TrimTabs Says Obama White House and Bernanke Fed Putting U.S. on Road to Financial Ruin

Nov
09

Total Federal Debt Already 2.5 Times Annual After-Tax Income of U.S. Taxpayers.

 

Sausalito, Ca, Nov. 9, 2012 – TrimTabs Investment Research says the Obama White House and the Bernanke Federal Reserve are putting the U.S. on the road to financial ruin because their  main approach to dealing with America’s economic problems since the financial crisis began has been pretty simple—borrow and print.

In a special report to clients, Trimtabs notes:

“Over the past five years a combination of lower after-tax income and exploding government borrowing are putting the U.S. on course for fiscal disaster.  The debt-to-income ratio of the U.S.—the ratio of total federal debt to after-tax income of everyone in the U.S. who pays taxes—nearly doubled in the past five years, rising from 1.4 in 2007 to an estimated 2.5 in 2012.”

Says TrimTabs CEO Charles Biderman, “We want to emphasize that total federal debt is already 2.5 times the annual after-tax income of everyone in the U.S. who pays taxes.  Moreover, this ratio is likely to keep rising unless President Obama suddenly changes course.”

The report points out that in 2008 — right before President Obama took office — the after-tax income of everyone in the U.S. who pays taxes was $6.80 trillion.  This figure includes both after-tax wage income and after-tax non-wage income from sources such as capital gains and rental income.  After-tax income tumbled to $5.97 trillion in 2009. Trimtabs estimates, based on data through October that after-tax income will  reach $6.60 trillion in 2012.

Meanwhile, says TrimTabs, “Total federal debt was $10.70 trillion at the end of 2008 — the year before President Obama took office — and we estimate based on year-to-date data that it will reach $16.47 trillion in 2012.  In other words, total federal debt will have shot up $5.77 trillion, or 54%, in four years.”

Says Biderman, “After-tax income, is down in nominal terms and down even more in real terms since President Obama took office.

“Despite the constant chatter about ‘recovery,’ after-tax income in 2012 is on track to be 3% below its peak n 2008, even before adjusting for inflation.  After adjusting for inflation—even using the government’s understated measure—after-tax income is on track to be more than 10% below its peak.

Says the report, “Even if after-tax income grows by $250 billion per year in the next few years, which we believe is extremely unlikely given the headwinds facing the global economy, total federal debt is likely to keep expanding at least $1 trillion per year, if only to fund the costs of Obamacare.  How long will the rest of the world keep funding the U.S.?  If the Fed tries to take care of most of the funding itself by printing money, how long will investors want to hold U.S. dollar assets?”

Biderman notes, “By the way, we are almost the only ones we know who analyze after-tax income, which is available in real time from the U.S. Treasury. Most on Wall Street prefer GDP because they swallow whatever government bureaucrats feed them.   GDP is a poor measure of the overall economy’s health that was created in the 1930s, when no real-time data was available.”

Source: U.S. Treasury and Federal Reserve.  The data for 2012 is a TrimTabs estimate based on data from January 2012 through October 2012.  We assume a blended tax rate of 25% to calculate after-tax income.

Source: U.S. Treasury and Federal Reserve.  The data for 2012 is a TrimTabs estimate based on data from January 2012 through October 2012.  We assume a blended tax rate of 25% to calculate after-tax income.

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5 Responses to TrimTabs Says Obama White House and Bernanke Fed Putting U.S. on Road to Financial Ruin

  1. Cold reduction on November 9, 2012 at 9:24 pm

    I appreciate the analysis and insights as always CB. To differ on a minor point, it seems we are already a good number of miles down the road to financial ruin and our tour guides are badly lost.

  2. Johnny D on November 10, 2012 at 4:31 am

    What I find interesting is many argue excessive government borrowing has added some incremental GDP growth and has kept us out of a recession. Albeit in a very inefficient manner.
    But Charles your analysis using after tax income suggests that we never left the recession. Hence the government would never use these metrics.
    Charles my question to you is, do you find this metric generally to lead or lag other economic indicators?

    • cbiderman on November 10, 2012 at 11:34 am

      after tax income is a coincident indicator.

  3. buck novak on November 11, 2012 at 4:49 pm

    Here is my question. Is government Obama going to print money and by printing money I mean physically printing the money and giving it to the Bennie and The Fed and the rest of the populace bread and circus show? Or are Bond Vigilantes and the populace simply going to default on their debts thereby hammering creditors and starting runs on banks? I am preparing for the deflationary scenario. Huge defaults are coming as people and government will be unable to pay their debts. Creditors will get hammered just as badly as the debtors. Consumption and investment will drop dramatically as it is based on an ever-expanding supply of credit and debt. Welcome to revolutionary economics.

    • Daniel on November 13, 2012 at 7:42 am

      @Buck:
      To my knowledge the current rules stipulate that only the central bank can “print money” and the FED is (supposed to be) independent (- yah, right!). Physical money stock, i.e., bills and coins are pretty much irrelevant at this moment since it is a very small fraction of our total money supply by most measures. (Interesting side note: It is not at all trivial rigorously and unambiguously to define what money is or should be.)

      So in my opinion it will be the FED (which is all but independent) who is going to do whatever it takes and I cannot imagine that this would be any different if the the white house had another resident.

      The bitter pill has gotten far too big so that we could be persuaded to swallow it … so it will get bigger until we cannot push it down the road anymore. This wont be fun but it wont be the end of the world either. Many civilizations have gone through this process before and mankind has survived …

      Do not worry too much! This is bad for your heart and health care wont get any cheaper (in real terms).

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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