"The-Policy-That-Must-Not-Be-Named" is finally unmasked.

It's "Monetization."  Japan has finally abandoned the pretense that central bank's printing of money to fund the government is a temporary measure designed to control the level of interest rates.  Will the markets find this candor "refreshing?"

from A6 in today's Wall Street Journal:

Net US international investment position continues down

Our net position is now -$7.3 trillion. Our national business model is broken, with too much consumption and not enough investment. What is worse, foreign flows are being used for even greater consumption. Present flows inward will need to be balanced with future flows outward. It is a formula for national impoverishment. Are we doomed? You be the judge.

The US military is starting to look more like America. (budget-wise)

An article on page A11 of this morning’s WSJ mentioned that the Marine Corps reports that 70% of its F/a-18 jets are not flight worthy due to inadequate maintenance.

This reminded me of Robert Gates testimony in Congress just before he retired as Secretary of Defense in 2011; he said that the Pentagon was being “destroyed” (he may have used another similar but different dramatic adjective) by the cost of veterans benefits and asked that they be removed from the defense budget.

The US federal budget overall has evolved into a support system for individuals (social security, Medicare/Medicaid, food stamps, etc.)  In fact, direct payments to individuals, including salaries, are now 70% of the budget.

:

Veterans’ benefits are $160.6 billion/year, or 4% of the total spending, while other military spending is 16%, meaning the VA is now 20% of total military spending.  Disability benefits for veterans were about $20 billion per year in 2000 AD and now are about $60 billion per year.  These rising costs are squeezing the other portions of the defense budget. 

PS: Another worrisome category is “interest on debt,” which is now 6%.  Were the average cost of federal debt to rise to 4%, this would be 20%.

Freudian slip? In decrying high debt levels in China, the Economist points out US and Europe are in worse shape

In a bit of possibly unconscious revelation, the Economist in its "Special Report" on finance in China, provided the graphic image below:

On the right you will note that debt levels have been rising rapidly in China and are now about the same as in the US and the euro area.  Everyone's debt level is too high, but the fact is that high debt levels are manageable in fast-growing economies like China's and a real problem in low growth areas like the US and Europe.  We all have a problem, then, but ours is worse.

I am reminded of this pretty smart passage from the Bible:

Matthew 7:3-5New International Version (NIV)

3 “Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye? 4 How can you say to your brother, ‘Let me take the speck out of your eye,’ when all the time there is a plank in your own eye? 5 You hypocrite, first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother’s eye."

Caveat emptor: The Wall Street Journal tosses out some interesting numbers, some of which are wrong.

I was recently embarrassed by quoting some statistics from the Wall Street Journal that were completely wrong. (I'm not saying which ones.) The WSJ people seem to be doing this more often than in the past. Perhaps there are fewer experienced editors and perhaps reporters are more rushed than they used to be.

In today's WSJ, an article ("Budget Cuts Fuel Monetary Policy Clashes," p. A2.) discusses how declining government revenues combined with rising transfer payments are turning the Federal budget into transfer payments only. Here is the graph:

The article states "Consumption and investment by all governments -- local, state and federal combined -- dropped to 17.6% of gross domestic product in the fourth quarter of 2015, matching its lowest level in 66 years, according to the Commerce Department." The fact is that the 17.6% number is for the federal government alone. But it's worse than that. The 17.6% figure is the approximate number for 2014 federal government tax receipts. Federal outlays in that year were 20.4% of GDP. So the graph relates federal tax receipts (not expenditures) to transfer payments. (The point that transfer payments are devouring the federal budget is correct, nonetheless, but the problem is not the level of expenditure as the article suggests.)

Moreover, state and local government spending isn't much less than federal spending, so total government expenditures are in the 35%-40% of GDP range, which is not abnormal.

The White House website has the following table of federal receipts and spending which I presume to be accurate;




The reporter graduated from college in 2001 and has been an economics reporter for three years, first for the Economist and then for the WSJ, so he should be a bit more aware of basic facts. Even more, his editor should.