10’000 Hours
This article explains what has turned out to be potentially the most profit-generating knowledge of my 45-year participation in the stock market. Knowing and tracking where the money that drives the economy comes from is the secret (even though it is an open secret).
The following chart highlights the reality of spending options for governments. A currency-issuing government’s spending is limited only by the availability of real resources.
Malcolm Reavell
Source: Malcolm Reavell
The Canadian government (like most governments) functions like it apparently doesn’t understand the monetary system that they are driving. The chart below is implying that the government believes the taxpayer creates Canadian dollars; notice that the graphic shows the dollars originating with the taxpayer. Of course, only the spending laws of Parliament can create Canadian dollars. The dollars that are used to pay taxes must first be created (spent into existence) by the government — any other dollar would be counterfeit.
Parliament of Canada
Source: Parliament of Canada
Believing and functioning as if the budget of a currency-creating government is like a household-budget (currency-user) is the source of much human deprivation because it allows politicians the excuse that “we can’t afford” the programs and infrastructure that provides the best quality of life.
A currency-creating government is self-funding – it cannot run out of its own money- which means that money is not the limiting factor for a currency-creating government. Only the availability of real resources, not tax-dollars can limit what we do. As Keynes pointed out in 1942 “anything we can do, we can afford.”
This understanding, which I came to relatively late in life, has been the most profit-generating knowledge of my 45-year participation in the stock market. Knowing and tracking where the money that drives the economy comes from is the secret (even though it is an open secret).
Fund Flows
Money originates when the currency-creating government spends into the private sector. Focusing on the US economy, since it’s the most impact-full globally, dollars are created when Congressional spending legislation is enacted and the Treasury directs the central bank to deposit reserves in the private bank accounts of whomever is provisioning the government.
GOVERNMENT SPENDING = CURRENCY CREATION
Subsequently, Congressional tax legislation causes some of the dollars that were created through Congressional spending to be taken back (out of the private bank accounts) and effectively cancelled; money sitting in the Treasury General Account (TGA) is not part of the economy and is not part of any monetary measure–in the same way that in a game of Monopoly, the money sitting in the “bank box,” and not in players’ hands, is not part of the game. (In the past, tax dollars were burned in public to prove they were not being left in circulation.)
The money that is not taxed back and cancelled is left behind in private-sector bank accounts, and is registered as a deficit for the government. A deficit for the Government — who creates the money at will – but a surplus for the private-sector (the non-government sector).
GOVERNMENT SPENDING — TAXES = GOVERNMENT DEFICIT = PRIVATE SECTOR SURPLUS
I call this the “net-transfer” – the net-amount of money transferred from the Treasury to the private sector. This is the most important factor that drives the stock market. If the deficit is growing, the stock market tends to grow. If the deficit is decreasing, the stock market tends to struggle.
ANG Traders
Last year, at this point, the annualized net-transfer rate was $1,750B/year. Currently, the rate is $1,625B/year which is 7% lower. Even though the nominal spending is 5% higher than last year, the tax collection is even higher than that, which means less money is left behind in the economy.
Since the start of the fiscal year (October), the SPX has been trading well above the $3,000B/year rate line (black line below). We continue to expect the SPX to drop like it did last year, or the net-transfer (spending) rate must increase (pink-arrows in chart below).
ANG Traders
We are approaching the April tax-take which will drain more money from private bank accounts than it did last year and should put pressure on the stock market in the March-to-April period (chart below).
ANG Traders
Understanding and tracking where the money comes from that drives the stock market is the best way to stay ahead of future stock market movements.
“It is probably the only report of its type on the planet when you think about it.“
“ I am SO VERY thankful for the discovery of this site, and the wisdom and knowledge I have gained ... “
” I have not seen this type of analysis anywhere else. Please keep up the awesome work! – James “
“ Happy ANG subscriber here. I believe them to be the best broad market analysts on seeking alpha. “
” Best here in seeking alpha…@ANG Traders . Best of the best! “
Take advantage of our14-day free trial and stay on the right side of the market and Away From the Herd.
