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Authored by Ryan McMaken via The Mises Institute,

In the wake of the Covid Recession and the drive to pour ever larger amounts of “stimulus” into the US economy, the Federal Government in 2020 spent more than double—as a percentage of all government spending—of what all state and local governments spent in 2020, combined.

By the end of 2020, the US’s federal government was spending 68 percent of all government spending in America, while state and local governments spent only 31 percent of all government spending.

More specifically, federal expenditures reached 6.8 trillion for the year while state and local spending reached “only” 2.9 trillion.

This was a sizable change from the decade leading up to 2020 when the federal government’s share of all government spending tended to hover around 60 percent, while state and local spending remained close to 40 percent.

The sudden spike to 68 percent pushed the federal share up to the highest it’s been since the 1960s and the Vietnam War.

Moreover, from 2019 to 2020, growth in state and local spending nearly flatlined, dropping to 0.38 percent growth over the previous year. That’s the lowest growth rate in state and local spending since 2011 in the wake of the 2008 financial crisis. Yet, at the same time, federal spending increased by 25 percent. This was the largest year-over-year increase in federal spending since the Korean War.

A Lot of State and Local Spending Is Really Federal Spending

Yet, these numbers actually understate the extent to which federal spending dominates all government spending in America. This is because a lot of state and local spending is really federal spending, thanks to federal grants.

As noted by the Center on Budget and Policy Priorities in 2018,

Federal grants to state and local governments help finance critical programs and services across the country. These grants provide roughly 31 percent of state budgets and 23 percent of state and local budgets combined, according to the most recent data.

The share of state spending composed of federal grants varies from state to state with the largest share at 41.9 percent in Michigan, and the smallest in Hawaii at 17.5. Of course, this percentage is driven both by total state spending and by the total amount of federal grants. States that tax a lot and spend a lot in general (e.g., Hawaii, Massachusetts) tend to have a small share of federal spending within their state budgets.

In any case, this is a continuation of a well-established trend. In fiscal year 2011, federal grants accounted for about 25 percent of state and local spending.

So when we’re comparing federal spending with state and local spending, that “60 percent” figure for federal spending over the past decade (as a proportion of all spending) is a low-ball figure.

We should also expect this number to get a lot bigger. Thanks to rising Medicaid costs (mandated by federal law but only partly covered by federal grants) total state spending will increase, but federal grants will rise as well.

In fiscal year 2011, “the federal government provided $607 billion in grants to state and local governments.” By 2019, that figure had risen to $721 billion. My mid-2020, it was clear this total was around $800 billion, and that’s not counting bailout funds and other covid-related funds handed over to state and local governments.

The Role of Deficit Spending and the Central Bank

Perhaps the biggest reason we should expect the federal role to keep getting bigger is because it can do so easily.

That is, state and local governments will continue to find it politically difficult to keep raising taxes to cover rising costs. The federal government, on the other hand, has a lot more freedom to spend.

This is because the federal government has much greater access to borrowed funds than state and local governments, and this borrowing process is also subsidized by the US’s central bank. 

This isn’t normal. In most of the world, and for most state and local governments, rising deficits and mounting debt will tend to lead to rising interest rates and greater difficulty in finding a growing pool of borrowers to take on the government’s debts. The US government, on the other hand, has two things working its favor which allows it to take on trillions in new debts without having to face the realities of rising interest rates: the Federal Reserve, and the status of the dollar as the world’s reserve currency. 

Thanks to the Federal Reserve, when the US government needs to borrow another $500 billion or even another trillion dollars—as has been the case in recent years—the feds need not worry about flooding the debt markets with “too much” debt. Rather, the central bank will swoop  in to buy up trillions of dollars in government debt—as has happened since 2008—to ensure that interest rates remain low. The central bank thus prints up trillions in new money in order to put more government debt in its portfolio, essentially monetizing the debt and subsidizing the federal government’s ability to spend. 

Of course, if the US were a “normal” country with an ordinary fiat currency, it could never do that. All those trillions of dollars used to force down interest rates on government debt would cause the currency to devalue at catastrophic rates. Things would look more like the situation in Argentina. Fortunately for the federal government and the central bank, however, the dollar remains the world’s reserve currency, partly because the other central banks of the world are at least as irresponsible as the US’s central bank. So, investors and other central banks are still willing to mop up all those extra dollars and store them away. 

States and local governments can’t do anything like this. The State of Illinois can’t just spend an extra $100 billion because if it did so, the interest rate it had to pay on its debt would skyrocket. Moreover, even if Illinois had its own currency and a central bank to buy up a lot of this debt, the “Illinois dollar” would not have the benefits of being a global reserve currency. 

So, the US’s federal government is in a unique position to keep funds flowing into state and local governments when those governments couldn’t get away with taxing, spending, and borrowing on their own. This means that over time, the federal government will continue to replace state and local tax-and-spend mechanisms with federal spending and federal taxes.

It’s just another way that the central bank enables the centralization and growth of political power in the United States. 

Now that humbling America’s tech giants has become an issue with bipartisan support, a package of restrictive new measures targeting Big Tech is slowly moving through Congress, while President Biden prepares to slap the industry with a new executive order empowering regulators to tighten scrutiny of any anti-competitive behaviors.

While all the money firms like Facebook, Amazon and Google spend on lobbying may have saved them from being forcibly broken up, the new restrictions will unquestionably hurt the bottom line of big tech, while making it more difficult for the biggest firms to simply buy out any competitors who might threaten their dominance. While Facebook recently won a major court victory when a judge dismissed a lawsuit brought by the DoJ and a handful of State attorneys general, Google has once again found itself squarely in the sight of regulators hoping to humble the company’s display ads business, an integral piece of Google’s dominance of the digital advertising space.

Despite recently becoming one of only a small handful of American tech giants to see its market capitalization top $1 trillion, Microsoft has largely escaped scrutiny from Congress and the Biden Administration. And while one might expect Big Tech to close ranks in response to the antitrust scrutiny, to the contrary, Microsoft and Google are abandoning a longstanding “truce” that ended an extensive conflict between the two companies, according to the FT.

One source said the agreement wasn’t an attempt to screw competitors, but rather an agreement between Satya Nadella and Sundar Pichai (CEOs of Microsoft and Google) to end “dirty tricks” that the companies were playing on each other. The truce also involved settling outstanding lawsuits, along with a deal to abandon further litigation. Additionally, Microsoft dropped its infamous “Scroogled” ad campaign attacking its rival.

Still, some academics can’t help but be suspicious of the deal.

“It’s always a little puzzling when you see direct competitors working on private agreements,” Eric Goldman, a law professor at Santa Clara University, said of the 2015 pact. However, he said that ending the “dirty tricks” employed by both sides appeared to be a way to end the destructive rivalry without necessarily weakening competition.

“The tricks Microsoft was playing on Google were hurting the entire industry — including Microsoft,” Goldman added.

Signs of renewed rivalry have cropped up recently with Brad Smith, Microsoft’s president, publicly attacking Google over its threats to withdraw its search service in Australia over a ruling that it must compensate publishers. It’s exactly these types of ruthless advertising practices that have attracted scrutiny from international regulators.

Authored by Mike Shedlock via MishTalk.com,

La Niña weather patterns generally associated with dry condition in the Southwest ended in May. So when is the relief?

El Niño and La Niña

SciJinks discusses the Difference Between El Niño and La Niña.

In Spanish, El Niño means “the little boy” and La Niña means “the little girl.” They are sort of like a brother and sister. Like many siblings, the two weather patterns are opposites in almost every way. La Niña causes water in the eastern Pacific to be colder than usual. In the same region, El Niño can cause the water to be warmer than usual. Areas that are hit with drought during La Niña years are pummeled with rain in El Niño years.

El Niño and La Niña: Frequently Asked Questions

Climate.Gov discusses Frequently Asked Questions.

El Niño and La Niña are opposite phases of a natural climate pattern across the tropical Pacific Ocean that swings back and forth every 3-7 years on average. Together, they are called ENSO (pronounced “en-so”), which is short for El Niño-Southern Oscillation.

The ENSO pattern in the tropical Pacific can be in one of three states: El Niño, Neutral, or La Niña. El Niño (the warm phase) and La Niña (the cool phase) lead to significant differences from the average ocean temperatures, winds, surface pressure, and rainfall across parts of the tropical Pacific. Neutral indicates that conditions are near their long-term average.

El Niño Conditions

During El Niño, the surface winds across the entire tropical Pacific are weaker than usual. Ocean temperatures in the central and eastern tropical Pacific Ocean are warmer than average, and rainfall is below average over Indonesia and above average over the central or eastern Pacific.

La Niña Conditions

During La Niña, it’s the opposite. The surface winds across the entire tropical Pacific are stronger than usual, and most of the tropical Pacific Ocean is cooler than average. Rainfall increases over Indonesia (where waters remain warm) and decreases over the central tropical Pacific (which is cool). Over Indonesia, there is more rising air motion and lower surface pressure. There is more sinking air motion over the cooler waters of the central and eastern Pacific.

How long do El Niño and La Niña typically last?

El Niño and La Niña episodes typically last 9-12 months. They both tend to develop during the spring (March-June), reach peak intensity during the late autumn or winter (November-February), and then weaken during the spring or early summer (March-June).

Both El Niño and La Niña can last more than a year, but it is rare for El Niño events to last longer than a year or so, while it is common for La Niña to last for two years or more. The longest El Nino in the modern record lasted 18 months, while the longest la Niña lasted 33 months. Scientists aren’t sure why the duration of the two types of events can be so different.  

Does global warming affect El Niño and La Niña?

There are many ways in which global warming could affect the frequency and intensity of El Niño / La Niña (see this ENSO blog post, for example), but scientists currently have low confidence in their ability to predict exactly how a warmer world affect the ENSO. Scientists have high confidence, however, that ENSO itself has been occurring for thousands of years, and will continue into the future. Global warming is likely to affect the impacts related to El Niño and La Niña, including extreme weather events.

Bye for Now, La Niña!

On May 13, Climate.Gov said Bye for Now, La Niña!

La Niña conditions have ended and NOAA forecasters estimate about a 67% chance that neutral conditions will continue through the summer. The ENSO forecast for the fall is less confident, with odds of a second-year La Niña currently hovering around 50–55%.

That’s the problem. La Niña has ended but there is no El Niño in sight. Worse yet, the odds of another La Niña are about 50%. 

Blistering, Record-Breaking Heat

We searched through decades of weather data to look for a precedent to this heatwave: there isn’t any. https://t.co/gDOKueOkwt My first NYT byline!

— Aatish Bhatia (@aatishb) June 29, 2021

Potentially dangerous heat wave on the way this weekend. Some areas could reach 40 degrees C. The heat will begin Friday and could last through Tuesday. @GlobalBC #BCStorm pic.twitter.com/fDoGGBkeD7

— Kristi Gordon (@KGordonGlobalBC) June 23, 2021

Canada has a NEW national record for highest all-time temperature: As of 2:30pm local time, #Lytton, B.C. has unofficially hit 45.5°C — surpassing the hottest temperature on record, set in Midale & Yellow Grass, SK in July 1937. #BCHeat #BCHeatwave #WxTwitter pic.twitter.com/kFYqvx1rKD

— The Weather Network (@weathernetwork) June 27, 2021

Lytton, B.C. hit 113.9 degrees F, 45.5 degrees C. Amazing. Then it smashed that record. 

The temperature in Lytton hit 47.9 C on Monday, breaking the record for highest recorded in Canadian history — set just one day earlier — by more than a degree. For context, that’s hotter than the hottest temperature ever recorded in Las Vegas. https://t.co/rd2zedlT0d

— CBC British Columbia (@cbcnewsbc) June 29, 2021

47.9 Degrees C is 118.2 degrees F. Wow!

When Does It End?

Climate Predictions 6-10 Days

8-14 Day Climate Probability

Official 30-Day Forecast

The above maps are from the National Weather Service Climate Prediction Center.

Unfortunately, the models see no end to the heat wave. And the odds of rain are generally below average where rain is needed the most.

World Record Update

🇨🇦Canadian national record ride is over: 49.6C/121.3F. Previous WORLD record above 50N of latitude was 44.4C/112F. To have an idea of the exceptionality of this value,this map by climatologist @Climatologist49 shows the few US stations with a higher temperature record than Lytton https://t.co/kCiwAvRKlT

— Extreme Temperatures Around The World (@extremetemps) June 30, 2021

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Following reports that regulators have been throwing up obstacles to Robinhood’s planned IPO, forcing the company to push back its expected timeline for the offering, the Wall Street Journal reported just minutes ago that the discount brokerage has just agreed to pay $70MM to settle allegations that have been giving the firm serious problems.

The settlement with Finra, the industry’s self-regulatory body, will resolve allegations that Robinhood misled customers, approved ineligible traders for risky strategies and didn’t supervise technology that failed and locked millions out of trading.

The fine is, of course, merely a speeding ticket: The firm’s revenue growth has surged, with its revenue from trading more than tripling during Q1. Critics of the company have complained about all of these practices in the past.

Oil prices dumped and pumped overnight, testing below $73 and above $74, amid API inventory data, and OPEC+ headlines.

“OPEC countries are cautious with regard to output-increase strategy amid oil market challenges,” Kuwait’s Oil Ministry said in a statement on Wednesday.

“Any decision the organization will take will be in the interests of producers and consumers.”

Bloomberg Intelligence Energy Analyst Fernando Valle notes that despite last week’s massive draws in crude-oil and gasoline inventories, crude prices have stayed relatively flat, signaling some skepticism with the breadth of the recovery. Inventories in China and the Middle East remain elevated, which may contribute to concerns for North American markets. Without a rebound in refined product exports, we believe that refiners are unlikely to increase output in the short term.

API

• Crude -8.153mm (-4.7mm exp)

• Cushing -1.318mm

• Gasoline +2.418mm (-700k exp)

• Distillates +428k (+100k exp)

DOE

• Crude -6.718mm (-4.7mm exp)

• Cushing -1.46mm

• Gasoline +1.522mm (-700k exp)

• Distillates -869k (+100k exp)

Analysts correctly predicted a 6th straight week of crude draws (but the official data was smaller than API) and gasoline stocks unexpectedly rose.,..

Source: Bloomberg

US crude production remains shockingly disciplined as rig counts and prices continue to rise…

Source: Bloomberg

WTI hovered between $73 and $74 ahead of the print and barely budged after…

“The choice OPEC+ now faces is whether to consolidate those gains and allow prices to stabilize, or to let prices rise further, attracting mounting ire from consumers,” analysts at Standard Chartered Plc, including Sudakshina Unnikrishnan, said in a note Tuesday.

The Trump Organization and its CFO, Allen Weisselberg, is expected to be charged on Thursday with tax-related crimes, according to the Wall Street Journal, citing people familiar with the matter. Trump himself is not expected to be charged, as we noted earlier this week.

The action by the Manhattan district attorney’s office would mark the first criminal charges against the former US president’s company since prosecutors began investigating three years ago. Weisselberg reportedly refused prosecutors’ attempts to get him to cooperate against Trump, according to the report.

The defendants are expected to appear in court Thursday afternoon.

The Trump Organization and Mr. Weisselberg are expected to face charges related to allegedly evading taxes on fringe benefits, the people said. For months, the Manhattan district attorney’s office and New York state attorney general’s office have been investigating whether Mr. Weisselberg and other employees illegally avoided paying taxes on perks—such as cars, apartments and private-school tuition—that they received from the Trump Organization. -WSJ

According to the report, if prosecutors can show the Trump Organization and its executives systematically avoided paying taxes, more serious charges could follow.

Trump has denied wrongdoing and insists that the case – led by Democrats – is politically motivated, and that the case covers “things that are standard practice throughout the U.S. business community, and in no way a crime.”

It’s been an ugly month for housing data – new- and existing-home sales have slumped, homebuyer confidence has collapsed, mortgage applications have crashed, home prices are accelerating at a record pace, and even homebuilder confidence is starting to ebb.

The last man standing for bulls to pin their hopes on and ignore everything else was today’s Pending Home Sales which analysts expected to drop 1.0% MoM in May (after a 4.4% drop in April). Sure enough, pending home sales (which everyone will now argue is forward looking) ripped 8.0% higher MoM – the biggest jump in almost a year.

Source: Bloomberg

Compared with a year earlier, contract signings were up almost 14% on an unadjusted basis.

“May’s strong increase in transactions – following April’s decline, as well as a sudden erosion in home affordability – was indeed a surprise,” said Lawrence Yun, NAR’s chief economist.

“The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings.”

He added that buyer interest remains robust, helped by recent stock market gains.

Pending home sales increased across all U.S. regions last month, with the Northeast and West posting the largest gains.

• Northeast up 15.5% m/m; April fell 12.9%

• Midwest up 6.7% m/m; April rose 3.3%

• South up 4.9% m/m; April fell 5.9%

• West up 10.9% m/m; April fell 2.6%

Spot the odd one out?

Source: Bloomberg

Just remember, these are May numbers and mortgage apps have plunged since this.

“Soft’ survey data has been doing what it does… surging ahead of actual “hard” data providing those who need it with proof that things are getting better.

However, recent data has shown that soft survey data losing its lead and the latest Chicago PMI confirms that with the second biggest drop since 2015 (from 75.2 – the highest since 1973 – to 66.1)….

Source: Bloomberg

Did hope just finally capitulate?

The Pacific Northwest is experiencing a multi-day heat wave that we said last week would be “historic.” The unrelenting triple-digit temperatures shattered records on Monday and Tuesday and have stressed out power grids in the Pacific Northwest and British Columbia. Many folks in these areas don’t have central air condition and struggle to survive in these unprecedented conditions. At the moment, dozens have died of heat-related complications since last Friday. 

Just north of the Pacific Northwest is Canada’s westernmost province, British Columbia, where Death Valley hot temperatures reached triple digits. Many folks in this region of the Pacific coastline and mountain ranges don’t have central air condition and found it challenging to stay cool. 

CNN reports more than 230 deaths across British Columbia have been recorded since Friday. The coroner for the region called it an “unprecedented time.”

“Since the onset of the heat wave late last week, the BC Coroners Service has experienced a significant increase in deaths reported where it is suspected that extreme heat has been contributory,” Chief Coroner Lisa Lapointe said in a statement.

BC Coroners Service said it usually receives on average 130 deaths over four days, but from Friday through Monday, at least 233 deaths were reported. The chief coroner warned this number is expected to climb as new data comes in.

“Environmental heat exposure can lead to severe or fatal results, particularly in older people, infants and young children and those with chronic illnesses,” the coroner’s office said. 

As for the Pacific Northwest, a dozen deaths in Washington and Oregon are believed to be due to heat-related complications. Temperatures in Seattle and Portland have recorded highs over 100 degrees for multiple days. 

We noted Tuesday, Portland and Seattle experienced temperatures 30 to 40 degrees above average. 

More inland towns in eastern Oregon and metro areas in Idaho saw triple-digit temperatures. 

Record heat has contributed to soaring energy prices across British Columbia and Pacific Northwest states. On Tuesday, there were power grid issues with reports of Avista Corporation, a supplier of electricity to 340,000 residential, commercial, and industrial customers in the Pacific Northwest, had to implement rolling blackouts to 9,300 customers to prevent its grid from being overloaded on Monday. Nearly 21,000 customers were warned Tuesday they may face outages, and with persistent hot weather – more outages could be seen on Wednesday. 

Nationwide, extreme heat is underway on both coasts. We warned on Sunday that a ‘heat dome’ was set to roast the Northeast this week. With temperatures in the upper 90s approaching triple digits across New York and New Jersey, Con Edison on Tuesday evening warned customers in Queens and Manhattan’s Upper West Side to conserve energy. 

In the coming days, there will be some relief for the Northeast as temperatures subside. Still, in the Pacific Northwest, positive temperature anomalies are expected through the first half of the month, which may result in more heat-related deaths.