2016: Another Year of Paper Gains Only

While we are pleased to have made it to another Christmas, there is a nagging problem that has been tearing at me over the past couple of days.

It’s like going to a “Magic Show” and finding yourself – after the main act – asking “What did I see – and what was REAL?

To be sure, at this time last year, the S&P was hovering around 2,060.

And yes: With the close yesterday at 2,261 it would be correct to argue that the nice, broadly-based S&P 500 gained 9.76% for the year. I’ll even toss in that with Big Banks paying a crappy quarter-percent interest, one would have been a fool to leave money in a bank in 2016.

But there is another – darker – way to count the years “paper gains.”

It involves the printing of money by the Federal Reserve (oh sure, with the Treasury and Mint).

See last December, the M1 (cash) and M2 (cash plus certain time deposits and such) stood at $3,055.5 and $12,157.7 billions, respectively.

Now let’s pop forward to the most recent completed monthly data – for November the Fed H.6 money stocks report here – and see how much “money” had been pumped into the system this year:

Again, M1 (cash) and M2 (cash and a bit of other) and it looks like this: $3,354.0 and $13,223.2 billion.

Out comes the calculator:

M1 (cash) increased 9.769%.

M2 increased by 8.764%

And the stock market, again was up 9.76%.

All of which gets us to a most important question: “Did we make any progress (as a Nation) in 2016?”

If I were charged with writing the Annual Report for that country called “America” it would have to be disclosed in the Notes to the Financial Statement that while the stock market went up, there was a directly corresponding increase in the amount of paper (money) chasing goods and services. Is it an economic coincidence that M1 is up almost exactly the same amount as the stock market?

I think not.

While the broader measure, M2 was up 8.764%, leaving it arguable whether the economy really advanced about 1.2% or some such, there’s another data point we haven’t mentioned (since we’re doing the Notes to the Financial Statement this morning): The Federal Debt and GDP problem.

If we go to the details of the Gross Domestic Product data (*here, Page 9) we find that GDP in Q3 was estimated as $18,675.3 billion. ($18.6 trillion if it’s too early to chase squirrely decimal points around).

Ignoring for now the Big Lies about Seasonal Adjustments (for if you compare apples to apples, what’s to adjust?) we find a year-ago that GDP was estimated at $ 18,141.9 billion or $18.142 trillion for the lazy.

“Ah, you see, Ure? GDP has really gone up! Up 2.94%!!!”

And that’s all True & Dandy – but around here we tend to look more at the comprehensive view of government financial data – and not just “nominal work product” going up, but also about the increase in DEBT required to make that Magician’s Trick look “real” to the audience.

So let’s look at the “Cost” of that increase in GDP of 2.94%. Obviously, if we increased our Debt by 1% – or some small number like that – we would be geniuses. For it would point the way to the Economic Promised Land.

All we would need to do is spend 2% more on Debt this coming year and our GDP should jump (2.94% X 2=) 5.88%. That would be a Hallelujah moment, for sure.

However if, on the other hand, we gain 2.94% on GDP but it cost us 5% in additional debt, then we would be a country of idiots losing 2.06% net on all of our crafty financial shenanigans rammed through the lay-down Fools on the Hill in Washington.

Enough foreplay. What was Public Debt to the Penny Growth for the year?

The most recent number from the Treasury Department’s Public Debt to the Penny page as of 12/21/2016 was $19,878,280,893,331.72.

We can then query the Treasury database and see where we were last year on the same day. $18,798,201,511,452.04.

Dividing the first big debt number (this week’s) by the same day last year we find Debt is up 5.7456%.

Merry Christmas! We are Fools and Idiots!

Imagine the figures applied to a regular every-day Joe Sixpack.

This year, Joe’s work product (income, GDP) was up about 2.94%.

But Joe maintains his lifestyle by spending more than he brings in. His total debt on “plastic” was up 5.746%.

And the way he makes all this “magic” happen? He simply adds made-up numbers to his checkbook (the Fed money-printing analogy) and tells all the folks at the Global Bank of World Hey! I’m good for it…let’s roll, huh?

2017 will, in my view, likely see a major economic downturn begin. The Global Bank of World will want more quid pro quo than just another kited check from Joe. They’ll want VALUE.

And with that little clatter of hooves through the brain cells, we’re ready to pick up the morning’s headlines and see the One Story that matters. You see, Joe has a solution to his financial woes…

Playing the Nuclear Option.

Owing the Global Bank of the World a lot more than he has – in fact more than a year’s worth of income is in this “global plastic” game – and a few decades of Joe’s income is we count derivative bets on his work product, Joe needs an answer and he needs it fast.

Joe goes out to his workshop and fires up his home-made centrifuging system. With it, he plans to enrich Uranium into U-238, and perhaps a side order of Plutonium.

“Yes,” he figures, “If the Global Bank of the World don’t cut me no slack, I’ll just blow the pricks up.”  Right, Joe.  Good thinking.

And Now the News following our Parable

Large in the NYT today: “Trump Says the U.S. Should Expand Its Nuclear Capacity.”

You understand, I’m sure, that Joe doesn’t really have centrifuges in his garage. He has rented several remote sites for his work: Oak Ridge, Hanford, Pantex and so forth.

The Cross-Town Rival

Joe is not the only one who’s in a messy spot. He has a buddy across down who has much the same problem.

In fact, not only does his cross-down rival have equally shaky finances, but he’s also been making a PowerPoint pitch to the Global Bank of the World. Wanna see his first slide?  (*Click slides for backstories)


Still, Joe’s cross-town rival for more money to keep the House of Cards going isn’t trying to pick a fight. In fact, he says semi-conciliatory things like “Putin to Democratic Party: You lost, get over it.”

You’d think that would satisfy Joe, but let’s see what happens next. There’s a lot of Tweet-space over the Holidays and since the world is nuts, 2017 will be “Anything Can Happen Year.”

Marketing, Marketing

Joe knows it will be a close-call with the Global Bank so he’s also beefing up his media relations efforts.  Highlighting that here’s a slide from Joe’s PPT:


I’d offer more, but enough news.

Futures are flat to down a  bit and so are the Elves and the reindeer.

Santa needs some eggnog to continue. Got flight planning to do.

One Step Past Bethlehem?

It’s a familiar tale this time of the year: A star becomes super-bright over the wastelands of the Middle East, and perhaps into Asia.

It lights the way for three wise men, and eventually we get one of the world’s major religions.

So it’s only natural, I suppose, that this time of the year we look up and ponder “Gee…what’s really going on OUT THERE?

We have hints, of course. The possibility that we are here because of some “Johnny Appleseed” efforts of space-faring intelligence peeks out of The Chronicle Project’s work. But other ideas spring from pursuits as diverse as quantum physics to science-fiction to “channelers.”

Yet here we have another one of those mysteries in the heavens coming at us: Space.com reports on how the “Mystery of ‘Alien Megastructure’ Star Testing Astronomers’ Creativity…

For now, Boyajian’s Star hasn’t “delivered” the goods in terms of mass movements on Earth. But with some down-time over the next couple of weeks for holidays, it’s an interesting little Christmas cookie for the brain to munch on.

5 thoughts on “2016: Another Year of Paper Gains Only”

  1. George, see you mentioned the national debt above. Not understand your position on it. You called Rand Paul a “traitor” for ranking it above tax cuts in importance and completely ignore Trump’s estimated (by Fox) $11 Trillion increase. It used to be your core issue. Explain please. Mike.

    • You haven’t been paying attn:
      1. I called Paul RYAN not Rand Paul a traitor on budget for rubber-stamping Obama.
      2. Trump can actually run a bigger deficit if the money gets out into circulation not into more freaking hedgies

  2. The amount of GDP derived from each dollar of additional debt is not accurate. The government understates the true inflation rate and thus overstates the real GDP (as adjusted for true inflation). Then there is the understatement of true unemployment, etc, etc.

  3. “With it, he plans to enrich Uranium into U-238 …”

    I believe the stuff that goes “bang” is U-235 rather than U-238.

    “… and perhaps a side order of Plutonium”

    The equipment needed here is “a nuclear reactor”, not “a centrifuge”.


    Got to go, someone’s banging on the front door …

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