Hidden debt bomb in the Federal Budget.

This is what happens if interest rates go back to 2007 levels.  Issued treasuries has tripled in 9 years.

Mnuchin's comment about not caring about the dollar strength and knowing that a weak dollar will likely trigger a surge in inflation and interest rates, triggered me to do a thought experiment on what if US Treasury rates go back to 2007 levels. In 2007 the effective interest rate on the debt was 8.7%. It is interesting to note that interest on the debt in 2007 is about equal to the interest on the debt in 2017, even though Treasuries issued has nearly tripled.

In 2007 $5 trillion in Treasuries were issued, now almost $15 trillion have been issued. If interest rates were to go up to 2007 levels, interest on the debt would be $1.2 trillion from a measly $460 billion now, blowing up federal spending by 25%.

This here is the bubble/boogeyman nobody wants to talk about. It's especially scary since we are on pace to issue about $1 trillion in new debt in 2018, and possibly that much and more every year there after for the foreseeable future.

If you ever want to discuss where the money goes, and where to cut for the biggest affect. These charts will come in handy. I tried to make the actual 2017 pie a little smaller than the what if 2017 chart to emphasize the blow up in total spending.

DOW Jones BUBBLES

Where are the corporate income tax payments?

Corporate income tax payments comparison, Where are the Corporate Income Tax Payments

Monthly Comparison of Corporate Income Taxes Paid  (In $Millions)  Orange highlight indicates monthly payments lower than same period in prior year, green highlight indicates greater payment.

See April 2017 comparison blogpost.

For most of 2017 we were told both from the financial media and corporate quarterly earnings reports that US corporations were having a blowout earnings year.  Earnings were supposedly up well over 10% year over year.  Well if that was the case, Where are the corporate income tax payments to match?  

It's pretty clear now no matter how it's sliced, fiscal YoY or calendar YoY, corporate income tax payments were down which implies earnings were as well.  I actually expect January payments to be down as well, and may even show an overall refund.  Why?  Because with the corporate tax cut, companies will do everything possible to push earnings into 2018 instead of 2017 to take advantage of the lower tax rate.  I suspect a lot of the bonuses paid in December were done in an effort to pull 2018 wage expense into 2017 and a there will be matching delays/lowering of raises for 2018 using the bonus as a justification.

We all better hope that the corporate tax cut works and/or the soft income tax payments were simply due to financial engineering by companies that were betting on the tax cut happening.  If not with this sky high stock market, and central banks unwinding their balance sheets, LOOK OUT because stops could IMPLODE!!!!

Seasonally Adjusted Non-Farm Jobs Change 2013-Present:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports

Source Data:  BLS

Total Nonfarm 2017-8. xlsx

Here is my monthly update on the jobs report.  Again we see the monthly gain is exaggerated by about 15%, most likely to make up for the wild inaccuracies of March and May.

Not close to 222k jobs added in June 2017

Seasonally Adjusted Non-Farm Jobs Change 2013-Present:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports

Source Data:  BLS

Total Nonfarm 2017-7. xlsx

I've been monitoring the inaccuracy and volatility in the monthly BLS jobs reports for several years now.  It is truly amazing to see how wild and inaccurate the monthly reporting of jobs gains is.  Hiring is not raging at a 222k/month pace as the most recent report claims.  184k/month is a lot closer to accurate.  About the only way to get a meaningful number from the BLS monthly jobs gain reported, is to average 12 months of data, and then the number tracks pretty close to reality.

The above chart makes it pretty clear that up to about December 2014 the monthly BLS report tended to over report jobs gains.  But since January 2015 it has been under reporting.  This can be seen by the blue and orange bars tracking pretty close in most months up to December 2014, with the orange bars periodically spiking over the blue.  But since January 2015 it the orange more typically track well below the blue.  Summing the difference between the orange and blue bars proves this as well.

Housing Bubble 2.0

Housing Bubble 2.0

This looks like housing bubble 2.0.  Looks like houses are about 20-30% overpriced vs. a 3% inflation trend line.  Not good when wage inflation is only 2%.

S&P 500 long term historical channel