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XMFSinchiruna (26.44)

Some incredible macroeconomic charts!



June 11, 2009 – Comments (2)

These charts were created by a guest contributor named Eric De Groot.

1. The first deals with dwindling federal tax receipts, and the broken trendline in the YoY percentage change in those receipts:

Federal Taxes Withheld 12-Month Moving Average (TW12MA) AND Federal taxes Withheld 12-Month Moving Average Year-over-Year Change (TW12MA12LN)

2. The second chart is a visual representation of the U.S. government's operational deficits. Remember that outlays not covered by tax receipts must be funded through debt, and with all the rumblings in the bond market lately, the world is definitely losing enthusiasm over bankrolling that debt. When creditors dry up and tax receipts dwindle amid expanding spending plans ... you have the veritable certainty of further quantitative easing ahead.

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"Leading Formula"
Federal Taxes Withheld (TW) Less Total Government Outlays (TO) As A % of GDP, 12 Month Moving Average.

The leading formula is nothing more than a slight modification of Jim Sinclair's formula. Tax withheld less outlays, divided by GDP defines the “Leading Formula.” Taxes withheld, a sub sector of total receipts, is more sensitive to marginal changes in business activity. This sensitivity provides leading characteristic within the Formula calculation.

Note: the blue line is the U.S. dollar index (log), expressed on the right axis. The purple line is tax receipts minus outlays as percent of GDP (12-month moving average).

3. For the third chart, we have Eric's graphical representation of Sinclair's formula, as expressed througha 12-month moving average of the U.S. budget deficit as a percent of GDP beneath that same log chart of the USDX. Note that this 12-month moving average fell a full 25 basis points from April to May alone (corresponding with massive funding shortfalls for those two months)

"The Formula"
US Fiscal Balance vs. US Dollar: Federal Government Budget As A % of GDP, 12 Month Moving Average:

The Federal budget, or total receipts less total outlays, divided by GDP defines “The Formula.” The Federal budget is normalized or divided by GDP to remove the effects dollar devaluation and smoothed to provide unbiased historical comparisons. For example, -5% Formula reading in 1992 is largely comparable to the -5% Formula reading in 2008.

As stated previously on, an economy is either rising at a rising rate or business activity is falling at an increasing rate. This is economic law 101. Falling business activity manifests itself is a falling “Formula” values. Think of the Formula, Trade and Current Account Deficits as a speedometer of money flows in/out of the US. A negative speedometer in the "Formula" reading implies outflows. Ultimately, persistent outflows will send interest higher and devalue the dollar.

Again, here is Jim Sinclair's formula, for anyone who missed it. It could be the most important chain of causal events that you'll ponder in your entire journey as an investor.

Fool on!

2 Comments – Post Your Own

#1) On June 11, 2009 at 9:21 AM, XMFSinchiruna (26.44) wrote:

Sorry, a typo caused chart #2 to fail:

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#2) On June 11, 2009 at 10:57 AM, jesusfreakinco (28.21) wrote:


I saw these on Sinclair's site.  Amazing.  It will be interesting to watch the California implosion.  It should serve as a 'what not to do' case study for other states.

California nears financial "meltdown" as revs tumble


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