Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – March 6, 2017
The major averages struggled to begin the week on little real news. January factory orders met consensus with a 1.2% advance on a big gain in volatile aircraft orders. The proxy for business spending non-defense capital goods ex-aircraft or core capital goods fell .1%. Hardly a pillar of strength but then manufacturing only makes up about 15% of the total economy.
Black Knight reports that mortgage activity hit a 9-year high in 2016 on a 17% gain in originations. Delinquencies fell to just 4.25% of all mortgages in January with .94% in foreclosure the total distressed mortgage rate was 5.19% to begin the year.
The term “deficits don’t matter” was infamously coined by republican Dick Cheney referring to Ronald Reagan in 2004 fast forward to 2017 and Trump’s trade director Peter Navarro comes out and says that trade deficits do matter and are in fact a threat to national security. Presumably a lead in to the Boarder Adjustment Tax or import tariff it does at least acknowledge the danger of deficits. While I’m sure the politicians will continue to mince words about what kind of deficits matter, as that is what they do. The bottom line is exactly that either income or taxes meet expenses or outlays or deficit’s start to accrue. As deficits grow so does the amount of money or interest paid required to service the debts. It doesn’t matter if they are trade, public, corporate, private, government etc., etc.. In the end debt service costs, aka interest payments, begin to crowd out investment and immediate consumption and will ultimately lead to bankruptcy or insolvency if allowed to continue unchecked. Basic back of envelope high school math and Economics 101. Additionally when debt funded consumption gooses economic activity as it has in the US since about the mid 1970’s based on the Federal Reserve Flow of Funds data on private sector debt and various government debt metrics. Problems arise when debt saturation is achieved and or the ability to lower debt service costs is lost because of zero bound interest rates ala the 2007-2009 financial crisis and again today.