Capital Idea

It was 70F in St Paul today, and my mind is on other things.  This repeat from 2013 is still good, but the numbers have changed slightly since it was written.

Borrowing money isn’t bad.  When it’s used to purchase something big that will last for years, like a house or a car, it often makes sense to do it now and pay the finance charge.  Borrowing to buy equipment or a build to be rented is an investment – as is borrowing money to learn a good trade.

When we look at how the Federal government borrows to keep itself going we can and should be able to ask the same questions – was this an investment?  Did we get anything good for the money?  Unfortunately, the accounting practices used by the Feds lump capital and other investment into the same pot as operational expenses, making it impossible to tease everything out.  It’s a procedure the Founding Fathers would recognize, if you wanna get all Tea Party on the practice.  But it’s still a dangerously stupid way to run things – and totally counter to the way any business or state is run.

As we talk about the need for serious reform in Washingtoon, we should add this to the list.

Continue reading

Corporate Profits – A Bad Thing?

Though the stock market is hitting new highs, many people are less than impressed. It’s commonly believed that the Federal Reserve’s $85B per month spending on mortgage backed bonds is all that is holding things up more than reality. That was backed by the big rally after Bernanke announced the program (aka QE3) would not “taper” in the near future, but continue.

But the truth is that corporate profits are at levels that they have never been before, meaning that there is underlying value in the stock market that is driving the rise. More importantly, corporate profit margins (profit over gross revenues) are also at unknown highs. It points to not only how we get out of the job shortage that is the reason the Fed keeps buying, but also the most obvious ways to close the budget deficit – and gives a little more definition to the boomtimes that probably like ahead in the 2020s.

Continue reading