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BS Alert: Goldman Sachs - What's the Right Measure of US Government Debt?

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April 26, 2010 – Comments (7)

ZeroHedge has a nice intro to this trainwreck. Goldman-Sachs has a vested interest in the status quo, and they could care less that all the new debt now has negative economic impact, because they are one of the first ones to receive it. Inflation and massive defecit spending not only hurts the economy (making it less efficient, and like I show below, eventually no longer produces marginal utility and in fact has a negative impact) but it changes the structure of the economy. Specifically it allows for those that receive the debt first (financials) to squeeze whatever utility exists (lets call it nuclear potential) and to pass along whats left (lets call it nuclear waste) to the rest of the economy (eventually higher prices and debt servicing costs on Government debt that have to be borne by US citizens by either higher taxes or more inflation). It allows financials to grow much larger than they should.

The current trend of piling debt on top of debt is unsustainable: Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428. And neo-economists and politicians have to get their collective heads out of their collective assess and not allow a vampire industry (financials) hijack the real economy. But since that won't happen willingly, then the market will force a crisis that will fundamentally change how we view politics and the economy. Crony capitalism will go away. Good laws like Glass-Steagall will become reinstated. Too big to fail will be abolished. Grass roots companies will grow like a new forest. The Mittelstand companies of Germany (small/medium firms, mostly family owned) is exactly the economic model that most of the western world should be following, and I believe will in the future.

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Goldman's Essay On Why The US Debt Load Is "Not Too Concerning"
Submitted by Tyler Durden on 04/25/2010

http://www.zerohedge.com/article/goldmans-essay-why-us-debt-load-not-too-concerning

[excerpt]

Goldman has been on a roll this week. After losing all credibility (or whatever they had) with the markets, the objective media and Main Street, but not their clients, who were the ones losing the most for interacting with the squid, yet refuse to take their business elsewhere for fear of being locked out from the market monopolist with the greatest amount of inventory (yes, economies of scale when compounded with not so subtle forced liquidations of key competitors end up in monopolistic outcomes), now their economic team is taking a gamble with its own reputation (this is the team that won the best big bank economic team aware for 2009). In a note distributed to clients, entitled "What's the Right Measure of US Government Debt?" Andrew Tilton and Alec Phillips try to present the case that contrary to what you may have heard, the $12.8 trillion of US debt is not really worth losing sleep over. In fact the next time Goldman needs a bailout and the resultant $2-20 trillion of new debt are added to the make the 2s30s at about 100%, that should not be a source of concern either.

We present the "essay" in its entirety.

What's the Right Measure of US Government Debt?

Investors prone to worry about the sustainability of government debt may feel increased anxiety given the wide variation in estimates of government liabilities.  In today’s comment we list some of the major reasons why figures differ and organize them in a common framework.

When reviewing debt figures it is important to distinguish between a) federal and state/local debt, b) gross vs. net debt, c) present vs. future obligations, d) on- vs. off-balance sheet commitments, and e) stronger vs. weaker commitments.  For those focused on the federal government’s near-term financial condition, federal net debt of about 50% of GDP (including net GSE liabilities) may be an appropriate measure; for those wishing to compare government debt sustainability across countries, gross general government debt to GDP of 70% is probably a fairer comparison. Unfunded liabilities of 200%+ of GDP are extremely worrisome, but serve mainly to make plain that fiscal policy must and will change.

As many economies and markets recover from the worst of the financial crisis, investors have turned their attention to the creditworthiness of governments.  The fiscal support needed to contain the financial damage and kick-start growth has been considerable, and has naturally raised questions about the sustainability of government borrowing in many countries.

One source of anxiety for many investors has been skepticism regarding the commonly used government budget statistics, which exclude a variety of off-balance sheet liabilities.  This skepticism has in turn led to a plethora of estimates about the “true” amount of government debt, from federal debt held by the public (54% of GDP in 2009) to the present value of total government liabilities (several times GDP).  In today’s comment we list some of the major reasons why estimates differ, and organize them in a common framework.  Though still incomplete, the table below may serve to provide some context for the various estimates of debt. (Note that some figures are our estimates, and in cases where 2009 figures are unavailable, we have used 2008 data.)

A good deal of the confusion stems from the various forms of governmental obligations that exist.  We can distinguish among these in several ways:


click here to read the rest of the "essay"

7 Comments – Post Your Own

#1) On April 26, 2010 at 4:53 PM, outoffocus (23.49) wrote:

An interesting essay that we know is full of "bull" crap. But the best part as always is the comments.

"Yep, a squid pro quo for all the 'help' over the years"

Good stuff.

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#2) On April 26, 2010 at 5:06 PM, binve (< 20) wrote:

outoffocus,

>>An interesting essay that we know is full of "bull" crap.

Exactly.

>>But the best part as always is the comments. "Yep, a squid pro quo for all the 'help' over the years" Good stuff.

LOL! Yep :) I love the commenters at ZeroHedge. Always good stuff :)

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#3) On April 26, 2010 at 5:20 PM, Option1307 (30.12) wrote:

This one is even better:

Are they trying to break into the financial media industry?  If that's the case, they've got to try harder.  CNBC has a HUGE lead on the bullshit being served per programming hour.

Ha ha ha, awesome comment over there!

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#4) On April 26, 2010 at 5:51 PM, binve (< 20) wrote:

LOL! another good one :) Thanks Option!

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#5) On April 26, 2010 at 8:14 PM, TMFAleph1 (95.32) wrote:

ZeroHedge is mostly useless -- it simultaneously preys on and feeds its readers' collective conspiracy fantasies.

Best,

AD

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#6) On May 01, 2010 at 1:12 PM, uclayoda87 (29.35) wrote:

Labling somthing as a conspiracy theory is like calling something racist, the purpose is to suppress ideas that those in power do not want discussed.  It's not a new idea, the Catholic church used it to vilify those with the outrageous idea that the earth was not the center of the universe.  What a conspiracy theory that was!  Is it also a conspiracy theory that GS set up Greece for a fall?  Or that they destroyed an African mining company?  Or that their associate JPM manipulated the silver market?   All are conspiracy theories until they become accepted dogma.

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#7) On May 01, 2010 at 1:28 PM, binve (< 20) wrote:

uclayoda87,

Thanks uclayoda!!

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

— Arthur Schopenhauer, German philosopher (1788 – 1860).

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