All the so-called economic growth we’re getting is debt-funded. From John Mauldin at interest.co.nz:
John Mauldin sees an ugly conflict coming soon to the US as their official debt levels become unsustainable and they face a “Great Reset”. Will a better wealth and policy balance rise from the impending shambles?
Nothing is forever, not even debt.
Every borrower eventually either repays what they owe, or defaults. Lenders may or may not have remedies. But one way or another, the debt goes away.
One of Western civilization’s largest problems is we’ve convinced ourselves debt can be permanent. We don’t use that specific word, of course, but it’s what we do and is why government debt keeps rising. We borrow faster than we repay previous borrowing—and I mean governments everywhere, China as well as the US.
Our leaders have no real plan to reduce the debt, much less eliminate it. They just want to spend, spend, spend forevermore. And most citizens are okay with that. As I will note below, the Republican Party I grew up with, which back then seemed to constantly talk about deficits and debt, is now comfortable with 5% (and growing) of GDP deficits.
The government borrows more money than the actual growth of the economy. In other words, a dollar’s worth of debt no longer buys a dollar’s worth of growth, even by the government’s screwed-up definition of growth. From Chris Hamilton at economica.blogspot.com:
Since 2007, marketable federal debt has exploded by $12 trillion while Intragovernmental debt has risen a relatively gentle $2 trillion…all while the Federal Reserve directed Federal Funds Rate has been pushed to zero. And after a short respite from ZIRP, another push to ZIRP is almost surely in process, or even a furtherance, moving into NIRP and the paying of lenders to undertake loans. But why?
The tooth fairy is going to pay the US government’s $23 trillion and counting debt. From Bill Bonner at bonnerandpartners.com:
YOUGHAL, IRELAND – Today, amid all the noise and distractions of Donald J. Trump’s impeachment, we return to the slo-mo financial calamity inching towards the U.S.
First, some context. Here’s what is happening:
The two main factions of the Deep State – Republicans and Democrats – are fighting for control of the government. The headlines tell us about every bomb thrown and missile launched in the impeachment proceedings.
Government is essentially a win-lose enterprise. Its internal battles – even when disguised as solemn rituals – are mostly to determine who gets ripped off by whom.
Most likely, the present drama will end in a draw. Mr. Trump will be impeached by the Democratic-controlled House… but not heaved over the side by the Republican-controlled Senate. And after the impeachment battle is over, the war will go on; it will simply shift to a new front – the 2020 elections.
Is the repo market the canary in the coal mine for global financial markets? From Ron Paul at ronpaulinstitute.org:
When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets (the market banks use to make short-term loans to each other) in September, they said this would only be necessary for a few weeks. Yet, last Wednesday, almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market.
The New York Fed continues these emergency interventions to ensure “cash shortages” among banks don’t ever again cause interest rates for overnight loans to rise to over 10 percent, well above the Fed’s target rate.
The Federal Reserve’s bailout operations have increased its balance sheet by over 200 billion dollars since September. Investment advisor Michael Pento describes the Fed’s recent actions as Quantitative Easing (QE) “on steroids.”
No, we don’t owe the national doubt to “ourselves,” whatever that’s supposed to mean. The US government owes the national debt to its creditors, whoever owns the government’s bills, notes and bonds. That’s a specific group, and in no sense does it incorporate the vague collective “ourselves.” That specific group will get screwed when the government defaults. From Scott A. Burns at aier.org:
More and amplified weirdness is coming. From James Howard Kunstler at kunstler.com:
The Golden Golem of Greatness shifted into mad bull overdrive for last night’s Minneapolis fan rally, cussing and bellowing at the picadors of the Left who have been sticking lances in his neck for three years. Decorum is not Mr. Trump’s strong suit, but then the bull is not sent into the ring to negotiate politely for his life. The narrative of the bullring is certain death. The bull must do what he can within his nature to dispute it.
It’s in Mr. Trump’s nature to act the part of a reality TV star, and, of course, it is the nature of reality TV shows to be unreal. That is perhaps the ruling paradox of life in the USA these days. Saturated in unreality, the spectators (also called “voters”) flounder through a relentless barrage of narratives aimed at confounding them, with the unreal expectation that they can make sense of unreal things. In a place like Minneapolis of an October evening, you can go see the Joker movie or take in the President’s rally — and come away with the same sense of hyper-unreality. We’re no longer the nation we pretend to be and we don’t know it. Jokers are wild and the joke’s on us.
Federal debt relative to tax receipts has never been higher. From Ryan McMaken at mises.org:
Politicians from Alexandria Ocasio-Cortez to Dick Cheney are united in their agreement that deficits don’t matter. Of course, that’s exactly what a politician would say. Politicians score points by spending other people’s money, so naturally, they don’t want to hear anything about how prudence suggests it might be a good idea to not spend that extra 800 billion dollars they don’t have.
But there is apparently little concern in Washington, DC as the annual deficit — for a single year, mind you — approaches one trillion dollars for the first time since the hit-the-panic-button days of the Great Recession. Except that now huge deficits are coming during “good” economic times.
Moreover, as the Congressional Budget Office has forecast, the debt load is expected to rise to 125 percent of GDP over the 20 years. That’s higher than the US debt-to-GDP ratio during World War II.
This, of course, assumes no major geopolitical or economic disruptions, whicih would make things far worse.
For those who believe huge debts are no big deal, however, there’s still no need to worry. After all, they say, actual debt payments are still only a minor issue. In fact, they’re still lower than where they were during the early 1990s.
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