Much Larger View

Mike WilliamsEconomic Update, InsightsLeave a Comment

Some feel the need to always have a sense of fearing “what’s next” in the process of markets and money. If so, then it has typically been more productive to think about elements which are not plastered all over the headlines and being discussed in never-ending soundbites no matter where you look. Those things do not tend to be the “surprises” after all.

Just a hunch here – but let’s look at the pathway a few steps ahead and away from all the media noise:

There are a couple of things which I suspect will slowly seep into the media coverage window over the next few months – probably well past the suffocating coverage still to come on the elections ahead.

Two things one may want to keep in the back of our minds:

Mr. Obama’s administration has done a good job on timing and accounting. And, he has been blessed with a great economy from which to extract revenues for his chosen programs. Increasing budget deficits may now indeed come into focus almost precisely when he is leaving office. The social programs created from record tax receipts for years will begin to weigh heavily on the numbers as ways to hide their accumulation will fade.

Next – many fret still over deflation. That process should stick with us for many years to come – a good thing – and an element brought on by the massive productivity shift of the Generation Y wave ahead.

Why? Simple:

They do much more with far less. With endless apps, cloud tools, free services, internet power/reach, supercomputers in everyone’s hand and the like – expect costs to continue to be wrung out of the systems we once new as “normal.” Add that to their insisting on being multi-taskers at all levels and one can see why the government reporting capabilities of these new growth issues are so far behind in the “new world economy.”

We can all agree we really do not get a full sense of all that is being produced anymore from old world government reporting.

Be that as it may – and an argument for another day – we need the deflationary “pressure” in this case. Why?

To offset the internal pressures which are driving up employment costs across the board. When one combines the massive debacle called Obamacare and other elements like regulation taxes, increased fee/licensing layers, legal battles and even the increasing pressures on minimum wages – small business is reaching a few choke points.

This is not terrible mind you – but we should all expect to see some inflationary pressures in a few areas. Yes, I know – mentioning inflationary pressure in a world full of deflationary fears is somewhat odd…but it is what it is as the kids tell us.

Let’s look at a few charts:

Let’s Review the Charts Above

In chart 1 from Calafia – it shows a solid view of expanding government revenues. We have been told that our economy was somehow subpar and living through the “weakest recovery on record.”

It’s rather foolish to to keep falling for that though as one can see in the rapid acceleration in federal receipts over the last 8 years. That pace of change is the steepest ever seen in the data. Say what you will but the rake has been at work for years.

Huge all-time records in income, payroll and corporate tax show one just how much of our growth has been raked off the top to keep deficits appearing in control while giving away trillions. To then suggest a weakest recovery on record is sort of like biting the hand that feeds….

Indeed, we are very lucky that the amazing growth of the economy has been able to fund that federal spending and pay those revenues to DC. The good news? Thankfully, the current budget deficit, relative to the economy, is very much in line with what it has averaged over the postwar period.

The Larger Point?

We better find some more productive fiscal policy coming out of DC so we can produce freer business growth and get investment capital moving again. As the curves show – capital will only stand so much taxation before it finally stalls – and worse – could reverse.

This can all be remedied and unleash massive benefits for all at the same time.


Better fiscal policy. It has zero to do with the Fed or any rate hike on the horizon.

Treat the life-blood of business better and we will see explosive growth. We will need it – the demand building in the pipeline will stress many areas of our current tightly-wound economy.

Small Business

The next two charts above (3 and 4) are for the latest small business surveys. Often overlooked for larger headline material – small business impacts jobs far more than big ones do. And the data show they are feeling a bit punk – with record pressures in the employment cost category. Culprits?

Running out of employee choices as we use up current candidates
Massive regulatory chains/costs for all new employees (a feeder of the revenue rake above)
Extreme pressures brought on by Obamacare costs which – far from what we are told in the press – are completely out of control now

I repeat: Better fiscal policies will come under more and more scrutiny. One cannot expect capital to keep moving into new growth and expansion while seeing such heavy costs of deployment when risk is what we all live on.

Many tend to forget this: Risk taking capital built America.

Treat it poorly and money has a funny way of disappointing flows on a wide scale.

In Summary

The confusion in our midst continues to be the massive generational power-shift underway.

Seen one way, it appears messy, dis-jointed and it feels like we are all walking in quicksand. Seen from a 50,000 foot view – relatively ordinary. Demand is coming our way – at levels being way underestimated.

Experts’s fear-mongering has been a costly siren song for many years.

Allow it to be less so in the future.

Pitches in the dirt are there for a reason: to take you out of the game.

We remain focused on the Barbell Economy. It is real – expanding and demand is growing like a weed.

Does that mean every day, week, month or year is rosy? Of course not.

That’s why they say patience and focus are so difficult to manage – and likely why so few accept it as a required set of traits for the long-term successes ahead.

More later….stay focused on the long-term growth demand ahead.

Until we see you again, may your journey be grand and your legacy significant.

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