Household Cash Flow

Every penny at the pumps drains $1.5 billion out of household cash flow. Gas prices at the pumps are $3.15/gallon, but back in September it was closer to $2.70/gallon. This is nothing more than a $60 billion annualized drag on U.S. households (absorbing half of the payroll tax relief). If gas prices ultimately go to $4/gallon, then this would siphon over another $100 billion into the gas tank.

Gross Deficit Product

Our annual deficit is 10% of GDP. A deficit of 3% is sustainable (trust me) and 2% of the deficit will melt away as the economy revives; leaving a deficit of 5%. Had the Bush tax cuts been repealed that would have reduced the 5% to 2.5%. What this means is that Congress has to find twice the value of the Bush tax cuts to get us to a stainable fiscal level. It may take a decade for voter to digest this.

Budget Brawl Makes no Cents

There will probably a nasty spending fight in ’11 complicated by the need to raise the federal debt limit to avoid a default; a vote many new Republican have indicated they would not make. Republicans say the debt limit vote offers a chance, allowing them to tie a package of spending reductions to the debt increase to make it more palatable. The fight will do great harm.

Farming for Funds

If there is a positive theme that transcends the weak U.S. economy it’s ag! Farm incomes are way up & indications suggest more increases in ’11. This is due to increasing demand for food, especially proteins, from rising living standards in China, India and other emerging economies. The latest evidence of this was in the Fed’s Beige Book which provided some fine treats to chew on when discussing US food production.

Bond Bites Man

Yields on Greek & Spanish bonds (credit downgrade looms) are up; Irish bond yields are also up to 8.4%, which, in real terms is over 10%. Something is going to give because that is unsustainable when real GDP is CONTRACTING at a 2% rate. In the old days currency devaluation & debt restructuring would have occured by now. And with GDP growth in Germany expected to slow the Euro is clearly not the place to be.

70 Words on the Economy. Daily.