Charts of the Month - August '21

US Daily Spending vs. Income

We’ve said it before and we’ll say it again, “the developed world does not have an income problem, they have a spending problem.”

In 2020, the US spent $18,000,000,000… a day. Doubling up its daily tax receipts.

Yes, it was the year of the pandemic and a ‘no holds bar’ approach to counteracting the draconian policies they put in place (effectively destroying the economy), was, I suppose, the only way to stave off Armageddon (Diego’s edit: in real life, Tim doesn’t talk like this, I swear. He’s a gentle soul.).

But since ’08 that ratio is up almost a half a turn, and 2021 doesn’t look to be slowing down anytime soon.

We’ve heard a few really smart people out there say that ‘2008 didn’t just hurt things, it broke things’, and we’re starting to understand what they mean by that. Structural changes have taken place since and may not ever be reverting back to ‘normal’.

SPX:TLT

Since our buddy Luke Gromen has often referenced the chart of the SPX to TLT, we asked him to give us a few lines to help us clarify exactly what he takes away from it:

“At 200% of GDP, the US stock market effectively is the economy. At that ratio, if stocks fall too far on a sustained basis, then GDP will likely begin falling too (and tax receipts fall with it). [Remember, US Household equity ownership is at record highs]

If that happens, the US will begin moving toward a Balance of Payments crisis, the first symptom of which would be US asset prices falling sharply and UST yields rising, similar to what happened from March 9-18, 2020.