(CBO revenues and outlays budget data is not available this month. The deficit for October was estimated at $62 billion, $19 billion more than October 2016.)
Just a quick follow-up on the tax increase that will hit households making $100,000-300,000 under the current tax “reform” proposals. The release of the details has confirmed that anyone in that income range who currently itemizes their deductions will face higher taxes, while those who do not itemize will pay more if they have two or more dependent children. We do not wish to be shrill, but the facts as we see them stand in stark contrast to the press releases of the proponents. We would be more than happy to discuss our conclusions with anyone and if we are wrong we will gladly retract. After all, we would be as happy as the next guy to know that our taxes weren’t going up.
Debt and Deficits
We have remarked in this commentary in years past concerning the mismatch between the stated deficit and the increase in debt. As a quick review, the federal government spends more money than it takes in, and this difference is met through the sale of debt—Treasury bills, bonds, and notes. This increase in debt ought to be roughly equal to the published deficit—one needs also to take into account cash balances at the end of the fiscal year, bond accruals, and other factors—but the actual historical record reveals nothing of the kind. In fact, over the last ten years, the reported federal deficit (Office of Management and the Budget) has averaged $852 billion annually while the federal debt has increased $1.12 trillion per year over the same timespan. Only in Washington, perhaps, could $250 billion per year go unaccounted for. Just remember this the next time someone says that the government cannot afford to spend a few billion dollars to keep the National Parks open or provide disaster relief or modernize the electric grid—the federal government spends $1 billion every business day that it doesn’t even count in the budget..
Brother, Can You Spare a Satoshi?
One of the hottest financial stories of 2017 has been the rise of bitcoin. Financial luminaries like Jaime Dimon have called it a Ponzi scheme that will end in losses, while its proponents have hailed it as the harbinger of a new era. Whatever one’s view, the total value of bitcoins outstanding as of this writing exceeds $100 billion, an astonishing feat for what is essentially an algorithm concocted by an unknown programmer with the pseudonym Satoshi Nakamoto in 2008. This means that something which has never had tangible existence–the owners of bitcoin hold nothing other than what amounts to a username and a password—has a value larger than the GDP of 130 of the world’s 190 countries. And while the cryptocurrency can be used in transactions, at the present time it seems that much of bitcoin’s value in the eyes of its holders lies its scarcity—only 21 million coins will ever be created by the algorithm.
The revolutionary aspect of bitcoin is the questions it raises about the nature of money, who gets to create it, and what gives it value. It seems that bitcoin, which is brought into existence by a computer program and not by banks or governments, combines the properties of classic stateless alternatives to fiat money (like gold) with the cutting-edge distributed electronic ledger technology of the blockchain. Like many revolutionary concepts, bitcoin may eventually fail due to pushback from the existing power structures or from some flaw inherent in its experimental design. It is worth noting, however, that in the same nine years in which bitcoin grew to a $100 billion valuation out of nothing, the federal government issued $11 trillion in net debt which was also created ex-nihilo either by the Federal Reserve Bank as part of its asset-purchase programs termed Quantitative Easing, or QE, or by the normal credit-creation process of the banking system. A world in which governments were forced to limit their debt issuance because of the competition from stateless cryptocurrencies—by the so-called bitcoin standard in the way that they were once constrained by the gold standard–would be a very different one from that which we currently inhabit.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Doylestown Wealth Management, Inc. are separate entities from LPL Financial.