Turn Out the Lights
Research for Online Investors

by John Dalt

6/10/10

My wife and I disagree about shutting off lights when we leave a room.  Luckily we have been married for 23 years and have left this disagreement in the past.  I foolishly thought I won the argument years ago with the simple question, “If it is cheaper to leave them on, why ever shut them off?”

I have now reached the point of happily turning out the lights, without comment.  Who is going to turn out the lights on Washington?  Thanks to subscriber D.F., for sending us a link to Federal Spending by the Numbers. This article has some stark facts that can help us understand the problems we face. Washington is spending $30,543 per household in 2010 Returning to the $21,000 per household spent in the ‘90’s would balance the budget by 2012

Much of the “temporary” spending for the credit crisis is being replaced by other permanent long-term programs, such as national health care.  The following chart shows the last 20 years of budget categories and revenue.

The graph above shows receipts (blue line) and budgeted spending (red line).  The challenge is to make these two lines come together, as they did from 1993 to 2001  It appears we came close again in 2007, just before the credit crisis cut tax revenues and spiked spending.

The graph below depicts annual budgets and the actual or projected deficit or surplus.

The graph above charts the growth of National Debt for the next ten years.  It projects “public” debt will hit 90% of GDP in 2020 I believe this is optimistic. Two things have to happen for it to take until 2020; no wars or domestic emergencies that require spending and robust economic growth. Can anyone look out ten years and believe we will not have a security or economic event that requires “emergency” spending in the next ten years?  Studies have shown that when debt to GDP reaches 90%, economic growth is cut by one percent.

The other point to make is THE U.S. WILL REACH 100% DEBT TO GDP THIS YEAR. $4.5 trillion of the present $13 trillion in national debt is categorized as inter-governmental (social security IOU’s). But we still owe the money. If you don’t think this debt is due, try cutting Social Security!  Ah, the beauty of a unified budget.  This money has been spent and a tidy IOU placed in the LOCK BOX.

On March 30th we argued that U.S. interest costs were set to rise and swamp our budget.  The office of Management and Budget does not envision the Armageddon we predicted, but we are more comfortable with our figures.  I don’t have an economics degree, but I know that interest rates are set to rise dramatically.  When they do, our interest costs could double within a couple of years.

The complete article Federal Spending by the Numbers is a good read.

The market jumped yesterday on some good news, and quite honestly lack of bad news.  The rally fell apart in the afternoon.  We are back up this morning, but have little hope it will last.  This is a dangerous market to play in.  Wednesday’s sell off convinced me there are more lows in the future.

Conviction buyers would not have let the market go negative.  The market is telling us to back away and watch the show.  There is a wreck coming, we don’t know when, but something is wrong when you can go from optimism to sell, sell, sell in thirty minutes.  We were bouncing off support.  If this support was widely recognized as solid, buyers would not have withdrawn.

To the Mailbag:
Peter Schiff submitted his petition to be on the Delaware ballot for Senate.  If he gets in, there is hope.---gulch member L.C.

John’s reply: Wouldn’t it be nice to have 51 senators like Peter Schiff?

I enjoy your articles and mailbag comments.---subscriber C.D.

John’s reply:  Thank you.  It is nice to hear from our readers.  I work every day to bring you information you can use, and some that we all need to hear!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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