Markets & Economy

Predicting the 2017 economy by following the money

Stocks and bonds have been going nuts, in violation of money rules
  • Federal spending in 2016 has been about $3.6 trillion. Our gross domestic product (GPD) is about $18.7 trillion, thus spending is about 19 percent of GDP.
  • Tax revenue is about $3 trillion, a little short, hence a deficit of about $600 billion. At 3 percent of GDP, the deficit is not good, but it is survivable.
  • Unfortunately, future promises of spending on Social Security and Medicare will soon begin to widen these percentages.
  • Under current law, tax revenue will not rise much from its current 16 percent of GDP, but spending will rise within 15 years to about 28 percent of GDP -- not survivable.

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In today’s accepted wisdom, Donald Trump as president means that 2017 can’t be predicted. At all. Endured, possibly enjoyed, but it will be a complete mystery. Not so -- not so in the financial realm. Foreign policy may get a little loopy, but money has its own rules. Federal spending and GDP Since the election, the stock market has gone nuts, way up in expectation of big tax cuts and stimulus spending. And the bond market has also gone nuts -- rates way up -- for similar reasons. These moves are violations of money rules. Or, given the state of U.S. finance, attempts to ignore the straightjacket that we’re wearing. Federal spending in 2016 has been about $3.6 trillion. Exciting! Our gross domestic product (GPD) is about $18.7 trillion, thus spending is about 19 percent of GDP. That’s money going out. Tax revenue is about $3 trillion, a little short, hence a deficit of about $600 billion. At 3 percent of GDP, the deficit is not good, but it is survivable. U...