q2, i.e. were 0.5% it would still be 20 times to small to catch up to 10% growth in debts (and that is only the federal debts). Summary: US will pay its debts, not default but destroy the value of the dollar to do so (Monetize the debt)

(2)As reply (1) shows the problem is growing worse, not linearly, but accelerating. It is quasi an exponential problem, especially when Fed can no longer hold interest rates near zero. - The characteristic of this non-linear growth is there is little obvious reason for concern until the end is near. E.g. Algae growing on a pond that doubles every day covers only 1/8 the pond only three days before it has no more room to grow and starts to die. Yes were not collapsed by debt yet. Dollar is still the least ugly girl in the whore house but other alternatives are being made and already four oil exporters prefer gold to it as evidenced either by their selling for gold or using dollars to buy gold. For example, China has large dollar influx from trade surplus with US but for two years a slight decrease of dollars held in reserves and huge increase in gold bought, despite being world´s largest producer of gold (at least 30% more than #2 and very likely twice as much as historically did not tell of any production).

... the abundance of wealth in rolling stock on the roads is clear. And that includes trucks, heavy machinery, trains, ships and planes which seem to moving at the speed of wealth. Industrial occupancy looks to be at around 80% of max, and the employee parking lots have empty spaces, but I see no decline lately. Craigslist is teeming with new job ads every day. Dow Jones is over 13,000, which says investors don't agree with you. ...

Perhaps, or only that they fear the dollars loss of buying power and buy now items of more durable value - like shares, which are partial ownership if factories and tend to increase in value or buy investment grade art, or jewelry and nice cars that the can both enjoy and will have higher prices when the inflation get serious, as ALWAYS follows periods of huge expansion of fiat currency causes. Certainly it has been the case that three times now. i.e. the QEs have been an immediate boost up in the Dow Jones average. - That behavior SUPPORTS my point of view that faith in Fed printing our way out of the mess is not a long term solution - just that with more kicking of the can it may be possible to profit in the short term.

I did not mention Greece as it is the "worst case" - but because it is 3+ years (the longest time) kicking the debt can down the road has delayed the a financial collapse. That delay has been possible as the euro zone GDP is at least 20 times larger than Greece´s is. Who will be able to help the US when its still manageable but quasi-exponential growing economic problem become unsustainable by Fed printing more money?

 

[quadraphonics]

(1)GDP growth is about same as inflation - in Q2, most recent data 1.7% vs 1.6% so real growth is 0.1% in most.

No, the GDP growth numbers you are citing there are in real terms. That is why the graph says "Real quarterly GDP growth." Inflation has already been discounted from those numbers. You are attempting to count inflation twice.

BTW, for Q2 the 2.2% of your chart has been revised down to 2.0%, but I forget what the Q1 inflation rate was.

Whatever it was, it worked out to a real increase in GDP of 2.0% annual rate. Inflation has already been discounted from the GDP growth number.

Point is debt is increasing at 10%

That number is a nominal growth rate, note.

And it is not expected that the debt will continue to grow at that rate:

http://www.cbo.gov/publication/43539

AND interest rates are increasing some too,

Not really:

http://www.treasury.gov/resource-ce.../Pages/TextView.aspx?data=yieldYear&year=2012

I would guess that over the life of a new 10 year bonds (new rates each year of new issue) the the average rate will be at least 5% but again lets forget the growing interest rate

There is no "growing interest rate" in evidence, nor are the "guesses" of some dude that can't even keep real and nominal GDP straight of any import to anyone.

and even assume that the real GDP over inflation effct were five times higher than in Q2, i.e. were 0.5%

Real GDP growth in Q2 was 2.0%, as has already been explained in this thread. Five times that would be 10% real growth.

it would still be 20 times to small to catch up to 10% growth in debts (and that is only the federal debts).

No, you are comparing a real growth rate to a nominal growth rate. You would have to account for inflation to make a meaningful comparison there.

You are also assuming that the debt will grow exponentially, without providing any support for such a contention (despite the fact that it flies in the face of mainstream expectations).

Since you have failed to keep real and nominal rates straight, and are arguing from imaginary trends in interest rates and inflation, your "analysis" is nothing of the sort. It's just a mass of basic errors and naked speculation.

especially when Fed can no longer hold interest rates near zero.

? If the Fed can't hold rates near zero, then the USA cannot monetize its debts. You don't seem to have much of a grasp on how this stuff works.

The characteristic of this non-linear growth is there is little obvious reason for concern until the end is near. E.g. Algae growing on a pond that doubles every day covers only 1/8 the pond only three days before it has no more room to grow and starts to die.

You do not seem to understand even the basics of how markets function. They work on expectations. If the situation is as clear-cut as you say - a run-away exponential trend with no possibility of correction - then the bond markets will revolt immediately and not wait until they get wiped out. The fact that the bond markets are not revolting - rather the opposite - is a very strong indicator that the collective wisdom and expectations of the entire world economy does not share your expectations regarding future trends.

 

[Billy T]

... Whatever it was, it worked out to a real increase in GDP of 2.0% annual rate. Inflation has already been discounted from the GDP growth number.

Reference please, if your Q2 GDP = 2.0% is not just fabrication, as I think it is. I posted from memory 1.7, but GDP growth in Q2 was reduced from that to 1.3:

".. The economy grew much less than expected in the second quarter, new Labor Department estimates show. Second quarter GDP was revised lower to 1.3% from an earlier 1.7%. (Economists believed that GDP would be revised lower to 1.6%.) Declining consumer spending and business investment combined to weigh mightily on economic activity.

More troubling still is what this suggests about the third quarter. Little has surfaced to point to a pick-up, meaning that it’s unlikely the economy will grow much more than before. In short, today’s data sends “a notable red flag for U.S. growth.."

... ? If the Fed can't hold rates near zero, then the USA cannot monetize its debts. You don't seem to have much of a grasp on how this stuff works. You do not seem to understand even the basics of how markets function.

No, it is you who don´t either know history (ALL times countries have monetized debt away, their central banks could not hold interest rate to below double digit rates.) -OR - Recall Germany or Zimbaway´s currency collapses, which allowed old debts to be paid (monetized away) but it got so bad that even when they offering 100% interest rates, no one would lend to them, so they just added more zeros to the old notes) I.e. simple economic logic shows that monetization is the rapid decrease in currency value so extremely high interest rates are required to induce anyone to lend money to the country. "Run-away- inflation" is Monetization of debts.

 

[Carcano]

If debt is killing us, how is it that we continue to grow in spite of it?

The US economy is growing BECAUSE of its new debt...not in spite of it.

In the same way that your personal accounts would grow after borrowing 10,000 dollars.

Remove all deficit spending from the economy and it would quickly pass into deeply negative GDP territory. The federal deficit at 1.54 trillion is approx ten percent of total GDP.

Debt is not real wealth.

Its a liability...not an asset.

This reality becomes critical when real income cannot even pay the interest.

 

[Billy T]

The US economy is growing BECAUSE of its new debt...not in spite of it. ... Remove all the deficit spending from the economy and it would quickly pass into negative GDP territory. Debt is not real wealth. Its a liability...not an asset. ...

Very Good Point. Better than my replies (1) & (2). I should have made it, but for many more facts on how bad US economy is rapidly becoming see: http://www.sciforums.com/showthread...o-the-Bottom&p=2988153&viewfull=1#post2988153
I posted these many gloomy facts in "America´s RACE to the bottom," thread as America is racing there to be sure to have dollar collapse before Halloween 2014.

 

[quadraphonics]

Reference please, if your Q2 GDP = 2.0% is not just fabrication, as I think it is. I posted from memory 1.7, but GDP growth in Q2 was reduced from that to 1.3:

I don't care to quibble about what the exact rate of real growth was in whatever particular quarter, as long as we are both agreed that real growth was positive, and that your attempts to discount such by invoking inflation were erroneous and sloppy. And that interest rates are not on any visible upswing.

No, it is you who don´t either know history (ALL times countries have monetized debt away, their central banks could not hold interest rate to below double digit rates.)

You seem to be confusing which interest rate we are talking about, or maybe conflating that with inflation rates. We were talking about the interest rate that the government pays on new debt it issues. In debt monetization, the government has given up on attracting public financing for the debt and is simply having the central bank purchase all of the debt it issues and pay for that by printing money. So the interest rate on government debt is effectively zero, as the central bank is providing unlimited demand for such. What is true is that market interest rates - the interest rates on a loan that you'd take out from a bank, say - spike in that scenario, as they track inflation. But that is not the interest rate we were discussing, and there is nothing at all that would prevent a central bank from keeping the interest rate on new government debt as low as desired for as long as desired, as they can simply print as much money as is needed for that. That being exactly how debt monetization functions.

-OR - Recall Germany or Zimbaway´s currency collapses, which allowed old debts to be paid (monetized away) but it got so bad that even when they offering 100% interest rates, no one would lend to them, so they just added more zeros to the old notes)

Exactly - by the time that you are into debt monetization, nobody is buying your bonds except your central bank. There is no private market for new government debt, and so no question of having to set the interest rate high enough to attract financing. You just have the central bank print the money to buy your debt at whatever interest rate you wish. If you are not doing that, but instead leaving the bonds in public hands and so needing to attract public financing by raising rates, then you are not monetizing debt (although you might be experiencing high inflation for some other reason - in Zimbabwe's case it was caused by war and misguided land redistribution policies, in Weimar Germany it was caused by large debts denominated in foreign currencies. Note that in neither case was the hyperinflation caused by debt monetization - it was the other way around).

I.e. simple economic logic shows that monetization is the rapid decrease in currency value so extremely high interest rates are required to induce anyone to lend money to the country.

Again, you've got the cart before the horse. If you are monetizing debt, you are no longer relying on the private market to lend you money and so have no need to offer high interest rates to incentivize such lending. You simply have the central bank buy all your debt at whatever interest rate you want, and print money to pay you. The public market for your debt pretty much ceases to exist. Conversely, if you are using high interest rates to fight against inflation and attract the public to finance your debt, then you are necessarily not engaged in debt monetization.

The other typical yardstick for identifying debt monetization is when the central bank is buying government bonds despite inflation being above-target, and especially if the government is having larger troubles attracting public demand for its debt issuance.

Moreover, debt monetization does not necessarily result in large inflation. For that to happen, you have to monetize the debt on a continuing basis for a long time - then, the extra money eventually makes it out into the wider economy and drives up the price level. The relationship between base money supply and price level is a long-term one. As we have already seen with QE1 and QE2, even very large boosts in the money supply may not necessarily manifest in the price level for many years.

"Run-away- inflation" is Monetization of debts.

It is true that hyperinflation has the effect of devaluing existing debts that are denominated in that currency. But it does nothing to bring down the cost of issuing new debt - rather the opposite. That is why hyperinflation often causes monetization of debts (as in Weimar Germany): it drives up the price of operating the government and of financing a deficit, leaving the policymakers stuck between nasty choices (huge increases in taxes, huge cuts in services, or monetization).

Debt monetization is not the same thing as inflationary monetary policy in general. It refers specifically to financing new issuances of government debt with printed money.

 

[quadraphonics]

Debt is not real wealth.

Its a liability...not an asset.

That depends exactly on whether you own the debt, or owe the debt

 

[quadraphonics]

No I can not agree to your false ideas: In 1Q12 the GDP grew at 2.0% and in 2Q12 AT 1.3% BOTH are significantly LESS that the inflation rates as you can see in graph below;

Dude, for the third or fourth time now: those GDP growth numbers are given in real terms. They already account for inflation. You are double-counting inflation with this nonsense.

You are making a really basic, silly error, and persisting with it in the face of repeated, clear corrections. This is becoming pathetic.

So the real GDP growth is negative unless you can show the GDP numbers are already inflation adjusted. If you can, I delete this post.

It is your responsibility to figure out what the units of the numbers you are posting are, particularly if you are going to try to hector others on that basis. GDP growth is given in real terms by default, since nominal growth is generally not of as much interest. Everyone with basic economic literacy already knows this, but since you seem to get confused by your Forbes articles I recommend just getting your data directly from the horse's mouth:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Also, what you need to do is not delete your erroneous posts (that will only serve to conceal your mistakes from the record, while making a hash of the posts which respond to them) but rather admit that you are being sloppy and making the same error over and over in the face of repeated corrections. Then stop making those errors in the future. The honorable thing is not to try to sanitize the record of your errors, but to honestly admit them, apologize, and do better in the future.

 

[Carcano]

Not as I recall. I often am only half listening to these promos while doing something else so he may have. It was very impressive to me that almost all the net gain in many, if not most, stocks over the last few decades was actually in via the dividends they pay. He, I think, is correct that there has been very little gain in purchasing power with buy-and-hold, which has been my approach, especially if one considers the taxes paid on your nominal gains.

Supposing a company deliberately decided not pay any dividends and used all its profits instead for growth...reflected in the stock price.

After holding the stock for ten years, you sell it and pay tax on the gains ONCE...instead of paying tax multiple times on dividend gains.

Wouldnt that be preferable?

 

[Carcano]

So the real GDP growth is negative unless you can show the GDP numbers are already inflation adjusted. If you can, I delete this post.

Quad is correct...GDP deflator info is easy to find.

www.investopedia.com/articles/06/gdpinflation.asp


"Gross domestic product in the United States represents the total aggregate output of the U.S. economy. It is important to keep in mind that the GDP figures as reported to investors are already adjusted for inflation. In other words, if the gross GDP was calculated to be 6% higher than the previous year, but inflation measured 2% over the same period, GDP growth would be reported as 4%, or the net growth over the period."

 

[quadraphonics]

Supposing a company deliberately decided not pay any dividends and used all its profits instead for growth...reflected in the stock price.

After holding the stock for ten years, you sell it and pay tax on the gains ONCE...instead of paying tax multiple times on dividend gains.

Wouldnt that be preferable?

Not necessarily. The capital gains you end up paying will reflect a lot of inflation, and the value of the stock might well decline over that time due to other factors (business cycle, say). Likewise, you have to wait a long time to get your money, and money today is worth more than money ten years from now. Also you have to sell the stock to get your capital gains, whereas you can hold on to it while pocketing dividend payments.

There are cases where the one is preferable to the other, but I don't see any general reason that one would be expected to always be preferable to the other. If such a thing existed, stock dividends and profits would be handled in that way already.

 

[Billy T]

Quad is correct...GDP deflator info is easy to find. ...

Yes, he was on this. I seldom search as not very good at it and have a lot in memory, and knew CPI is not as if it were it would always stay unchanged.

My main point remains valid: A positive 1.3% (Or even Q1´s 2.0%) GDP growth rate is not even close to fixing a 10% debt growth rate - I.e. paying the debt by even Chinese like 8 % GDP growth is a losing game, and interest rates will soon be larger as Fed can´t keep growing it balance sheet buying up bad debts and Treasury issue without becoming the only buyer. China became a net seller over the last two years and excessive money printing (Fed adding to it balance sheet) will make more switch to be net sellers too.

 

[Carcano]

Supposing a company deliberately decided not pay any dividends and used all its profits instead for growth...reflected in the stock price.

After holding the stock for ten years, you sell it and pay tax on the gains ONCE...instead of paying tax multiple times on dividend gains.

This seems to be the approach preferred by Warren Buffett...and his plucky sidekick Charlie Munger.

http://m.theglobeandmail.com/globe-...-not-dividends/article4492472/?service=mobile

"Buffett has often said that if a company can create more than a dollar of market value for every dollar retained then the proper decision is to retain the capital in the business. His company, Berkshire Hathaway, has never paid a dividend despite its massive cash flows. Most, though, would agree that it has created outstanding value for shareholders."