THE WOLF STREET REPORT

Can the US Government Just Keep Piling on Debt?

The government already owes over $22 trillion, and it’s adding over $1 trillion a year. Who is buying it, and why? (12 min). You can also listen to it on YouTube and subscribe to my YouTube channel.

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  89 comments for “THE WOLF STREET REPORT

  1. 2banana
    Apr 21, 2019 at 10:02 pm

    obama added more to the debt of the United States than all other administrations in the history of the United States combined.

    Will DJT match that dubious record? Or not?

    And if not, it is a small step in the right direction.

    • Apr 22, 2019 at 1:03 am

      Bush handed Obama the financial crisis and the deficits that came with it. If the US sees a prolonged recession, not as bad as the financial crisis but deeper than just a brief soft patch, the resulting deficit will add $2 trillion-plus a year to the debt. This current $1.2 trillion add-on is happening when the economy is growing between 2% and 3%. That’s what is so concerning. These are the good times! Now imagine a decline in GDP of 2%, with tax revenues plunging and outlays soaring (unemployment insurance, etc.).

      • GP
        Apr 22, 2019 at 2:22 am

        Deficits during Obama presidency (8 years) was Bush’s fault. But deficits now is Trump’s fault?

        During previous presidency, Fed singlehandedly postponed a complete collapse of economy with asset inflation. There wasn’t much support from fiscal policy.

        Most of the deficit comes due to unsustainable feel-good welfare programs, military spending and several ongoing wars.

        Current fiscal policies have finally enabled Fed to firmly reverse course on easy money. 3% annual GDP growth, consumer confidence, wage growth, increased labor participation rates, etc etc – AKA ‘good times’ as you call it. Would be foolish to reverse it.

        • Apr 22, 2019 at 9:26 am

          Deficits are Congress’s fault — not the president’s, no matter which president. I was replying to 2banana’s statement — “obama added more to the debt of the United States than all other administrations in the history of the United States combined” — to give a sense of perspective.

        • Mickey
          Apr 23, 2019 at 7:45 am

          Nixon took us off the gold standard, but policies before that were responsible.

          Congress has consistently failed on its Fiscal Policy responsibility. That allowed the Fed to do its Monetary Policy things.

          But its voters who allow this all to happen.

          Warren yesterday with school debt write offs and free college pandering for votes.

          Notice that nobody in Congress is doing anything on debt ceiling, balancing budget, so guess what happens on that.

      • Rinaldo
        Apr 22, 2019 at 5:14 am

        “the economy is growing between 2% and 3%”
        There are no wage pressures anywhere, so may be this number is either fake or irrelevant.
        I heard the argument US is having too much debt the first time in 1984.
        Japan is piling up debt since 1990 and the money printing didn’t bring Armageddon or hyperinflation.

        The FED must transfer its “profit” to the Treasury. Therefor I must assume as long as this money printing does not cause high inflation it can go on much much longer.
        One must also not forget that the commercial banks are the most important “money printers” and that low interest rates are not tantamount with a “loose monetary policy”. If commercial banks for whatever reason dont provide new loans, the FED is pushing on the infamous string.
        What is a real concern imo is the low productivity, caused by the crooked CB policies.

        • Apr 22, 2019 at 9:34 am

          “There are no wage pressures anywhere,…”

          Talk to employers. There are wage pressures in many industries in many regions of the US. Hourly wages are up in the range between 3.2% and 3.4% year-over-year since last fall, the sharpest increases in a decade.

          Click on “Edit Graph” then under “units” select “percent change from a year ago.”
          https://fred.stlouisfed.org/series/CES0500000003

        • Bankers
          Apr 22, 2019 at 10:18 am

          You’re maybe cohorting with the upper quintiles there Wolf.

          Funnily there aren’t any obvious fed charts of median wages hourly real, but the weekly full time real median wage at https://fred.stlouisfed.org/series/LES1252881600Q#0
          gives an extra five dollars a week from a year ago?

        • Mickey
          Apr 23, 2019 at 7:49 am

          When the govt reports inflation at 2%, we get pay increases at 2% and soc sec increases of 2%.

          Then we get mandated minimum wages that push average wages up, but then we get automation which eliminates jobs, but make automation easier to cost justify.

      • Michael Gorback
        Apr 22, 2019 at 5:23 am

        Not so fast. The Clinton administration (with Republican help) knocked down Glass Steagal, followed by dangerous and irresponsible banking practices. This led to the GFC which was dumped into Obama’s lap. Then the allegedly independent Fed went hog wild.

        Presidents do not make budgets; Congress does. Presidents don’t control the budget, the economy or the stock market although they can influence it. I have often wondered if the student loan program was an over the transom method to pump money into the economy. I don’t think it was truly intended to help people get a college degree. It was a way to spew money directly into the economy.

        These kinds of shenanigans are as old as the Republic and if I were to point fingers 9 out of 10 would be directed at the banks. Amschel Rothschild nailed it.

        Nicholas Biddle was willing to throw the entire country into financial crisis to oppose Andrew Jackson’s attempt to do away with the Second Bank, thus highlighting the dangers and evils of central banking.

        • Older than dirt
          Apr 26, 2019 at 7:11 am

          “Nicholas Biddle was willing to throw the entire country into financial crisis”….Michael Gorback is “dead nuts on”! But this time we will be IN the deep crisis. Let’s hope we can say no to the “Biddles” of the world when they try to take us to war this time around. I fought during the VietNam confict. It took a lifetime to figure out that I wasn’t fighting for freedom but rather for the bankers. I won’t let my great grandchildren make the same mistake I did.

        • monday1929
          Apr 26, 2019 at 7:37 am

          Yes, agree with you about student loans. The cash was transmitted through the students, to the colleges, then to (after some skimming off the top to bloated administrators while Adjuncts survive on food stamps) construction of luxury dorms/gyms (sorry- fitness centers) etc.
          I believe student debt approximately tripled from about 300 billion to over 1 trillion from 2008 to now. Just re-inflating the ballon from another source.

      • Drater
        Apr 22, 2019 at 7:51 am

        Just wanted to say I enjoyed your interview on the recent Keiser Report. Cheers!

      • 2banana
        Apr 22, 2019 at 8:51 am

        Every outgoing president hands the incoming president an pile of sh*t. It comes with the job.

        Look what Reagan got from Carter.
        Look what Bush got from Clinton.
        And yes – Obama handed Trump a pile of sh*t too.

        • flashlight joe
          Apr 22, 2019 at 10:36 am

          @2bananna,

          You seem to be focusing on partisan politics. Financial and foreign policy does not change every 4 years.

        • Wisdom Seeker
          Apr 22, 2019 at 11:00 am

          Joe, actually it does. 2banana is on to something that I’ve thought about for a while:

          Every first-term incumbent president has every incentive to do whatever it takes to defer a recession in order to ensure re-election. This leads to policy imbalances that have to eventually revert to mean. The outgoing second-term president EMPIRICALLY leaves a big economic challenge for the next one: it’s not a coincidence that the last 3 recessions have all been within a year or so of the election at the end of a second term. Reagan->Bush Nov. 1988 vs. recession early 1990 (deferred to help Bush get elected), Clinton->Bush in 2000 at peak of a bubble, Bush->Obama in 2008 right after peak of a bubble. The surprise is that we didn’t get a recession in 2016-2017 (or since), but the price paid to avert one has been high and the reckoning has only been deferred.

          P.S. Going back farther in history, there were recessions in 1960 (Eisenhower->Kennedy), 1969 (following Johnson->Nixon), 1973 (Nixon in political crisis), 1980,81-2 (Carter->Reagan).

          Treating 80-82 as being more of a single event, that’s a total of 7 events. The last time the US had a recession that WASN’T rather obviously aligned with the presidential election cycle was in the 1950s, over 60 years ago. And that was back on a gold standard where there was far less political control over the supply of money-and-credit.

          If one views the ongoing political battles through the prism that the Trump Administration needs to avoid a recession until after the 2020 election, whereas his opposition desperately needs a recession to start ASAP, a lot of policy debates and decisions make a lot more sense.

        • nick kelly
          Apr 22, 2019 at 11:31 am

          Which of the above was handed the greatest crash since 1929?

        • 2banana
          Apr 22, 2019 at 3:15 pm

          You keep asking that question like poor little obama got such a bad deal that he could do nothing except add more to the deficit than all other administrations combined, with another $4 trillion in QE and ZIRP for nearly eight years. And despite all that fake, cheap and easy money – we still had anemic growth but did create massive asset bubbles. But nothing is obama’s fault…

          You know who was handed “the greatest crash since 1929?’ – Reagan. Massive inflation and unemployment (called Stagflation). A ruined economy. A military that was a joke.

          He didn’t complain. He didn’t say for eight years – nothing can be done and it is all Carter’s fault.

          Reagan had to deal with a prime rate at 20.5% to fix the “malaise” of Carter.

          20.5%. Contemplate that next time you think poor little obama had it so hard for eight years.

          ++++

          “Which of the above was handed the greatest crash since 1929?”

        • WhatAreYouReallyGoingToDo About It
          Apr 23, 2019 at 8:54 pm

          “Look what Bush got from Clinton”

          Surplus

      • Trinacria
        Apr 22, 2019 at 10:17 am

        Background in approximate numbers:
        US GDP: a little under 20 trillion.
        World GDP: around 80 trillion or so (what’s a trillion here or there among friends !!!) as USA is approx. 25% of this total.
        Budget debt accumulation: now over 22 trillion – as you report.
        Unfunded Liabilities: anyone’s guess…I’ve ready anywhere from 100 to 180 trillion…
        total funded + unfunded debt now in multiples of the GDP of World.
        Question: how long until we become a “big Greece” ?
        What is the best way to protect oneself from getting totally wiped out?
        With that said, have a nice day.

        • SocalJim
          Apr 22, 2019 at 10:42 am

          Invest in hard assets. Real estate. Commodities. Then, keep enough cash invested in short duration treasuries to protect your hard assets when the wheels fall off.

  2. Sandu
    Apr 21, 2019 at 10:19 pm

    Indeed, with TreasurryDirect.gov it’s very easy and convienent today to get a better interest (through TBills) then almost any bank pays on savings accounts. Split a savings account in 4 equal amounts, invest each quarter at one week apart (auction dates) in 1 month bills, choose automatic reinvestment and you’ve an investment strategy almost as liquid as a savings account.

    • Grant
      Apr 22, 2019 at 2:33 am

      Thanks for this. Going to look into it.

    • Michael Gorback
      Apr 22, 2019 at 5:28 am

      If you have a business bank account you can’t get crap for interest. Treasury Direct has been a godsend in that regard. You can transfer your TD holdings to a brokerage and then you can go farther out the curve since you can sell your T bills and be liquid in a matter of days.

      • Wisdom Seeker
        Apr 22, 2019 at 11:03 am

        If you’re going to put your $$ in a brokerage, you can just buy one of the very liquid short-term Treasury ETFs like BIL or SHY, or the Vanguard Treasury Money Market Fund. The expenses are pretty minimal and the tax paperwork is all available online so there’s little hassle.

  3. vinyl1
    Apr 21, 2019 at 10:31 pm

    What is interesting is the reality behind the numbers. The US government is spending 75% of the budget on Social Security, Medicare, and Medicaid, which are programs that mostly benefit to the poor and middle class. The rich are the ones who are loaning the government the money to make this possible, and in doing so, they get richer and richer.

    Suppose we did not have a deficit, and paid for everything as expenses were incurred. Taxes on the bottom 80% of the population would have to be much higher than they are now in order for this to happen. So our present system essentially excuses the bottom 80% from paying much in Federal tax – but at the cost of making the rich much wealthier. Just as long as the rich don’t spend any of their wealth, and it is just bits on a chip, this works out to the benefit of all parties.

    How long can this go on? I would say that eventually, long-term interest rates will have to rise. As the government deficit increases, there won’t be enough wealthy people to loan that much money at low rates. If we are smart, we will take this as a signal that the deficit has to be cut.

    • Apr 22, 2019 at 12:28 am

      Can you site some link to those numbers because what I found was Social Security came in around 23-25% of the budget and Medicare at around 10% using 2015 data.. Health and Humans Services is 28% of the budget (2015) which includes Medicare and Medicaid.. https://www.hhs.gov/answers/medicare-and-medicaid/index.html

      • robt
        Apr 22, 2019 at 9:25 am

        Ok, so only 63% if your figures are the good ones.

        • Apr 22, 2019 at 12:17 pm

          That’s not how you add it up.. HHS includes Medicare.. So, the math is between 51%-53% which seems less than 75% to me..

    • danl
      Apr 22, 2019 at 7:37 am

      How about it vinyl, show us your source of stats.

    • Wisdom Seeker
      Apr 22, 2019 at 11:25 am

      It’s flat-out wrong that to say the US is spending 75% of “the budget” on Social Security, Medicare and Medicaid. Congress sets the budget, and the Congressional Budget Office’s data for 2017 show those 3 categories as less than half of Federal spending (see link):

      https://www.cbo.gov/publication/53624

      Those 3 categories ARE, however, about 75% of what CBO calls “mandatory” spending. “Mandatory” spending is mostly on autopilot and legally required each year, but this category excludes about 1/3 of the budget so it’s far from the whole.

      Note that “mandatory” is a bogus label for Congress – since they write the laws, they can change what is “mandatory” at any time. What “mandatory” really means is “Congress doesn’t debate the annual budget for these programs each year”. The “discretionary” category does get debated, and about half of that is Defense, which is about as large as Medicare. But while Congress tinkers around the margins each year, Defense as a whole seems awfully mandatory to most politicians when put to a vote…

      P.S. If you want to compare US spending with other nations, the US federal numbers alone are insufficient. Many other countries aggregate all levels of government spending in their reporting, but the US handles Federal, State and Local separately.

    • Harrold
      Apr 22, 2019 at 2:13 pm

      Social Security and MediCare are funded from a specific tax.

    • Silly Me
      Apr 23, 2019 at 5:09 am

      As far as I know, more than 50% of the budget goes to the military and to spy agencies. The Pentagon’s books are so crooked that even auditing is impossible. No presidents or candidates dare to touch on the subject, except for Tulsi, but it’s quite obvious that it makes little difference who sits in the White House. (Well, the national stress level is probably lower now that not a certain lady, and we are getting a lot of smokescreen in order to divert our attention from important things that we wouldn’t have the power to address, anyway.)

  4. Howard Fritz
    Apr 21, 2019 at 10:51 pm

    I’d like to wish you Wolf and everyone else a happy Easter. On an aside, the process to purchase Treasury securities is not only very simple but can also be automated. You can even use your income tax refund to buy paper savings bonds however I’ve never done this if you have let me know!

    • Iamafan
      Apr 22, 2019 at 7:38 am

      You can setup Payroll Savings Plan in Treasury Direct but that invests in Series EE or Series I Savings Bonds (for as low as $50). But remember, unless you live in a disaster area, you have to hold these savings bonds at least 12 months to earn interest.

      There is an easier way. Link your bank account to Treasury Direct.

      If you have a Savings Account which limits free transactions to six (a month) then use the(non-interest yielding) Certificate of Indebtedness option in TD to save your maturities into chunks first.

      Treasury Direct is extremely easy. Use it as your savings account and earn 2.4%. As Sandu stated above, you can make 4, 4-week investments in different weeks of the month so they mature each week; then set them to reinvest each 4-weeks for up to 2 years. If and when you need the money, just set the reinvestment schedule to ZERO and at maturity it will go back to your bank account. To set for perpetual reinvestment, just logon at the end of the year and reset the reinvestment counter to maximum.

      • Gandalf
        Apr 23, 2019 at 4:39 pm

        Imafan,

        Any way to put IRA Rollover money into Treasury Direct?

  5. Ron
    Apr 21, 2019 at 11:50 pm

    An article on This Week pointed out that if the progressives look like they are going to take over the White House in 2020 we could see the Fed more aggressively raise interest rates as an effort to derail their New Green Deal agenda which we all know will create even bigger deficits.

    • timbers
      Apr 22, 2019 at 12:04 am

      So why didn’t the Fed raise interest rates to derail the war in/on Iraq, Syria, Libya, Afghanistan, Yemen, Russia, China, Venezuela, Iran, North Korea to name just a tiny tiny few?

    • Apr 22, 2019 at 12:42 am

      We know no such thing.. I seriously doubt the Fed would raise rates and cause a recession just to derail any kind of a deal, new, old, red, or green. The last time the Fed raised rates in a deliberate attempt to wring inflation out of the system was 1981 which brought on a nasty recession but I don’t see that happening..
      Austerity is the root cause of deficits. The more the Greeks, Irish, Italians, Spanish cut the more they owe because the more they cut the less is spent and tax revenues drop.

      • Rob
        Apr 22, 2019 at 1:16 am

        I realise that this is popular logic, but it ignores the fact that the government is only one source of spending. There are also foreigners, ie exports, and the private sector, corporate and individuals.

        If Government spending was the answer, Japan would be booming and the USSR would have out grown everyone else.

        Asia hasn’t boomed thanks to government spending, in most cases quite the reverse. They relied on exports. Government spending only rose.

        The problem the Greeks, Irish etc had is that it is hard to boost exports and tourist spending when you are tied to a hard currency run by another country that doesn’t have your deficits. It is even harder when your lifestyle has been artificially juiced by an overvalued currency and excess spending for the years prior to the crash.

        Ultimately, taxation and spending need to change to adjust to modern times and the fact that a) the average life expectancy is now far higher than the retirement age, b) no-one has properly costed/funded the spending on the old, c) The taxation of corporate profits is not working

        • Rinaldo
          Apr 22, 2019 at 11:10 am

          “If Government spending was the answer, Japan would be booming and the USSR would have out grown everyone else.”

          Concur !!! :)

          But imo the biggest problem is productivity, resp. the lack of it, thanks to zero interest rates and crony capitalism.

          All local Mono-, Duo- or Oligopolies etc. must be broken up.

          Share buy backs must become illegal again.

          Tariffs should depend on comparable wages, if in one country a worker makes 2 US$ an hour and in another country 15 US$ there should tariffs. Free markets on a global scale serves only big corporations.
          No, I am not a socialist, I am self-employed.

    • MaggieD
      Apr 22, 2019 at 12:47 am

      The irony? *ANY* “bigger deficits” created by the party which always has to bail out America from profligate GOPer tax scam rapes & *everything* unfounded crashes (Great Bush GOP Recession the latest) – the Democrats – will certainly increase deficits.

      However, those deficits will be used to service the monstrously untenable TRILLIONS/year by Scummo & the GOPer kleptocrat party – to pay down the percentage of debt to gdp, like President Obama did. And they’ll have to do it with 24/7 Fox noise about… wait for it!…. sanctimonious pay-as-you-go propaganda!

      Green deal or not – the Democratic President in 2020 will have the unimaginable Gordian knot of the most crippling Apollyon Pit of pure Treasury rape-for-plutocrats that has ever existentially menaced our country. You’d better pray anGreen Deal is what we get – because there’s not enough dovish Fed-fed fiat to save America from bankruptcy should the grifter squatting in our WH get 4 more years of his perfidious amoral pillaging: think bread lines and sleazy tweets…

      • Scott
        Apr 24, 2019 at 9:48 am

        To assign ALL the nations challenges on one political party is preposterous-and naive.

        Regardless of what they say, both parties are guided solely by their desire to attain and maintain power. They will say and do whatever they have to to get elected, then give excuses for not keeping their promises while quietly paying back those that helped them and enriching themselves, all at the expense of the country as a whole.

        With the exception of one brief glimmer of sanity (when Clinton and the Republican congress briefly balanced the budget), the nation has been on the same course to eventual self destruction for decades-regardless of who has been in control.

    • nicko2
      Apr 22, 2019 at 4:22 am

      Renewables are now cheaper than natural gas/coal. Ie. Texas gets over 15% of its energy just from wind. The renewable energy revolution is here and will not be stopped….indeed, it’s very profitable. One hopes the dems take back the WH and accelerate the transition for all our sakes.

      • Ervin
        Apr 22, 2019 at 8:57 am

        When it’s 2:00am in Texas and windy, the power from wind is all but free, BUT, when it’s 4:00pm and 100 degrees and the wind ISN’T blowing and that does happen, and all of the gas and coal power plants are running full bore , that is far from free. For every megawatt of wind and solar installed matching fossil power has to be available. This is a real added cost the rate payers have to pay.

        • Apr 22, 2019 at 12:23 pm

          The sun is usually shining when it’s 100*.. I lived in AZ for 3 years (1994-97) and rarely ever saw a solar panel and the only wind mills I saw were farm pumps. California was dotted with both.. I spent Nov. 2016 in North Dakota in unusually warm conditions. Nice except the wind wanted to peel the hide off me.. All that free power blowing unhindered.

  6. William Marino
    Apr 22, 2019 at 12:19 am

    The Federal Reserve Bank has free reign to print trillions of dollars that are used to buy government debt. As long as the U.S. dollar is the world reserve currency, the dollars can be used to purchase foreign goods and foreign countries that export to the US use the US dollars to purchase government debt.

    The end result is the loss of jobs to foreign countries that provide goods and services at a lower cost and the decimation of manufacturing and service businesses in the U.S. The acceptance of the U.S. dollar as a world reserve currency was made possible when the US went off the gold standard was the agreement that the US made with Saudi Arabia. The U.S. would militarily protect Saudi Arabia in return for the Saudis only accepting the US dollar in payment for Saudi Oil. It is not surprising why Trump did not hold the Saudi Prince responsibile for the death of the Saudi journalist. The Saudis like the Russians have invested in Trump’s properties and apparently that means more to him that doing what is right for humanity.

    • nicko2
      Apr 22, 2019 at 4:25 am

      It’s the name of the game in the post-global era. The earth is flat. Use dollars and invest in cheap assets in emerging markets…reap incredible gains from sustained growthrates of 5% or more. You can’t lose.

      • Unamused
        Apr 22, 2019 at 7:58 am

        Boy, that’s hopeful.

        Emerging-market returns are high because risk is high, and risk is severely underpriced everywhere. That asymmetry is a feature of financial extraction mechanisms operated by TPTB, and the resulting distortions are increasing. There are a lot of ways to look at it and they all look terminal. Hope began to recede after the Nixon shock in 1971 and disappeared over the horizon with the tax cuts for the rich adopted in GWB’s first term, never to be seen again. Alea iacta est.

        Emerging markets are tied to established markets. There are no safe havens. When the SHTF the last to go will be Norway, Switzerland, and New Zealand, probably in that order, but it won’t matter.

    • Silly Me
      Apr 23, 2019 at 5:14 am

      The Fed doesn’t print dollars; the Treasury does. However, the Fed issues the dollars mostly in the form of loans. The US government actually borrows its own dollars from the Fed (a private bank) and the taxpayer pays an interest to the bank.

  7. Anon
    Apr 22, 2019 at 6:58 am

    “which are programs that mostly benefit to the poor and middle class. ”
    In the end these programs allow a community to survive as an economic zombie till things get better or stake-holders pass away. Most likely Treasury debt will be inflated away. The only thing that might stop the debt binge is 10% price inflation on food staples for three years. That’s when reverse migration from the US would take off.

    • Unamused
      Apr 22, 2019 at 8:33 am

      =>till things get better

      Things aren’t going to get better. Things are going to fall apart. The only questions are how completely they are going to fall apart, how fast, and how soon.

      There are a number of charts I use to show why this is quite absolutely certain, related not only to finance but to political, sociological, technological, epidemiological, and particularly ecological considerations. Try googling up The Most Important Chart in Economics on Zero Hedge, based on FRED and BEA statistics. I use that one as the warm up. I use five or six others to determine the capacity to cope with the next few. Only half a handful have seen the worst ones, and that was some time ago. I haven’t heard from them since because they’ve put themselves so far off the grid, except for one guy who still can’t decide between Karakorum and British Columbia.

      • Cynic
        Apr 22, 2019 at 9:43 am

        When something this big is coming, why run?

        ‘Flee Death in Damascus, and find him waiting for you in Aleppo…..’

        There are so many financial, ecological, demographical, etc, etc, red warning lights on at the same time, you could see them from a colony on Mars.

      • ArcticChickens
        Apr 24, 2019 at 1:00 pm

        Hit me with all of em, unamused. I’m ready.

  8. Iamafan
    Apr 22, 2019 at 7:08 am

    According to the latest MSPD of the US Treasury, the total 22 Trillion in public debt is divided into 16.2 trillion in MARKETABLE treasuries and 5.8 trillion in NON-MARKETABLE treasuries. Foreigners according to TICDATA have 6.385 trillion and the Fed has 2.153 trillion of the marketable treasuries – together they own more than half of the marketable treasuries out there.

    The primary dealers (which are the combined market makers of Treasuries) at the end of the month only have less than (or about) $250 billion. This means they already have disposed most of the Treasuries to someone else.

    I will assume that most people (like you and me as individuals) invest in NON-COMPETITIVE auctions of Treasuries because they yield better. In the last 4-week auction only 2.8% were non-competitive – minuscule portion!

    Before we can be like the Japanese where the savers buy their gov’t debt, interest rates here have to rise. At the current 2.4% yield, a retiree needs $2M to be able to harvest 50,000 a year in taxable interest. Not very many Americans have that kind of money. But they have debt, much of it.

    According to the St. Louis Fed (What Types of Financial Assets Do People Hold?), in 2016 direct household participation dropped to a low 1.6% (it was 5% in 1989). So if the Treasury is expecting more Americans to buy treasuries then something has to change big time – like treasuries crowding out other types of investments.

    • Iamafan
      Apr 22, 2019 at 7:45 am

      Correction. In 2016 direct household participation dropped to a low Dropped to a low *** 1.3% ***

    • Bankers
      Apr 22, 2019 at 9:40 am

      Well treasuries could become an escape when other kinds of investment are seen to be unstable, sort of like now, but I am not sure that counts as crowding out, really people would just be investing in the price of money as set by government spending related to inflation as main reference, and not in terms of returns from the real or quasi real economy. As government debt as a whole expands spending and consumption and not productivity its effect is to cause inflation, even if that only appears as reflation to a targeted inflation rate.

      Asset price increases based on debt also have this effect. Sure companies can also secure greater funding for productive investment purposes on higher valuation if they actually have a workable plan, but in general it seems to be rehypothecated money into people’s pockets as a whole – the inflation occurs on their own assets used as backing (housing and rent) balanced by deflation due to productivity increases ( say farming or efficiencies) and outsourcing of labour ( developing countries, migration, students working to fund a solution :-/ ) . So there the cocktail is more volatile but allows possibility of higher returns because of being more closely involved somehow in the paying economy.

      So when do treasuries really crowd out other investment? I think that has to be when their issuance and government spending crowds out freer market activity. This for countries is usually most obvious in a downturn as counterclyclical to the failure of malinvestment by the wider economy, spending increases to provide the needed benefits of a society in trouble. At the same time there can be strong inflationary pressures due to say loss of value of the currency, a lack of productivity, or sometimes external pressures like energy imports or trade disputes that accompany. You then have a policy conflict between the deflationary and inflationary forces, I don’t think they have the equation for that so answers just get dictated . The effectiveness of printing a way out is constrained by the fact that a centralised management cannot replace the ecology of on the ground adaptation at combined individual level. It is basically dud, success being relative I suppose that investment in that might seem better than a circumstance that is even more dud.

      The problem with the whole framework now as I see it is that many countries are on a one way street of lower rates to maintain some kind of malinvested inflation going, the global ties that allow profit from outside of a country by using this inflation are fragile, and the restructuring of national economies is being ignored due to faster/higher profit available elsewhere. Historically government expenditure gradually incrementally swamps the real economy, spending to gdp gradually increasing at opportunity/necessity but not decreasing after. That used to be handled first by simple tariff, then in terms of taxation and limits to government debt, but the new realm is channelled towards mmt and a managed economy.

      Sovereign debt is a secondary form of money, it is used to back money also. So when people say it is money they owe themselves what they mean is that that debt can be monetised, the fed is able to arrange to take it all on and directly issue dollars in return to meet all obligation. Inflation of money supply, policy aimed at suporting that, price inflation, and government spending as share of gdp are main indicators in this sense.

      There are clear limits, it has been tried on many occasions, authority eventually either being lost or outdoing itself in obvious ways, the loss of faith also immediately reflecting on the value of its notes.

  9. QQQBall
    Apr 22, 2019 at 8:41 am

    I saw Willem Defoe impersonating Wolf on a podcast!

  10. Petunia
    Apr 22, 2019 at 9:31 am

    There’s a class of financial advisers, especially on utube, which specialize in social security and retirement advice. They are all telling people to wait until age 70 to collect social security because you get a 32% increase in benefits. The benefit is 8% a year for every year over full retirement age. In order for this strategy to work you need to outlive your actuarial life expectancy, which is a huge bet.

    I watched a few of these guys and my impression was that it was a propaganda campaign to encourage people to delay applying for benefits. The statistical advantage is on the side of the house, as in any casino. The question is how do these guys benefit from giving clients bad advice.

    • Apr 22, 2019 at 9:51 am

      Petunia,

      You’re correct – this is a huge bet on longevity. For instance, my dad, who was forcibly retired on his 65th birthday with a company pension he’d paid into all his life, died in a plane crash along with my mother seven months after retirement. That was a great deal for the company.

      It is impossible to predict when it’s over for you. So delaying SS payouts is a highly personal bet. There is no right answer in general. The bet should be impacted by the current health status, current financial conditions, dependents (the “survivors”), and other things.

      Survivor benefits matter. My wife is a lot younger than I am. If I delay drawing SS until the last moment, and two days later I get run over by a truck, my wife gets larger survivor benefits. But if she gets run over along with me, the house wins.

      This is a very complex fuzzy math. And like you, I don’t like it when gurus give simplistic advice. However, it’s important to think about the issues and make the best personal decision you can make. I have made many wrong bets in my life, and this one may well turn out to be one of them :-]

      • Petunia
        Apr 22, 2019 at 2:42 pm

        Wolf,

        I am sincerely sorry you lost your parents in such a tragic way.

        My father went to sea at 15 to support his mother and then spent the first 35 years of his marriage barely at home. He retired at 62 the first day he was eligible. My parents got to spend the next 20 years together and for that I am still grateful.

        • Iamafan
          Apr 22, 2019 at 3:05 pm

          OMG we had no idea. So sorry. Really.

    • Paulo
      Apr 22, 2019 at 9:56 am

      Wow, Petunia…amazing comment. I did the opposite applying for my (Canadian) CPP at age 60, and turning my RRSPs into a RIFF (think milking out your 401 K) and it should be gone by age 66. We still have my wife’s RRSP and other incomes but my reasoning has always been this. A person works their whole life and planned for retirement, making sacrifices along the way. Will you enjoy your efforts more at age 60-70, or after age 70? Judging by my aches and pains at age 63, when I do a days labour, I think using up extra funds earlier is the way to go. It isn’t just how long you will live it is the quality of your existence.

      Of course, this strategy depends on where you live and what are living conditions and health options for aging seniors.

      Ant and the Grasshopper. I have been the ant from age 17. When is it ever the right time to fly and click clack away?

      regards

      • Kent
        Apr 22, 2019 at 2:40 pm

        Paulo,

        My father is 78. His comment to me is spend the money while you’re young. You might have all the money in the world (he does), but not have the energy or mental alertness to enjoy it. Once in his ’70’s, he found out that he didn’t really want anything anymore other than time with close family and friends. And that’s free.

        My father has income of well over $200K/year. Last year he spent $32K.

        • Iamafan
          Apr 22, 2019 at 4:09 pm

          See the world when you are young and able is probably correct.

          Now if you are old and cash rich, give away $15k (plus another 15k from your spouse) to your kids and others. That gift exclusion is really good.

          After my mom died 2 years ago, and after my stroke, I think it’s safe to say it’s okay to die broke as long as the surviving spouse and kids already have money in their names.

  11. Paulo
    Apr 22, 2019 at 9:45 am

    Come on, we just saw Easter come and go so maybe it’s time to bring up the ‘eggs in one basket’ theme. :-) Plus the story of sin, promises, death, and resurrection. Is this not a timely article, or what?

    It (everything) just keeps limping along with one bandaid after another. Apparently, no Iranian oil purchase waivers are to be issued this May. None. Iran just said if they cannot export their oil, no one will use the Straits. And the US is piling on debt in the Good Times just to keep the good times rolling along for a re-election bid. Think about it, these are ‘the good times’ and debt is out-of-control, and the only thing being done is demonizing the ‘culprit’ for both political gain, and the continued pillage of the lower and middle classes for the sake of the wealthy.

    Like anything has changed, ever. History will not be kind.

    Respectfully, my recipe for safe investment is not buying Govt debt in any way, shape, or form. Like a sub-prime mortgage, there is a reason why the return is higher than other vehicles. It has to be. And when tshtf, it is only a stroke of the pen (keyboard) to put those returns on hold for ‘national emergency’. Why not, Faith in Govt will be down the tubes, anyway. An above commentor said the National Debt is the result of entitlements; SS, Medicare, and Medicaid. I guess the National Debt has nothing to do with 800+ Military bases around the World, a 17 year old war(s) on Terror, military interventions on 3 continents with the secret one in Africa currently ramping up. But hey, there is now a Space Force, a new planned trip to the moon, don’t forget Mars, hyper-sonic catch up weapons, The Wall, weekly trips to Mar a Lago at 3.4 million per, and it’s Infrastructure Week! :-) (Just kidding, there won’t be any infrastructure rebuilds). The cleanest dirty shirt…..for investment sakes. riiiiight.

    My list of safe investments and investing strategies will not be shared, because it most likely does not belong on this fine economic blog. (Thanks Wolf and commentors for making this place what it is…for me, anyway). My strategy probably belongs on some homesteading back to basics venue. However, not carrying debt is the top of my list. This applies to Govt, too.

    • Unamused
      Apr 22, 2019 at 11:48 am

      =>Respectfully, my recipe for safe investment is not buying Govt debt in any way, shape, or form. Like a sub-prime mortgage, there is a reason why the return is higher than other vehicles.

      It’s supposed to be the lowest, the Risk-Free Rate of Return, CAPM. That it is not says something, using swear words growled sotto voce.

      =>And the US is piling on debt in the Good Times just to keep the good times rolling along for a re-election bid.

      They’re spending money like there’s no tomorrow. That’s a huge hint, but some people need the joke explained to them.

      =>History will not be kind.

      It’s the toughest teacher. You can’t skip lessons, and there’s only one way to drop out.

      =>My list of safe investments and investing strategies will not be shared

      “What’s in the box?” Paul demanded to know.
      “Pain,” said Mohiam.

  12. Bobber
    Apr 22, 2019 at 10:00 am

    I think the marketing of treasuries has picked up over the last year. I found myself seeing treasury investments as on option in TDAmeritrade and Etrade this past year. Either treasuries were not shown as options in the past, or the rate on treasuries was lower than short-term CDs, and so I did not pay attention to them.

    Now, treasuries suddenly beat out bank CDs, and I am buying them.

    It reminds of Japanification, where Japanese residents have become the primary holders of treasuries, which furthers rate suppression and QE by deferring any currency crisis. Will the US future mirror that of Japan? Absent any budget tightening or cleansing recession, which requires the right kind of political change, it appears the US will follow Japan’s lead.

    Unfortunately, once asset prices around the world are inflated to risky levels, the economy must be necessarily managed for consistent low growth by central banks. Governments can hen force people into buying treasuries because that’s the best of the bad deals. At that point, it’s QE to eternity and there is no way for players to change their station in life. The winners with passive capital are enthroned. The losers work hard but have no chance at mobility. They have to work their whole life to save a million bucks so they can get $20K per year in retirement, or $5k net of inflation.

    • cesqy
      Apr 22, 2019 at 11:48 am

      Reading your comments makes me think how naive my frugal wife and I were to save too much money for retirement. I became a widower a couple years ago and now my RMD (Required Minimum Distribution) will be kicking in at 70 1/2. Another economic fact is I delayed my SS until 70. Now unexpectedly filing single, the government is going to take a lot more of our joint IRA savings and tax 85% of my SS. Another thing I recently found out is that my Medicare insurance payments will double because I will make >$85k in retirement. Delayed gratification by individuals like me seems to help the government spend more and the rich get richer. I know others might wish they had this problem.

      • Anon1970
        Apr 22, 2019 at 1:00 pm

        I anticipated your very problem. But I I did things a little differently. When I got laid off nearly 15 years ago, I never bothered to look for a full time job. I started taking money out of my IRA rollover at age 60, and claimed Social Security a few months before turning 62. When I started Medicare, I became subject to premium surcharges because of my muni bond interest. Last year, I had to increase my IRA withdrawals because of RMD requirements and expect another increase in Medicare premium surcharges for 2020 because of this.

        Tax tip: If you are already subject to the RMD, make your charitable contributions from your IRA, especially if you expect to take the standard deduction.

      • Bobber
        Apr 22, 2019 at 5:54 pm

        I would cherish that tax rate you have today. With record government deficits and debt, there’s only one way for tax rates to go. I wouldn’t be surprised to see new wealth taxes as well.

        I get the point about saving too much while others are behaving like financial imbeciles. The upper middle class has been subsidizing the rich, the lower middle class, and the poor for a long time.

  13. SocalJim
    Apr 22, 2019 at 10:35 am

    The solution is inflation with growth.

    Inflation is real, but the official CPI number does a great job at hiding it. I just saw a 3/2 1600 sq ft home in an average Newport Beach street rent for $5850 per month. That same property would have rented for $3500 just 5 years ago. Gas is above $4 per gallon. Rents are rising 6% per year.

    But, there is a monster problem brewing here because we have inflation with slow growth. The only way out of this jam is we need decent growth with inflation. If we don’t get the growth, we will have a financial disaster.

    My base case is inflation with slow growth, which is a problem. So, I am heavily overloaded in beach close rental homes.

    • Anon1970
      Apr 22, 2019 at 12:44 pm

      Are you old enough to remember stagflation of the late 1970’s?

      • 91B20 1stCav (AUS)
        Apr 22, 2019 at 1:26 pm

        Anon-check.

  14. sierra7
    Apr 22, 2019 at 10:51 am

    Neat broadcast…and nice comments….but,…..
    In the “end” it is always good, “things” seem to work, until it/they don’t.

  15. Apr 22, 2019 at 11:58 am

    Anyone holding bonds, bills notes anything like that is at risk after 2020. Everyone is focused on a bear market in stocks, the bond debacle will catch them offguard, and it WILL immediately devalue assets. The one security which has some slack is the dollar. Corporate High Yield is a bubble, investment rated bonds get downgraded, and HY outstanding explodes, which is a crisis too good to waste? If Fed allows yields to rise it will kill the economy, better keep rates down, and let the paper devalue primarily through the currency markets which will eventually freeze. More yield chasing, malinvestment, some really crazy carry trades, last gasp. Got Crypto?

  16. SocalJim
    Apr 22, 2019 at 12:13 pm

    Today’s existing home sales numbers spells trouble for the Treasury market. Prices continue to increase while sales continue to drop. That is inflation with slow growth … stagflation. Conclusion … without better growth, the deficit will continue to soar which will eventually backfire.

    But, it could be worse. As long as prices continue to rise, we are far better off then the meltdown situation … falling prices. I have to laugh at people who wish for falling rents and home prices. Such a situation could trigger a meltdown. The country is far better off with rising prices, even if it means many lack the ability to get in a home.

    • Unamused
      Apr 22, 2019 at 1:07 pm

      Oh my.

      That’s like saying the rich need more money so they can create jobs for more people, and that everybody will be best off by giving all their money to the rich.

      With them the seed of wisdom did I sow,
      And with my own hand worked to make it grow;
      And this was all the harvest that I reaped:
      “I came like water, and like wind I go”.

      Walking away, shaking his head.

    • Anon1970
      Apr 22, 2019 at 1:07 pm

      High inflation creates some winners and many losers. Read about Germany’s hyperinflation and its effects on one family here:

      http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html

      When the Great Depression came to Germany a few years later, many Germans were without savings and unemployed. In hindsight, it is not surprising that many decided to vote for the Nazi party in national elections in 1932.

  17. Senecas Cliff
    Apr 22, 2019 at 12:45 pm

    The real problem is when you have large government debt combined with huge aggregate personal debt and corporate debt . This holy debt trinity is a huge problem with only 3 ways out.
    1) some kind of debt jubilee ( which wolf has debunked because now debt is widely held and not just by the king like the old days).

    2) Hyperinflation through currency debasement, no the normal 2-3% won’t get this monkey off our backs.

    3) A long period of painful deflation where most debts are slowly written down or defaulted ( see sears, etc).

    Pick your poison.

    • Iamafan
      Apr 22, 2019 at 4:15 pm

      What is this debt jubilee nonsense?
      Can the government insert itself in between a private debt contract? I don’t think so?
      So the government can only forgive the debt it loaned, and really nothing else.

    • Wisdom Seeker
      Apr 22, 2019 at 8:25 pm

      Neither deflation nor hyperinflation is inevitable. There are at least 10 other ways out. One just has to get more creative in the policy arena.

      But I’m glad you recognized that debt-jubilee is hopeless because one person’s debt is another’s asset. The clue from that is that if you want to reduce debt, you have to also reduce assets. You could focus on the supply side (reducing borrowing via debt pay downs or writeoffs), but it’s also possible to make changes on the demand side (reduce the desire for debt assets).

      Debt Assets come in many kinds, but if you look at who owns them and why, I think there are basically two types of owners: (1) wealthy people and/or corporations (including sovereign funds), and (2) normal people saving for retirement.

      So to reduce debt, here are another two options:
      (1) Make it more onerous for the wealthy to get wealthier – and no we are NOT talking about income, but accumulated wealth, which is a different animal.

      (2) Reduce normal people’s need to save for retirement.

      I can think of a handful more already… and if a politician ever says “there is no alternative”, it’s time to fire them.

  18. Just Some Random Guy
    Apr 22, 2019 at 1:01 pm

    Democrats Monday: Let’s spend $90T on the green new deal

    Democrats Tuesday: OMG OMG OMG Trump is blowing up the deficit

    Democrats Wednesday: Hey, who’s up for giving everyone “free” college tuition and “free” health care?

    And on and on.

  19. Kent
    Apr 22, 2019 at 2:58 pm

    IMHO, long-term interest rates correlate with wage inflation in a fiat monetary system. Wage inflation generally drives inflation in everything else either because things cost more to produce, or because the market can bear higher prices.

    Wage inflation is under control in the USA. Therefore, I don’t see much upside to interest rates. Interest rates growing faster than wages is an absolute killer for any economy. The opposite is a boon.

    Federal budget deficits are purely a function of repeated tax cuts. That part is a choice.

  20. Cmoore
    Apr 22, 2019 at 5:11 pm

    Congress is pretty much in control of our finances. The President can veto it but then the govt will shut down and you see what does. I don’t understand how 535 people can control over 300 million people’s finances. It’s not right. I wish all the conservative states could just secede from the union and be out from underneath the debt bomb. I see no good result from it. On social security I recommend taking it asap living in a rural area raise crops chickens and have little debt because when shtf its going to be really bad if you live in a big city. Good luck patriots!!

  21. Kasadour
    Apr 23, 2019 at 3:06 am

    Ooo la la! Mr. Richter is a handsome guy!

    Loved the podcast.

Comments are closed.