Tag Archives: Government debt

Gold’s outlook for 2020, by Alasdair Macleod

The best monetary  economist on the internet expounds on fiat currencies’ and gold’s prospects for the coming year. From Alasdair Macleod at goldmoney.com:

This article is an overview of the economic conditions that will drive the gold price in 2020 and beyond. The turn of the credit cycle, the effect on government deficits and how they are to be financed are addressed.

In the absence of foreign demand for new US Treasuries and of a rise in the savings rate the US budget deficit can only be financed by monetary inflation. This is bound to lead to higher bond yields as the dollar’s falling purchasing power accelerates due to the sheer quantity of new dollars entering circulation. The relationship between rising bond yields and the gold price is also discussed.

It may turn out that the recent extraordinary events on Comex, with the expansion of open interest failing to suppress the gold price, are an early recognition in some quarters of the US Government’s debt trap.

The strains leading to a crisis for fiat currencies are emerging into plain sight.

 

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Global Debt To Hit All Time High $255 Trillion, 330% Of World GDP, by Tyler Durden

$255 trillion is just the stated, nominal debt, and doesn’t include unfunded liabilities, contingent liabilities, or derivatives. From Tyler Durden at zerohedge.com:

There are three certainties in life: death, taxes and that global debt will keep rising in perpetuity.

Addressing the third, yesterday the Institute of International Finance reported that global debt has now hit $250 trillion and is expected to hit a record $255 trillion at the end of 2019, up $12 trillion from $243 trillion at the end of 2018, and nearly $32,500 for each of the 7.7 billion people on planet.

“With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in the report.

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The Dreaded Government Shutdown, by Robert Ringer

Nobody and nothing has yet forced those who rule us to spend less. That day is coming. From Robert Ringer at lewrockwell.com:

The average low-information voter, who depends on getting his news from the FNM, is trembling in his shoes right now because the life-ending government shutdown he has heard so much about has finally arrived.  How in the world can the United States possibly survive such a calamity?

But let’s get serious:  Every reasonably well-informed individual with an IQ above 32 realizes that a government shutdown is not only not a bad thing, it’s actually a positive.  Let’s face it, the only way to stop government spending and borrowing is to close shop.  And, amazingly, when that happens (as it has 18 times in the past), the anti-Armageddon truth is that the average person is totally unaffected!

While the amount varies from month to month, the government brings in, on average, about $200 billion a month from (mostly unwilling) taxpayers and pays out, on average, about $20 billion in monthly interest charges.  That’s a tenfold coverage.

Second, Social Security and Medicare are easily covered by government revenues each month, at least right now.

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Why Japan may spark the next crisis, by Simon Black

Japan has the worst debt problem among developing nations…by far. From Simon Black at sovereignman.com:

In a world full of reckless and extreme monetary policy, Japan no doubt takes the cake.

The country has total debt of more than ONE QUADRILLION YEN (around $10 trillion) pushing its debt-to-GDP ratio to a whopping 224% – that puts it ahead of financial basket case Greece, whose debt-to-GDP is around 180%.

Japan spent 24.1% of its total revenue (appx. 23.5 trillion yen) last year servicing its debt – both paying down principal and interest. And that percentage has no doubt moved even higher this year.

And, keep in mind, this isn’t some banana republic. It’s the world’s third-largest economy.

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The country’s economy is so screwed up that the Bank of Japan (BOJ), the central bank, has been conjuring trillions of yen out of thin air to buy government debt.

The BOJ printed yen to buy basically all of the $9.5 trillion of government debt outstanding. When it ran out of bonds to buy, BOJ started buying stocks. Now it’s a top 10 shareholder in 40% of Japanese listed companies.

Most recently, the central bank has started “yield-curve control,” which basically means they’ll do whatever it takes to make sure the government doesn’t have to pay more than 0.1% interest.

But something interesting has happened over the past few weeks…

Despite the BOJ’s promise to hold rates and bond yields down, the other owners of Japanese government bonds (JGBs) have been getting nervous. And they’ve been selling.

The selling pressure pushed bond prices down (and, inversely, yields and rates up)… In just under two weeks, yields on 10-year JGBs soared from 0.03% to 0.11% – an 18-month high.

If you own an asset and you don’t think it will perform well, you sell it. And clearly that’s how people feel about Japanese debt. The bonds pay close to zero, after all.

Japan has been fighting deflation for a long time. And with deflation, when the purchasing power of your money increases every year, you may consider holding a bond that pays close to zero… because you’re still maintaining your purchasing power.

To continue reading: Why Japan may spark the next crisis

Why America Is Heading Straight Toward The Worst Debt Crisis In History, by Michael Snyder

The American pile of debt is larger than it’s ever been and growing quickly. From Michael Snyder at theeconomiccollapseblog.com:

Today, America is nearly 70 trillion dollars in debt, and that debt is shooting higher at an exponential rate.  Usually most of the focus in on the national debt, which is now 21 trillion dollars and rising, but when you total all forms of debt in our society together it comes to a grand total just short of 70 trillion dollars.  Many people seem to believe that the debt imbalances that existed prior to the great financial crisis of 2008 have been solved, but that is not the case at all.  We are living in the terminal phase of the greatest debt bubble in history, and with each passing day that mountain of debt just keeps on getting bigger and bigger.  It simply is not mathematically possible for debt to keep on growing at a pace that is many times greater than GDP growth, and at some point this absurd bubble will come to an abrupt end.  So those that are forecasting many years of prosperity to come are simply being delusional.  Our current standard of living is very heavily fueled by debt, and at some point we are going to hit a wall.

Let’s talk about consumer debt first.  Excluding mortgage debt, consumer debt is projected to hit the 4 trillion dollar mark by the end of the year

Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.

That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans.

Americans owe more than 26 percent of their annual income to this debt. That’s up from 22 percent in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.

We have never seen this level of consumer debt before in all of U.S. history.  Just a few days ago I wrote about how tens of millions of Americans are living on the edge financially, and this is yet more evidence to back up that claim.

Right now, Americans owe more than a trillion dollars on auto loans, and we are clearly in the greatest auto loan debt bubble that we have ever seen.

To continue reading: Why America Is Heading Straight Toward The Worst Debt Crisis In History

 

Broken Promises, by MN Gordon

A lot of people are going to get screwed when the debt merry-go-round finally stops. From MN Gordon at acting-man.com:

Demanding More Debt

Consumer debt, corporate debt, and government debt are all going up.  But that’s not all.  Margin debt – debt that investors borrow against their portfolio to buy more stocks – has hit a record of $642.8 billion.  What in the world are people thinking?

A blow-off in margin debt mirroring the blow-off in stock prices. Since February of 2016 alone it has soared by ~$170 billion – this is an entirely new level insanity. The current total of 643 billion is more than double the level of margin debt at the tech mania peak and 15.4 times the amount of margin debt just before the crash of 1987. [PT]

Clearly, they’re not thinking.  Because thinking takes work.  Most people don’t like to work.  They like to pretend to work.

Similarly, people may say they care about debt.  But, based on their actions, they really don’t.  When it comes to the national debt, the overarching philosophy is that it doesn’t matter. Government debt certainly doesn’t matter to Congress.  Nor does it matter to the President.  In fact, their actions demonstrate they want more of it.

Big corporations with big government contracts want more government debt too. Their businesses demand it. They’ve staked their success on the expectation that the debt slop will continue flowing down the trough where they consume it like rapacious pigs.

The higher education bubble is also based on a faulty foundation of debt. The business model generally requires signing credulous 18 year-olds up for massive amounts of government backed student loans. From what we gather, federal student loan debt is closing in on $1.4 trillion.

Total student loans outstanding (red line – the data are only available from 2007 onward) and total federal government-owned student loans (black line). The former figure was closing in on $1.5 trillion as of Q4 2017. [PT]

Now what would happen to all these high paid professors and fancy country club style college campuses without all this government sponsored debt? The automobile business is also based on a model that demands more debt.  Outstanding auto loan debt is now somewhere around $1.2 trillion.

To continue reading: Broken Promises

 

Tax Cuts will Balloon US Debt to 120% of GDP, but Boost to Economy will be “Short-Lived”, by Wolf Richter

The US debt to GDP ratio is now 105%, and regardless of what happens to Trump’s budget, that percentage will continue to rise. If Trump’s budget was to pass unscathed, it would rise even faster. From Wolf Richter at wolfstreet.com:

US is the “most indebted AAA-country” and runs “the loosest fiscal stance,” but the dollar as Reserve Currency still props it up: Fitch

It’s uncertain what if anything in the mix of tax cuts and tax increases being kicked around in Congress will become law. But Fitch Ratings believes that some combination will make it, and that it will sap US government revenues. “Under a realistic scenario of tax cuts and macro conditions,” the US deficit would rise to 4% of GDP next year, and balloon the US debt to 120% of GDP by 2027.

And that might be the best-case scenario.

That debt-to-GDP ratio just shot up to 105% – based on annualized Q3 GDP of $19.5 trillion and the US gross national debt of $20.5 trillion that had spiked by $640 billion in eight Weeks, following the suspension of the debt ceiling in September. The debt-to-GDP ratio was 103% earlier this year.

Fitch said in the report that it expects some version of the package to pass the US Congress, and that it “will be revenue negative, even under generous assumptions about its growth impact.”

The tax package, which includes cutting the corporate tax rate from 35% to 20%, “would deliver a modest and temporary spur to growth,” Fitch said. Even with these tax cuts, Fitch expects US economic growth to peak at 2.5% next year and then fall back to 2.2% in 2019 – the same kind of economic growth the US has seen since the Financial Crisis. So any boost to output from the tax cuts would be “short-lived.”

These tax cuts would “not pay for themselves or lead to a permanently higher growth rate,” Fitch said, adding:

The cost of capital is already low and corporate profits are elevated. In addition, the effective tax rate paid by large corporations is well below the existing statutory rate.

Throwing in these tax cuts to add to demand “at this point in the economic cycle” could boost inflationary pressures and “lead to additional monetary policy tightening.”

To continue reading: Tax Cuts will Balloon US Debt to 120% of GDP, but Boost to Economy will be “Short-Lived”