Tag Archives: Covid-19 monetary response

How to Turn a Corporate Credit Crisis into a Currency Crisis, by MN Gordon

Federal debt held by the public now exceeds the US GDP. Then there’s corporate debt, municipal debt, and individual debt. A reckoning is coming. From MN Gordon at economicprism.com:

Surely, Thursday’s stock market selloff didn’t catch you by surprise…now did it?  Why would it?  After going nearly straight up for the last five months, it’s only natural for there to be a pullback.

This was particularly true for technology stocks.  They’d reached such dizzying heights it was just a matter of time before the thin air got to them.  And get to them it did.  Some of the mania’s favorites, like Apple, Tesla, and Nvida, fainted in unison…dropping 8 percent, 9 percent, and 9.3 percent, respectively.

A company called PagerDuty garnered the honor of the day’s biggest loser.  The San Francisco based company, which operates in the cloud, made a graceful 25.8 percent swan dive from its heavenly realm.

So, what should you do about it?  Should you buy the dip?

As far as we can tell, there’s currently no fundamental reason to buy stocks.  But like a pair of Yeezy sneakers or avocado toast, if buying expensive stocks makes you happy…go for it.  Just realize, we are in the midst of a reckoning.  A great catastrophe is upon us.  What’s more, stocks should be the least of your concern.

Where to begin?

U.S. gross domestic product (GDP) dropped below $20 trillion during second quarter.  But while the economy has slumped, government debt has spiked.  The U.S. national debt’s now over $26.7 trillion.  Of this, the federal debt held by the pubic amounts to over $20.5 trillion.

This is significant for several reasons.  First, the gap between national debt and GDP is widening.  Second, the federal debt held by the public has eclipsed 100 percent of GDP.  This unsettling factoid was presented in a report released this week by the Congressional Budget Office.

To be fair, the CBO report says federal debt held by the public will hit 98 percent of GDP in 2020.  By our back of the napkin calculations, the 100 percent mark was notched in June.  But that’s beside the point.

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Unintended consequences of monetary inflation, by Alasdair Macleod

The global central bank and government fiat debt expansion free should spell the end of such fiat debt. From Alasdair Macleod at goldmoney.com:

“In short, the Fed is committed to rescue businesses from the greatest economic catastrophe since the great depression and probably even greater than that, to fund the US Government’s rocketing budget deficits, fund the maintenance of domestic consumption directly or indirectly through the US Treasury, while pumping up financial markets to achieve these objectives and preserve the illusion of national wealth.

“Clearly, we stand on the threshold of an unprecedented monetary expansion.”

Introduction

President Reagan memorably said that the nine words you don’t want to hear are “I’m from the government and I’m here to help.” Governments in all the major jurisdictions are now making good on that unwanted promise and are taking responsibility for everything from our shoulders.

Those receiving subsidies and loan guarantees are no doubt grateful, though they probably see it as the government’s duty and their right. But someone has to pay for it. In the past, by the redistribution of wealth through taxes it meant that the haves were taxed to give financial support to the have-nots, at least that was the story. Today, through monetary debasement nearly everyone benefits from monetary redistribution.

This is not a costless exercise. Governments are no longer robbing Peter to pay Paul, they are robbing Peter to pay Peter as well. You would think this is widely understood, but the Peters are so distracted by the apparent benefits they might or might not get that they don’t see the cost. They fail to appreciate that printing money is not just the marginal source of finance for excess government spending, but it has now become mainstream.

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