What does it mean for the markets that the government now spends the proceeds from debt sales last spring that the Fed had monetized back then?
By Wolf Richter for WOLF STREET.
It finally happened, that glorious moment, when, after teetering on the verge for weeks – for reasons we’ll get into shortly – the incredibly spiking US gross national debt, after kissing the line a couple of times for a moment, finally, and suddenly by a big leap, jumped over the $28-trillion mark, with a $143-billion leap in one day on Wednesday, March 31, following some big Treasury sales. It gave some of that up on Thursday as some bonds matured. And it now amounts to $28.08 trillion, as per US Treasury Department on Friday.
The US gross national debt has now spiked by $4.7 trillion in 13 months since the end of February 2020, in the days before this show started.
The flat spots in the chart are the visual depictions of a charade unique to American politics, the periods when the debt bounced into the Debt Ceiling. Those were the days when everyone in Congress was still trying to hijack the Debt Ceiling law to get their favorite spending priorities!
If it looks like the trillions have been whizzing by a little less fast in recent months, that the growth of the debt has somehow slowed, that is correct.
The chart below magnifies the daily debt levels since December. On March 3, the debt level touched $28 trillion but only barely and just for one day, before backing off, and then kissed it again on March 17, only to back off again and remain tantalizingly close, but no cigar, until Wednesday, when it did the deed with one huge $148-billion leap:
The reason for this slowdown in borrowing is that the government sold a gigantic amount of debt last spring, adding $3 trillion to its debt in a few months, and then didn’t spend all of it, but kept the unspent amounts in its checking account – the General Treasury Account or GTA — which ballooned to $1.8 trillion by July, from the pre-crisis range between $100 billion and $400 billion.
During the final months of the Mnuchin Treasury, it was decided to start spending down the balance in the checking account by borrowing a little less, and by early January, the GTA had dropped to $1.6 trillion.
Early on in the Yellen Treasury, the drawdown was formalized. In early February, a schedule was announced: the balance would be brought down by $1.1 trillion to $500 billion by June. And they’re now well into it.
The drawdown has the effect that the government spends money it doesn’t have to borrow at the moment because it already borrowed it last spring when the Fed was still monetizing essentially all of the borrowing. This has some implications for the markets.
The government’s TGA is at the Federal Reserve Bank of New York and is reported weekly on the Fed’s balance sheet as a liability (banks report deposit accounts as liabilities) because this is money the Fed owes the government.
In the two months since early February, the balance has plunged by $480 billion to $1.12 trillion. Over the next three months, it will plunge by another $620 billion:
During the six months through June, the government will spend $1.1 trillion that it doesn’t have to borrow because it already borrowed it a year ago and that the Fed monetized at the time. But this ends in June.
What does this mean?
Not having to borrow this $1.1 trillion of spending during the first half of 2021 is taking pressure off the Treasury market. And yet, despite that relief, the 10-year Treasury yield has surged to 1.72%.
By June, this pressure valve will close, and the government will borrow more, and the market will have to digest it, and there is a huge amount of new borrowing being lined up to fund the added spending. This will put further upward pressure on long-term yields.
The fact that the government is now spending the proceeds from debt sales a year ago that the Fed monetized a year ago has been adding liquidity to the economy and the markets – liquidity that had been stuck in the TGA – possibly adding to the craziness of the markets in recent months. But that will end in June.
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The National Debt is proof enough that CONgress is an inept cesspool of deficit spending hacks who have no business being in power.
The depressing/scary part is that large numbers of people have been saying the same thing for at least 4 decades…but the DC mafia sh*tshow rolled on.
1) Not enough voters have suffered enough personally to make DC competence a top priority of their lives,
2) DC has been able to shift responsibility for the sh*tshow to somebody/anybody else, or
3) the democratic voting process we assume to function may in fact be a facade.
Regardless of cause, the evidence of failure is there in the numbers.
4) the world central banks kept buying US paper, propping up a free lifestyle and corrupt politics.
that stopped in 2013. what’s coming has been brewing since then. and remember the giant numbers right now; 28 trillion. watch how fast that seems like a small number!
I think we – as a society – have become desensitized to it all. I remember back in undergrad I was screaming from the rooftops about the national debt exceeding $10 trillion for the first time. Now look at us – all of us people who I like to think are grounded is “real” economics – looks at all this insanity and describe what should be happening (inflation, rising interest rates, mass bankruptcies, the collapse of our fiat-based monetary system) — while the “normies” look at us like we’re nuts.
I must admit, I am shocked how long this charade has gone on — and if I am honest – it seems like there is no end in sight.
My in-laws lived the first 30 years of their lives behind the iron curtain and they described something to be I can now relate to (but ironically they are completely blind to).
In the late 1970s in the USSR – there was this general feeling of decay – everything was really beginning to aggressively fall apart, the propaganda promulgated by the state reached level of “infinitum ad absurdum” and for people who could see what was unfolding around them – the perceived wealth in the west – knew the end of was coming. Simultaneously, those that saw this and felt this way were depressed and helpless as there was no end in sight – a system that must fail wasn’t because everything was managed and controlled to delay the day of reckoning as long as possible. All they could do is sit by and watch as a decade of their life was stolen from them.
That feeling of sadness and helplessness I can emphasize with. While the general infrastructure of the world around us isn’t nearly as bad as it was in the USSR in the late 70s – our culture is what is falling apart aggressively. I fear for what is to come but I fear more for what happens if it doesn’t.
Thank you for sharing this story. Every time I look at our congressional leadership it reminds me of the old soviet politburo. And it will likely end the same way.
Yes, those daring old men in their stiff-collared grey coats have nothing on our empty$uit Congre$$ii .. traipsing forth, complete with designer mask, kente cloth draperie, and the ever jingoistic lapel pin!
Maybe if the national debt hasn’t been an issue in 30+ years you should all consider that it will never be an issue, because the US cannot default on debt denominated in a currency that it alone creates.
Panicky articles tracking US gov debt are meaningless, tracking the national debt is purely a historical exercise. If anything gov expenditure should be much higher.
What is stopping some one Federal government or Reserve to mint a special coin worth 28 Trillion$ and hand it over to central bankers. I know it is not going to happen, but what happens if that were to materialize?
I truly dont know.
I know someone will get assasinated if that happens for sure-
Then the dollar will become worth less than worthless :-]
The truth is as simple as it is obvious, the country has been divided so thoroughly by our political class that the reality is your vote doesn’t really matter. The only purpose of the vote to present an illusion of Democracy.
Functionally we are not that much different from the elections in Russia or elsewhere, the only difference is that the illusion that the voters has a say is better than those other places.
The real job here is to loot the workers, and fleece the stupid who still believe that the leader of the day is actually looking out for them.
My illusions ended with the last selection. I’ve already started to not vote. Let them have their one party govt.
There have been studies about it and it clearly shows that the government follows the top 10 to 20% with everyone under that being ignored.
“Not enough voters have suffered enough personally to make DC competence a top priority of their lives”
Is the main reason this has been happening. The top 10 to 20% basically secure almost all the better jobs and positions of power for themselves (and their children) and the older generations are largely satisfied with everything as is.
There are ways out of this situation, but it probably won’t happen until America, is forced to undergo large structural changes. The less well off (younger) generations simply over time, outnumbering the older generations and the well off and complacent in their (the younger) generations is another possibility. Luck, is another possibility, simply finding ways that enough agree to, to force a better government, could happen, but probably won’t (a certain woman movement will prevent this). There are also other less peaceful options.
Thomas DiLorenzo has just posted a pertinent article over at Mises.org. …my main take-away was this passage…..’with devious brilliance, Hamilton set out, by a program of class legislation, to unite the propertied interests of the eastern seaboard into a cohesive administration party, while at the same time he attempted to make the executive dominant over the Congress by a lavish use of the spoils system. In carrying out his scheme … Hamilton transformed every financial transaction of the Treasury Department into an orgy of speculation and graft in which selected senators, congressmen, and certain of their richer constituents throughout the nation participated.
“plus ça change, plus c’est la même chose”
I an of the belief that the 2 party system is the nexus of our fiscal and social problems.
We need multiple viable political parties to split the vote further and divide the power into smaller shares.
Once done, these political groups would have to negotiate and come to a consensus in order to lead.
Yes, at least a third national political party.
I am of the belief that our voting system is the problem. Hence, my proposal:
Amend the constitution, abolish voting, political cartels and the electoral college. Citizens will be summoned to serve for one term and one term only. If you are a US citizen and are eligible to vote, you are eligible to serve.
That is my proposal, in broad strokes.
I’d much rather see unelected citizens serve one term and then go home. I’d do it in heartbeat.
Hey DC and C-10,,, IT’S the PROPAGANDA machine!!!
Not to be TOO personal, but the only thing you guys have wrong is being TOO POLITE most of the time, though ya do get in a few less than polite words from time to time.
When A or THE TV was on an average of 14 hours a day,,, it was fairly easy to say where the problem was.
These days, from what I read and see,,, the mealy scum mouths have the complete attention of the vast majority like, totally, dudes.
And ”so it goes” as K Vonnegut so clearly stated over and over and over,,,
and so it will go until and unless WE the Peedons insist on an actual Education system instead of the brainwashing of the masses as is currently the case..
Good Luck with that, eh?
Homeschooling has become very popular in my area.
The private school, until the virus arrived, had declining enrollment for years. Now they have a waiting list of over 100+.
The past year was a eye opener for many parents.
What you say is true, but what about the counterparty?
Every single dollar of that debt is being held by someone who clearly thinks they are going to get repaid.
This is the exorbitant privilege the US dollar enjoys from the Washington Consensus.
I think the counterparty called the Federal Reserve are buying most of the Bonds. There really isn’t a Bond Market anymore other than the Futures Market which is predicting inflation and higher rates. With this Federal Money flooding the country, inflation is inevitable and the FED can’t stop it…once started…….
Outside of dealers who temporarily are buyers of debt issues , there are NOW no buyers of US debt other than the FED.
There is one thing and only one thing that keeps the dollar from collapsing ,treaty obligations backed by implied military action. When the US losses the next military adventure against either Russia in Ukraine or China in the South China Sea, confidence in the US being able to back our treat obligations will erode and the dollar will tube.
Please send the 2 minutes required to see just how much of the US Federal debt is held by the Federal Reserve.
They’ll get repaid alright, no one disputes that. The question is what the dollar they are repaid in is worth.
And it’s also conclusive proof that the US public is too stupid and apathetic to vote for decent human beings to represent them.
Before you blame those in charge….
blame the people who put them there: US! :)
Perhaps eviscerating the public education system wasn’t such a great idea after all. I always shudder when I overhear an adult human being “So….I saw a story on Facebook this morning…..”
Look around and tell me you don’t think this country and the world are doomed…..
Nah on both counts ndrl,,,
USA founded, as noted many times on here and many other places, by rebels and very independent folks getting away from feudalism, royalism, whatever…
And WE the Peedons, will do what is needed at some critical point in time, as WE the PEEDONs have done time and time again over many centuries.
No need for anyone to get their panties in a wad,,, unless they are part of the current group of exploiters of WE Peedons,,, in which case, there are clear and continuing warnings widespread THIS TIME,,, as opposed to SO many times over the last couple hundred years/decades maybe, when WE reached the boiling point without any warnings at all to those thinking they were in charge…
WE can hope the current batch of exploiters stealing from us will ”get it” this time and change their behaviours sooner rather than later or too late…
Hopium, while sometimes at a large premium to pitch forks and lamp posts, will eventually prevail, no matter what else may proceed.
People can only vote for who is on the ballots.
And who chooses those on the ballots? It isn’t the people – it is the oligopoly: Republican and Democrat both.
The hard reality is without continuous DEFICIT spending, no politician of any stripe can promise the ‘goodies’ to his/her constituents and especially the vested interests who bankroll their next campaign! Without this no one will even stand for election.
S/HE will be reign their power for 2 or 4 yr, beyond which no one cares!
US Senators get 6 years. After which no one cares. Senator or Representative, a single term allows to to be eligible for the retirement package.
Our government is bought and paid for by “Corporate/Business America”. The “commons” must always fight for representation.
We will continue on the path of increasingly growing “debt” until the ultimate crash.
“We” had some chance of remodeling our corrupt economic banking system in 2009 but our leaders shrunk back at the prospect of the repercussions.
The FED (and the government) have trapped themselves.
It seems the most popular ways to get rich quick are the various fictitious derivatives created almost out of thin air. And fools are aplenty.
There is no way out.
there is still the option of voting with your dollars. if it gained enough traction, people boycotting the problem corporations would force the bailouts they seem to require every so often into the light, for whatever benefit that would do nowadays. good luck getting screen addicted american consume-from-homer’s to join the movement, or even pay attention.
there is a way out. it is, however, blocked. if you yell fire in this theater, nothing will happen because everyone is looking at their phones and in the way. even if there is a fire, most will not notice.
Wazoo, you know I looked it up on Google Maps and there isn’t a place named Wazoo, although I did find a Wazoo survival gear in Longmont, CO, a Wazoo Records in Ann Arbor MI, and a Wazoo Fabrication in Placerville, CA.
The thing is eventually this bill will come due. The mindless stimulus under Trump was bad enough, now we are going to do debt in hyperdrive mode, and really, what for? So that the pork can flow freely? And our elected leaders can get job security?
All I know is that The Fed is going to have to work a lot of magic to keep the yield down, and in the interim, we can all start to look forward to higher bills everywhere. Just one piece of evidence, went to our favorite Sushi takeout yesterday, bill after tips was $75, for basically three dishes. A year and a half ago, it would have barely gotten to $60.
But I am glad to have the Fed tell me that core inflation is still under 2%. Where would I be without the sweet lies whispered by the Fed everyday.
A lot of restaurants have jumped prices 20% or more to reflect their lower capacity due to lockdowns/spacing restrictions.
I don’t see sushi restaurant prices as being particularly credible as a proxy for inflation – except perhaps for wealthy people.
It’s not just sushi. All of the takeout places around me (that if anything, did BETTER under COVID) are up substantially too.
Eating out is ok if both parents work, but otherwise it’s the first item that ought to be cut. You can prepare a breakfast for one for 50 cents, same for lunch and about $1 for dinner. That’s about $60 a month if you really need to do it.
I’d love to know what you’re eating! I buy food on sale and live pretty cheaply, but the only way I could do $1 for dinner is if I was eating no meat and basically no dairy.
The new Hummer EV SUV will start at $79,995.
There are plenty of other info available. Just look at the prices of groceries, it’s been creeping up over the past year. Beef and pork prices on a per pound basis seem to be up at least 10%.
I think if you have to subsist on $70 to $80, you could do it as a single person and perhaps still have enough healthy food to not suffer long term consequences. A family will probably start to run into at least a couple of hundreds.
I spend over 1K/month on groceries for the two of us. Includes non food items. Don’t eat much these days. 2 meals/day. All healthy foods. Food prices for produce and fish have not gone up too much but everything with a European origin have really spiked. Up 25%. I wonder why this is happening.
SC – you could probably cut back on the European origin beverages and save yourselves $500/month. ;-)
Given how fat most USA people are, I think most could save a few dollars on food, and it’ll improve their health insurance costs too with a lower BMI.
Also fasting can improve health.
Win win win for a better USA.
A sushi takeout costing $75. Privileged indeed.
What a wasted opportunity of giving an example of inflation!
I’m watching lumber. Prices vs what is stacked in the warehouses and yard bins at HD, Lowe’s, Menards and the local independents.
Good old price inflation. In the past during financial repression, there was a saying ‘Before you retire, save a dollar now to spend a dollar when you quit working’ highlighting the lack of yield on savings. Now with our current environment, it should be ‘save two dollars now to have the purchasing power of one of the future dollars”.
But think of the poor people that only have $65 to spend on sushi. They will go hungry tonight.
They can forgo the tip and get under the wire at $65.
No one at the Fed has personally been in a grocery store in the past 7 years….if they had they would have seen incredible inflation way beyond their 2%…but as my old accountant professor used to say, “figures dont lie and Liars figure” and our Government can continue to manipulate how the deficit is calculated to fit their narrative…almost the same as If you like your doctor you can keep your doctor…
The government years ago changed their basket of items on how to calculate inflation. They removed food and energy..saying it just goes up and down. The real reason they did it was a way to show less inflation in order to hold interest rates down so the Federal Gov’t would be able to hold their NATIONAL DEBT interest rates they pay lower. The gov’t will survive regardless how much it hurts their own citizens!
Food and energy are included in ALL headline inflation indexes, such as CPI or PCE. In addition to the overall numbers, these indices offer “core” versions without food and energy. Both are usually cited together, such as: CPI (all items, including food and energy) rose 1.8% and core CPI rose 1.5%.
That’s the thing. It’s like when George Bush II was flabergasted when the media mentioned $5 per gallon gasoline during his tenure. “$5 per gallon!?” he asked, flabbergasted. These people are 100% out of touch with the working people. They are so delusional that they actually think people believe the lies they’re spewing about inflation, etc. I don’t think anything will change until we see the guillotines rolling out.
I’m normally not much of a conspiracy theorist, but, given that the ammunition shortage hasn’t gotten before in over a year, I’m starting to wonder whether the government is buying everything up to prevent civilians from stocking up.
No, they have new Gun control laws for that stuff. Don’t worry, those will be put through via budget reconciliation somehow or just a plain old EO.
Then of course, there is going to be vaccine passports. Totally voluntary, you will be assured, as long as you don’t want to get on an airplane, or into a store, or any such thing. Does anyone wonder why we should be enjoying our freedom again once we have fully vaccinated.
I am looking forward to the time when the digital version of “where are your papers?” to come in, but don’t worry, this will be soft peddled, you won’t notice a thing until your picture start going on gigantic LED boards a la social credit system telling the world that you are not conforming.
The only problem with that is that those there guillotines are not intended to be used on who you would like them to be used on. Also there is a reason most Police forces now resemble the military and again its not what they say to protect you from terrorists and drug gangs it to protect them from you and the others when they finally have had enough and can’t and won’t take it any more. If and when the people have had enough military rule and domination will be imposed in a heartbeat to protect the interests of the ruling class. Re education camps (FEMA) and missing now longer with us people will become the norm. Thank god I’m old and ready to check out because it won’t just be the US it will be the world that’s just one big cess pit.
What’s a matter! .. You no like the 80$ grocery bag, that was 40$ BC (Before Covid) ??
Try remembering or imagining when ya had to go to the ”super market” with/to help mom because there were three ( 3 ) shopping carts full of food for the family for the week,,, and the TOTAL was $60-70.00 FOR ALL THREE!!!
The incredible theft of the wages and worth of the working folks of USA is very likely not only THE worst in our lifetimes, ,,, but the worst ever in recorded his or her story…
The 1950’s were indeed a magical time.
Not to worry VV, the theft will continue in the name of equity and saving the environment. Again mayor Pete’s proposal of a national mileage tax is great. Especially for the working class, kind of like the equitable version of toll charge for the carpool lane on 101… you know who doesn’t need to worry about that one, the guy driving his Model X, if you are a working slob off to your blue collar job, and don’t have the luxury of tech buses (BC) or working from home (today), well it sucks to be you.
I wish I had the brains or the gall to fleece the public like that and then stick it to the morons that voted me into office while telling people this is about fighting structural r****m.
I often think about the full carts at the supermarket when I was young. Everybody’s cart was full to the brim. Now you rarely see one person with a full cart. We spend a lot every week for maybe half a cart. For those who think eating healthy is cheap, I paid $5.75 for a medium sized container of watermelon yesterday.
Was it because the rents went up all along the system? Just curious.
That’s what you get for eating sushi. I took a microbiology class and never ate it again. /
Do you take probiotics to compensate for the lack of sushi?
Where does the term wazoo come from?
While it professes not to know the origin of “wazoo,” it says that others suspect it may come from the French oiseau, or bird, through a Louisiana Creole term, “razoo,” for raspberry. (Those with particularly fertile dirty minds may be able to make the connection.) It’s almost exclusively American.Apr 26, 2010
Birds do make quite a mess if you ever parked your car under a tree. However there is an element of fecundity, such as islands where bird guano is harvested for fertilizer. Bat Guano is an ingredient revered among pot growers, in case you think this market is up in smoke.
My wife has been using “Wazoo” for like forever. I’ve known her for 40 years. She was raised as a NY Jew (although it turned out she was mostly Greek.) She told me it was a Borscht Belt thing, or maybe even dates back to Vaudeville. I think the Marks Bros. used it, with Harpo blowing a horn to override whenever Groucho was saying nasty words, and the onomatopoeia of that horn brought forth our English word “wazoo.”
I could be wrong.
The funny thing about the debt increase is that the borrowing is done in order to boost the economy… But that’s like a drunk drinking in the morning because he has the shakes from all of the previous days boozing. If this doesn’t stop it will lead straight to a brick wall… And the shakes, with no more alcohol available.
Boosting The GRIFTING economy is, perhaps what you really mean, am I right?
Because that’$ ALL there is anymoarrrr, is it not?
If you do the math that’s about $85,000 per US citizen and if you say about 50% of US citizens live a productive life then you can round it to $170,000 that has been spent on our behalf.
If you figure interest rate repression is 2% then I am paying my share $2000 per year income taxes plus $14,000 in interest repression taxes. I have kind of changed my mind on future and think most likely scenario is interest rate repression rest of my life.
If you’re trying to tell me something I’m not getting it,,,
What are interest repression taxes??
When the Fed prints unbacked money to buy Treasury debt, it artificially drives interest rates down (at the cost of latent inflation).
(Normally buyers of Treasury debt, US savers or foreign parties, would demand much higher interest rates from a debt riddled ruin like the US. But the Fed is a political incest partner with the Treasury, so it prints as much as is necessary to keep the Treasury’s target interest rate ceilings in force).
This is clearly reflected by the 8% rates that held in the late 80’s/90’s (when accumulated US debt was much lower) and the sub 4% rates that ZIRP has created for much of the last 20 years.
But making debt payments cheaper for DC and its familiars has cut the earning power of USD savings by 50% to 75%…for 20 years.
*That* is the interest repression tax.
The bittersweet love affair with the dollar. Might call it the “Lemon Popsicle” economy, brought to you by the good folks at Golan-Globus. To make things worse, by the time dinner rolls around, half of it has already melted away.
“…has cut the earning power of USD savings by 50% to 75%…”
cas – You are kidding. Right?
Simple bank passbook savings once yielded 5.25%.
Passbook savings now yield 0.01%.
That’s 525.5 TIMES less – 52,550% less.
Did you mean that it works out to a reduction of 50%-75% compounded annually for 20 years?
This is a very famous site.
Debt per taxpayer stands at about 225k.
Some of the numbers on the website are easy to take out of context.
The Debt Clock is just a bunch of algos. Kind of like a joke. It doesn’t count or track anything. It’s completely silly. But it’s fun to look at. Reminds of a Pachinko parlor.
It’s still roughly accurate I think, right now, with everything the pandemic through at it, might have screwed up some numbers temporarily.
I have seen Pachinko parlors, I did try them, I had no idea how I was doing or what anything I was looking at meant. Won some of those trinkets though.
That is one scary-assed photo. Could compare to the Air Traffic Control room in Longmont with the old screens. Or a pinball arcade in Mainz. Or the math department’s lab when dabbling in Pascal and debugging for hours. But mostly, might be the view on a WWII merchant ship when seeing the trail of an oncoming steel fish. Yikes!
Looking at the unfunded future liabilities (entitlement programs) on the site should be taken with a grain of salt.
Hmm, not sure where they got America’s external debt to gdp ratio from.
Most Pachinko parlors I saw were more spaced out than that. They are pretty cheap compared to casinos, and you don’t win money (that I’ve seen) there is a redemption area similar to an arcade. There’s definitely nothing scary about them.
I respectfully disagree.
Unless you are 75+ I don’t see how this can systemically continue for any length of time. Ever since 2008 or so we’ve been living in a Goldilocks-zone in a managed economy.
We are living off the wealth and investment of the past while consuming today our ability to consume in the future.
The Fed has a big stick – the ability to print out of nothing a unit of currency demanded by the entire world. While I know its popular within certain circles to prophesy the end of the USD as world-reserve currency, this almost never happens absent a war.
I figure this interest rate repression continues until we get ourselves into a shooting war somewhere in the world against an adversary we cannot win against.
What happens if Xi Jinping wakes up tomorrow after having a bad fried-duck the night before and decides he wants Taiwan and he wants it now?
What happens after a long night of Caviar and Vodka, Vladimir decides he is going to end the charade of independent states to the West of Russia’s borders?
We live in a world of mutually assured financial-destruction whereby one side of the scale is the US with its massive military and highly indoctrinated population supporting the dollar as world reserve currency which cannot take another systemic shock with side effects that cannot be solved by printing trillions of dollars — and on the other side a growing group of powers that are waiting for the monster to tire itself out before provoking it. Much like the USSR in the 1980s – the US is still large and powerful and no one wants to fight it.
The truce we currently live in will eventually fail. Its effects will be financial, political and social.
I think it was Wolf who said it – in the last crisis companies hundreds of years old disappeared overnight. In he next crisis entire countries will disappear.
Nothing of what you wrote is credible.
US dollar debts held by other countries: irrelevant.
The US unilaterally abrogated the Bretton Woods arrangement – one which the US pushed for originally – because it was running out of gold due to Lyndon Johnson’s Great Society plus the Vietnam war.
Yet did the US dollar suffer? No – instead of owing other countries ever more, the US turned its liability into an asset: US dollars became the single largest holdings of central banks worldwide. USD still comprises something like 60% of all trade dollars and central bank reserves.
These debts aren’t the US’ problem – they’re the other countries’ problem.
As for countries disappearing: totally unclear what you think this means. Mad Max? Anarchist utopia?
Or are you just referring to name and boundary changes?
If the latter, sure that happens all the time. If the former – put down the crack pipe and back away slowly.
I am by no means asserting anything about mad max. I am simply stating that we will continue to exist in this Goldilocks managed economy until something occurs that the fed cannot print itself out of, at which point the demand for dollars fails and our ability to export deflation via the printing press ceases.
Most currencies who were once world reserve currencies lost that status due to a war.
I don’t see why it would be different this time.
Those wars were resource wars, all wars now are culture wars. I don’t really see the US as being anything other than a dominant culture, measured by mass media participation. Our greatest export, media content is essentially free (made in exchange for propaganda value). If China had global ambitions they would be stirring the pot in South and Central America, not trying to avoid losing satelittes like HK and Taiwan. W Bush told Taiwan to prepare for reunification. XP might be nervous we are going back on the deal, somewhat. Generally accepted a superpower can insinuate itself into it’s neighbors politics. Troops are another thing. Absent a colonial/resource war,circa last century, the buck is staying until bitcoin makes its arrival.
The US economy is anything but managed.
Look to China or Germany to see what a managed economy looks like.
Works until it doesn’t is utterly not useful to do anything with.
The US dollar doesn’t hang in midair for no reason – 70+ years of realpolitik underlie its status, as well as the existing size of the US (very large in pop and economy) and the US military (spends more than the next 12 nations combined).
Even then, until a viable alternative exists – which does not at the moment – there still won’t be change.
And as for printing: the US isn’t the only one. Everyone is doing it.
Is the US printing more? Yes in some respects, but then again, the devaluation of existing dollars affects the whole world – not just the US population.
Isn’t that the definition of exorbitant privilege?
“We are living off the wealth and investment of the past while consuming today our ability to consume in the future?.
My sentiments exactly. Growing up poor working class in the late 50s-60s one didn’t have credit cards. You knew where every dollar you earned went and when you purchased something you felt the pain of that buy right then.
Zoom to the 70s and you had OJ doing credit card commercials while the dismantling of America’s great manufacturing base was in its earliest stages. The transformation of America from a manufacturing power house to a skim the profits finance machine is now 50 years in the oven and here is what it has wrought.
And blaming boomers or millenials or Washington DC jus seems like a superficial reading. The masters of finance own this dream. And we the people will awaken soon to a brand new world.
Yes. My mother (born in 1951) frequently says that when she was a child, only actually wealthy people had luxury cars, as there was no “financing.” You had to write a check for the full price of the car at the dealership. Now, anyone and his brother can get a leased or financed BMW or Mercedes.
Unlike the US bankrupting the USSR in the 1980’s, the US is now bankrupting itself. No outside influence necessary.
That is debt that you, as a taxpayer, are directly responsible for.. Sobering thought.
In the event of a “budget crisis” real or conceived, the government can and will implement a bail in, and confiscate as much of the citizens wealth as it needs to alleviate the crisis.
Recently read that China and Iran just made a deal to trade guns for oil, and did it by bypassing the US Dollar. China has been at economic war against us for 40 years plus. Just what happens when they convince the world that US has trashed the dollar and that they should trade in China’s currency?
At 90….won’t hurt me….worrying about the young who are oblivious to all this…..like the politicians seem to be. Their Rule #1to help the US is Get Reelected!!.
China has been debasing its currency at a very high rate for a very long time. Every dollar brought in by an exporter is bought up, directly or indirectly, by the government for much more than it’s worth — 20 years ago, about three times what it was worth, nowadays about 50% more than it’s worth. This is done to keep the dollar prices of Chinese goods low and ensure no one can compete with them. It is also inflationary, and an opaque form of fraud on the Chinese people. A form of vendor financing fraud, in which the seller lends customers who otherwise couldn’t afford it’s goods the money to buy them, knowing the customer will never be able to repay the loan. It’s important to keep always in mind that for a nation to run a trade surplus it must lend the trade deficit nation’s an amount equal to the surplus, and, even more importantly, that to be repaid it must run a combination of trade and capital account deficits of equal size. Because, the CCP will never be willing to open up its financial system to allow free trade in the yuan, the yuan will never become a reserve currency.
Actually for the past few years China has been propping up its currency.
Nonsense. China has not been at war with the US.
However, the US elites have been at war with the rest of the population.
It wasn’t China that forced American companies and factories to shift to there.
Nor are China’s policies unusual. The US had the exact same policies prior to World War 2.
If you are 90 years old, you knew people who lived under that mercantilist regime.
If you think PRC hasn’t been at war with the US over the last 30 years, then their PR machine has been very effective indeed. It has always been a war, just waged on a battlefield that the US hasn’t understood well.
Think about it, today, most of the western economy would come to a finding halt if XJP decided to do a little tweaking to the supply chain. The only reason he hasn’t is because it’s not in his interest yet.
A hundred years from now, XJP will either be heralded as a visionary leader who made China the most powerful country on the planet, or he will be the guy who is looked on as someone who took 30+ years work of his predecessors and flushed it down the toilet because he couldn’t follow the plan. His biggest problem, like the guys before him is not the US, it’s the demographic time bomb that he has to deal with before the clock runs out. If anyone is going to cause XJP to lose, it won’t be the guy who claims he’ll be a vigorous competitor, it will be XJP himself, and I give him better than 50% chance now because PRC’s greatest rival is too busy focused on how to hang on to their own personal power.
Sorry, but the same could be said for China: if the US were to disappear tomorrow- China’s economy would be devastated.
Have you actually visited China?
Talked to actual mainland Chinese people?
China has no interest in making war on the US – but it also isn’t going to give up any of its advantages that China has built up over the years meekly – like the Japanese did in the 90s.
Once again: the proximate cause of the offshoring wasn’t China – it was America. American politicians, American businessmen, American population ignorance.
The young are definitely not oblivious to a decade that has devastated them and their families. When we lost everything, our biggest regret was the effect on our son.
These young people are still living at home or in groups together in some little apartment. They are in debt to the govt for a worthless education. And now the little employment history they had is being further curtailed by the coviet19 kabuki.
They trust nothing, but bitcoin and robinhood more than anything going on in the swamp.
“They trust nothing”
at least, in spite of what passes for an education these days, it appears some are capable of logical thinking.
China would need to be a max importer in order to supplant the dollar. And no way is China going to do that. Guns for Oil is barter. Is China going to become a world leader based on barter?
Yes. Most definitely yes.
This getting scary. No one cares about how much debt is created. This is worse than in the inept Bambam administration, but at least then you had some budget ceiling limits for brief periods as shown in the chart above. This graph is now approaching a parabolic line to infinity. This looks like the Weimer republic in 1922. Where are the sane people anymore??? How can this happen in this country????
We get who we vote for, but unfortunately, the choices have not been that great in the last 20 years or so.
We’re not getting who we voted for, in any way, shape or form.
Yes, but the rich sure did!
Only the debt-financed rich.
Any traditional saver has been slaughtered for 20 years to prop up the syphilitic “DC way”
I heard one thing yesterday that I had not thought of. Dollar is only reserve currency that was not backed by gold. Probably means US will abuse reserve status a little longer than our predecessors.
No reserve currency is backed by gold, neither the dollar, nor the euro, nor the yen (those are the top 3), nor any of them. No currency is backed by gold these days.
Wouldn’t that be a kick in the head if a country went to the gold standard. I wonder if it’ll survive the economic warfare that would be surely waged against it long enough to get bombed IRL.
One of the big problems with the gold standard is that you can never be sure that the country issuing the gold backed currency will always follow through and exchange the currency for said gold when requested to.
One of the reasons America dropped the gold standard, was that France intentionally was exchanging US dollars for gold in an attempt to deplete America’s gold standard.
You can issue coins directly in precious metals, however if the value of the precious metals ever exceeds the face value of the coins, they will get melted down and the currency supply will get depleted.
Gold backed money, isn’t a realistic solution in the present day.
All is De Gaulle’s fault. He used to once a year send the fleet to NY loaded with France’s dollars to exchange them for gold ….
Even the obedient Brits did this towards the end.
Countries don’t keep to the gold standard because it handicaps their economies vs. countries that fiat.
Read the Cross of Gold speech by William Jennings Bryan to understand just how regular people viewed the gold standard back in the good old days. The Wizard of Oz is literally based on this.
I didn’t state it clearly. In prior history all reserve currencies from Britain, France, Spain Portugal, Dutch was backed by gold. Just saying our current fiat reserve currency is a new version of reserve currency which allows some additional imbalances that are in some ways experimental. Might allow the US turn to run a little longer.
It’s definitely true that fiat allows imbalances not possible by precious metal backed currencies. However, I don’t see anyway to reestablish a gold standard. Some say we can partially back the currency, so a dollar can be redeemed for say 10 to 20% of its face value in precious metals. So there could in theory be a way to figure out a new precious metals standard.
Unfortunately, the federal banks are instead looking to digital currency, which is hugely worse than fiat. If the people ever allowed paper money to be replaced entirely with digital than the people would truly be sheeple.
As for the reserve currency status itself, it’s substantial, but not without drawbacks. There will definitely be a blow to the US economy if it’s lost, but it will end the triffin dilemma (having the main reserve currency, means you have to run trade deficits). That means that the US will have to start running more equal trade balances and should, hopefully, start to repair many aspects of its economy. It could produce more stateside and innovate even faster.
Fiat does have some advantages though, it probably doesn’t matter to or benefit the people of America and Europe, but if countries were forced to run more equal trade balances, that would crush most of Asia and a lot of other developing economies, who would face a vastly more difficult environment to develop in.
And prior to gold, money was backed by pure government fiat.
The invention of money was by government to enable easier payment of temple and monarchy levies.
If anything, the “gold standard” used in the past was more a function of lack of communications and standards than anything else.
And as I noted before: a gold standard doesn’t do any of the things you seem to think it does.
Spain had rampant inflation with the gold standard, for example.
China has been printing like crazy and yet they’ve also grown like crazy – printing is clearly not inherently wasteful.
An oligarchy just out for itself, however…
It’s doubtful this market will crash until the vix nears 12 and the big guys can profit cheaply from it. We’re in the hope phase of the covid recovery, and in most people’s mind’s covid is over. This belief will be tested in the fall. I’d say another 3-7 months of higher markets providing the broader macro picture doesn’t change much. Emptying out the TGA account helps too!
The Fed has pledged not to raise rates and they should be able to keep good on that promise for at least 3-7 months. I expect the Fed to go to yield curve control if yields surge.
I agree except for a quibble: I think the VIX will dip just under 10 for a day or two.
By the way, is that miraculous six percent unemployment rate accurate? I am an atheist about it.
Robert that was a very great post you put about the French demanding gold in the 1960’s (I believe). They saw what was going on with all the spending with Viet Nam and our social programs.
I think Gold is viable. You have to back our currency up with “something.” Could be a basket of items, but we will go the way of Rome otherwise. Anybody that scoffs then look at USSR. Or we will quietly fade out like the British Empire. I visit other websites and there are people looking forward to the Balkanization of America. Better we do something now then watch this place crumble.
As Russian defector Yuri Bezmenov said “Unlike myself, you will have nowhere to defect to, unless you want to live in Antarctica with penguins. This is it, this is the last country of freedom and possibility,”
Me? I’m looking at a Red State, and a place abroad as a hedge. Hopefully, I won’t have to watch you guys on TV from abroad. Good luck.
I think at this point, many people (myself included) want the U.S. to go through a peaceful divorce. “Staying together for the kids” as we’ve done since the 1960s isn’t working well anymore.
You mean the hooligans running Dee Cee, THOSE kids? Then yes, I would agree. Maybe a no-fault is the best of all outcomes.
In my view, those hooligans are the symptom, not the cause. The cause is a polarized country of people who share no values, and thus, hates the other side so much that they will never dream of holding their own side accountable.
Well, personally, I’ve voted against ALL incumbents .. from the local scene, all up the ladder – excepting the Julius de Orange this last series of high low hurdles, simply out of spite! – for YEARS now. I no longer believe choices matter. THEY .. .gov .. at ALL levels, LIVE accustomed of which they feel entitled, holding tightly to their bosoms, their sinecures – the plebs be damned!
Charles de Gaulle was a very smart guy who not only did what you comment JK, but also convinced John Foster Dulles, Ike’s SecState, that the USA should take over for the French after their hot shot paratroops were decimated by the North VNs at dien bien phieu, ( or something like that spelling ) in the middle 1950s era, and that was the precedent for the VN war and similar result for the USA.
De Gaulle had been unfairly treated by the Allies during WW2, mostly as a result of reports by Allen Dulles, JF’s brother, regarding DGs imperialist manners, etc. , AD was one of if not THE major player in the Allied intelligence/spy system of that war, and de Gaulle had a well recognized desire for revenge ever afterward, and got it.
Surely it is very sad that such huge sacrifices by WE the Peedons should be based on such personal griefs, but, here we are again, eh, and very likely it has always been that way, or at least for the last several thousand years that we know about.
VVNv & anyone interested-highly recommend Bernard Fall’s ‘Street Without Joy’ for additional background (had read it in high school prior to the receipt of my draft notice a few years later…).
may we all find a better day.
The national debt was 5.6 trillion dollars in 2000.
Bill Clinton (1993-2001) was the last president to balance a Federal budget. His final four years he produced a budget surplus (Wiki). The national debt has risen nearly five times since the year 2000.
In truth, Clinton never “balanced” the budget. Rather, he engaged in accounting games by shifting them social security surpluses into the general reserves. If the budget during his tenure was ever balanced, the debt would not have increased every year during his watch.
Bill Clinton DID NOT balance the budget.
The House was run by a GOP name Newt Gingrich….and there was a thing called Contract with America.
It was under Clinton’s Presidency, but he had little to do with it.
Bill Clinton balanced both a state budget when he was governor and a Federal budget when he was president. Gingrich did not have an executive signature like Clinton. One might argue Ross Perot balanced the federal budget, but he was only an independent presidential candidate calling for a balanced budget.
No. The positive stratosphereic effects of the Dot Com Bubble is what The Parasite from Ark. used to profess a ‘balanced budget’. He had no hand in it.
Look at the data
Ah yes, Newt. Such an apt name for the slimy thing that created the ‘do nothing’ congressional politics of the last 20 years.
That depends on how you look at the records. The federal government isn’t bound by GAAP and the way they calculate assets, liabilities, and the overall health of their balance sheet is determined by the treasury secretary, OMB, and comptroller. While it was publicized at the time that it was a balanced budget, the overall debt increased every year under Clinton. Not to rag on Clinton, because in this crazy environment, Clinton looks like a saint.
Under Clinton it looked like a petty criminal organization, but these guys have turned it into a Mafia and are not ashamed of publicizing their theft.
Biden signed a $10 billion order to help people behind on their mortgages. Best recession ever. To bad they didn’t do this during the last housing bubble. Could have prevented Wall Street from buying up a lot of homes on the cheap?
This should help keep house prices high….maybe good or or maybe bad?
US outstanding mortgage debt is 16 trillion dollars.
Let’s say 2% are in trouble = $320 billion.
$10 billion is not even going to pay the interest for 1 year in this scenario.
These bailouts are never about helping the little people – they’re always about helping the creditors.
It’s always about bailing out the wealthy, but disguising it as a gift for the little people. The tricks are pathological at this point.
The big question, of course, is “will this burst of money cause inflation or not?” I’m guessing NOT. Here’s why:
There are two somewhat contradictory reasons for holding money:
Transactional money: To exchange goods/services. Held by the “lower classes” who don’t have much money who spend it rapidly.
Non transactional: To hold as wealth spending very slowly– “the rich” who hold lots of cash because interest rates don’t pay enough to invest their cash, and they already have way more goods/services than they need.
The BIG INFLATION question, is WHERE will the cash go?
So far most Fed cash so far has gone to rich who don’t spend much of their cash pile, which is why goods/service inflation has been low, which is where most Fed money has gone. And that’s why ASSET INFLATION happens because they have a ton of money who want to preserve somehow by purchasing assets.
This time cash goes to $1200 payments to those at the bottom, that is could CONCEIVABLY cause goods/services inflation, because those people will buy stuff and services. But I’m guessing NOT. There will be higher demand for some lower cost goods/services, but also higher employment because of added demand, so more services could be available, it may keep prices down and with higher employment will increase goods/services supply. There are so MANY WITH SO LITTLE they could resist price rises.
My guess: The Fed will be right–not much inflation. Demand will be boosted, causing more employment instead of higher prices. $1200 isn’t going to make anybody rich. Lots of people at the bottom with too damn little who are never going to be able to afford higher prices. It will be a winner for Biden.
But I’m not going to bet my very small fortune on it.
Try and get your roof replaced.
Fill up your gas tank.
Buy a house..
Inflation is here….Month over Month, annualized like they do with GDP is 4.8%. Anyone talking about that?
And the next number this month likely the same or higher.
I have been watching people a lot smarter than me say that high inflation is not coming because of demographics. I might be an example at 64 I just am not consuming very much and have no debt. Will never buy another new house or new car or send another child to college. Government is fighting deflation by their largess and Fed printing, but if old farts aren’t spending there isn’t going to be much demand to drive prices.
A fair return on savings puts money in the pockets of consumers…when have you heard that lately?
I too am on consumption lockdown.
Interest and fixed income provided disposable income and consumptive activity to many…..but for 12 years has been cut out.
Hayek said that when central planners decide, they INTENTIONALLY aid one group to the harm of another.
Well, we can see who has been harmed, and who has been aided by central banking decisions…decisions by the unelected who are short circuiting what once was a free market.
So demand-pull inflation is surpassed by cost-push inflation. You will pay more for bread, gasoline, lumber, etc., because the input costs you don’t see are higher.
There’s been plenty of inflation.
Inflated crap companies – which Harris Kupperman wrote about just a few days ago.
Inflated 1% good, services and real estate.
And inflated economy – not inflated vs. January 2020 but inflated vs. what exists in reality today after a year of lockdowns, entertainment/travel restrictions, small business failures and what not.
Price inflation has never been about too much money per se – it is how the money is distributed. Sending 95% of printed cash into the hands of billionaires doesn’t cause much real world inflation, for example.
I spent all the stimulus money I got. It all went to things we would have bought eventually, but couldn’t afford yet. I am in the deflation camp because the only time we overspend is when we get free money or have no other choice.
QE is deflationary. When you litter the land with cheap money like the FED did, it leads to massive oversupply of goods and services, and tremendous malinvestment. Then you get a crash and things have to be sold for pennies on the dollar. The future is likely “inflation in the things you need, deflation in the things you want.” Most people won’t have any money for the latter.
Asset inflation is inflation, not sure why you make it out to be otherwise. Everyone needs somewhere to live and asset inflation is a huge part of why we have a massive increase in homeless populations.
You’re right, asset inflation IS inflation.
I meant to say I believe household GOODS/SERVICES inflation is not going to go up so much, because so many at the bottom 50-60% income people who hold little money aren’t able to pay more.
But asset inflation is coming hot and heavy (like housing) because I’m guessing that’s caused by higher wealth individuals who are holding a lot of cash who want to convert to assets as fast as possible to protect their wealth. And, as you say leading to high homeless population.
BUT I wouldn’t be shocked if my prediction turns out to be wrong.
Fair points Ralph! I have no idea what is going to happen in the short term, demand could lag because of continued lockdowns, but I’m pretty confident the price of everything is going to go up with hyper inflation. I just don’t see how that doesn’t happen with all the money being printed, all the inputs are going to go up besides for the cost of labor. We also have a war against cheap energy about to rage.
There is nothing to be feared from rising the debt ceiling in the grand scheme of the wider geo political fault lines appearing to have progressed to HUGE cracks between Europe and the US in recent months.
The US can always Put ALASKA on auction or sell it back back to Putin for few shiny golden Rubels ! and Texas to Mexico for more Mexican Gold!
( maybe our Nick can Broker the deal, due to his strong ties to Mexico)!
Having done that, a beeline back towards the gold standard might helps us all back to something akin to the real world.
The US control over the PETRO DOLLAR system is slipping, and the General incognizance of this fact is going to have big headache for the guv. With it’s diminishing tools in controlling the effects of a more assertive China.
You might find the above a little bit off topic, but think it again carefully!
The Germans are soon at a crossroads in their unique journey from the disasters of the 20’th century, it will be very interesting to observe the results of their coming elections as it will have deep impact on the continent’s future alignment between the west and east tug of war, economic policies and the direction the international security issues would be measured.
Which ruler(this denotes the measuring instrument) is going to ascend to the status of INTERNATIONAL STANDARD ?!
in view of all these , the US’s comical debt ceiling ( even by Wolf’s acknowledgement), will be a trivial issue indeed.
The remarkable thing though is that all these artificially and self inflicted Crisis/s can be solved by a big doses of RATIONAL THINKING!!
Rational thinking, that unfortunately seems to be a very rare commodity in the rows of the farcical mob that inhabits the great swamp of DC!!
Happy Easter Wolf Gang ( readers, contributors and Herr Volf included).
Have a question for Wolf here,
What Japanese Whiskey does he recommend?
( if anyone here expert, would appreciate the input)?
Politicians basically win elections by buying votes with promises of free stuff and college debt forgiveness. Being short term thinkers (if they are even capable of thinking) they just push up the national debt to unserviceable levels. This ‘vote for me and I’ll give you free stuff’ is the achille’s heel of democracy. This isn’t going to end well.
Democracy only works with intelligent, hard-working, and financially prudent citizens. These people understand the need to defer gratification in their personal lives and on a national level. They are in a definite minority now.
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.
From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy,
always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.” DeToqueville
Thatcher said …”The problem with Socialism is that it eventually runs out of other people’s money.”
Well, Maggie never saw the central bankers and their antics of sopping up the new debt with digitally created money.
Article I Sect 8 says Congress controls minting, not an unelected body known as the Fed.
And what is inflation promoting but “laying of a tax” on the people….Yet the same Constitutional Article says only Congress can lay a tax, not an unelected body known as the Fed.
historicus – it was NOT de Toqueville. Take the trouble to do a web search. Usually you’re pretty sharp.
historicus & Lisa_H,
My first guess was that was a Charles de Montestquieu quote.
But upon further inquiry, it was circa 1787 by a Scottsman, Alexander Tytler.
“It is impossible to make great largesses to the people without great extortion, and to compass this, the state must be subverted. The greater the advantages citizens seem to derive from their liberty of voting, the nearer they approach towards the critical moment of losing it.”
The national debt gets bigger & the citizens get “Stimulus Checks.”
Probably also when corporate interests aren’t allowed to lobby to the point of having their tendrils in most of the laws. I remember an interview with a senator from awhile back where the guy was basically saying that when the public really really wants something, often the politicians cave, but as for like 95% of the laws when you see these hulking 1000s of pages of law they are generally infested with the results of lobbying efforts. Why? Politicians need funding and donations. There’s this perpetual rat race to get more. Why? Money wins elections. Why? People fall for advertising and propaganda. So the corps give the politicians money with a wink and then when the time comes they get all their special interests put in the next big bill.
In defense of the stupid voters, if you work a job, who exactly has much extra time to monitor all of this and fight against corruption, when thousands of people are already paid full-time to do the corrupting?
I would add that those corruptors are paid quite handsomely.
I also think it helps if a democracy is made up of a mostly homogeneous population, but that’s a whole separate discussion.
Yes, because Bernie Sanders won.
Oh wait, he didn’t.
Andrew Yang must have won then.
No, that’s not right either.
Clearly your statement is incorrect.
“Vote for Warnock and Ossoff and we’ll give you $2,000.”
Honestly, the biggest factor was indiscriminate use of mail-in ballots.
The Democrat vote has always been soft – that’s why Obama was great. He could energize people to turn out – at least in his first term – like nobody’s business.
Wolfe, if you truly want to show that gov borrowing has flattened out, try using the hourly, or minute, or second time scale!
Wolf not Wolfe
I think WES said he is using speech to text because he lost his eyesight, if I remember correctly from some time ago. WES correct me if I remember wrongly.
Wolf, the U. S. national debt is astronomically higher than 28 Trillion!
One day in 2006, I was speaking face to face with a U. S. Congressman, whom I had known several years before he went to U. S. Congress. He told me if the truth be known the national debt was about 68 Trillion! That was in 2006!
Recently, Professor Mark Skidmore discovered more than 94 Trillion missing/unaccounted for, U. S. government funds. Mark Skidmore is Professor of Economics at Michigan State University where he holds the Morris Chair in State and Local Government Finance and Policy.
So he is the one holding the chair, when the music stops!
The US National debt = Treasury securities. They’re known and tracked, every single one of them, so that the government can pay the interest to the holder. There are no hidden Treasury securities.
There are some future obligations of the US that are not yet due and have not been funded yet, such as some portion of US government pension plans, expected way-in-the-future obligations of Medicare, etc. But that’s a different matter, involving very complex actuarial calculations about what might happen in the future.
Hi Wolf, thanks for your response.
How do you … know … “There are no hidden Treasury securities.”
Are you assuming the Federal Reserve and the U.S. Government are being truthful regarding same?
Are you aware of FASAB 56?
Are you assuming Mark Skidmore, PhD, to whom I previously referred, is wrong or being untruthful?
This is just silly. People who say that don’t understand how securities work. There are enough problems in this country. There is no need to fabricate fictional problems just to have something silly and amusing to read.
For the US government to get the money, it has to sell the Treasury security to someone, and that someone has to pay money for it, and expects to get that money back when the security matures, and expects to get interest.
Every single Treasury security is tracked and known so that the interest can be paid to the holder, and so that the face value of the security can be paid to the holder when the security matures. This is just like every single corporate share is known and tracked. That’s how securities work.
Wolf, does that include the non-negotiable “securities” that the government gives Social Security when it “borrows” money from them?
Yes, but let me clarify: These securities are “non-marketable” (not “non-negotiable”), meaning they’re not traded in the markets and therefore their prices don’t fluctuate by the minute. Instead, the SS Administration holds them to maturity, when the Treasury Department redeems them at face value. They’re also interest-bearing. This is automated. Works similar to the Treasury securities in your Treasurydirect.gov account when you set them up on rollover.
Thanks, Wolf, for the clarification. I used to have a treasury direct account, back when the yields were still visible under magnification.
If you don’t support ending our Forever Wars, cutting military spending by 90%, taxing American foreign corporate profits and the rich at Dwight Eisenhower’s 91%, and investment income as regular income, support Bernie’s single payer healthcare for all Americans which the CBO says saves the Federal Government $650/yr…. you’re simply not serious about reducing the deficit are promoting a different agenda.
Never happen. The MIC runs the Country and controls spending. Look at the F35 debacle. Every state wants a military base and weapons factory, federal prison, or a home office for a Govt agency, (even if Govt is demonised.)
The problem, in my soon to be jumped on opinion, is the system…itself, right back to the Constitution. The myth of freedom and individual rights divides and conquers into the unworkable for modern times and needs.
Last week I was comparing Covid stats between BC and Minnesota. (My Dad was from Minnesota, and many of my cousins still live there.) While BC is much larger in size geographically, there is much the same than not. One large metropolitan center each, with a few smaller regional cities. Mining, agriculture, forestry…even hockey. :-) The population is the same number within a few thou. People stay indoors winter, active outside in good weather. Fishing, hunting, etc. If anything, MN is more rural as most BCers are urban dwellers.
Minnesota Infection numbers ….526 K…..deaths 6953
BC Infection numbers………………103K…….deaths 1463
MN restaurants and bars 75% capacity
BC restaurants and bars closed for the next 3 weeks
MN Salons etc 100 capacity
BC Salons and care by appointment only
MN indoor events 50%
BC closed for the next 3 weeks
MN outdoor events 50%
BC none for the next 3 weeks…there has been none for the past year
MN Worship and weddings etc 100%
BC closed until further notice
Our public schools have been open throughout the entire pandemic. The choice at the beginning was pretty simple for us….bars or schools? Individual rights or the collective good? Money was provided to the affected companies and their employees so they would survive the pandemic.
The point of this is attitude and entitlements. If MN had restricted activities there would be gun toting protests much like neighbouring Wisconsin. Even in blue blue CA, restrictions on worship and dining produced unending court challenges. Everybody is fighting and arguing and every issue is a right and entitlement litigated near you. This is not a recipe for success going forward. My neighbour likes to say, “The days of the buffalo hunt is over”. A new take might be, “There ain’t no more Frontier or Tea Party, Dorothy”. The Constitution reflects rebellion and entitlements above cooperation and shared rewards and sacrifice. I’m not convinced this attitude is effective in complex societies when cooperation and communication is key?
Furthermore, the system votes in every public office holder which further divides society into winners and losers at even the county level. Elected sheriffs, judges, election officers, state attorney generals, ,,,,really? An elected judge? Okay, Fed judges are appointed but still politicised in the confirmation process. Dysfunction, dysfunction, dysfunction. There will never be agreement on much going forward as everyone is a competing stakeholder. Everyone is either a winner or loser at someone else’s expense.
The last time the Country pulled together was right after 911. Think about it.
“…the Bank of Canada’s balance sheet assots to nominal GDP year-over-year growth is at a stunning 456%.
Meanwhile, in the US, Australia, Japan, Switzerland, and the European Central Bank, that growth is at 100% or less.”
Get your own house in order then worry about us, K?
“The Constitution reflects rebellion and entitlements above cooperation and shared rewards and sacrifice.”
I completely disagree. The Const. reflects a code, or pact between individuals, defining the very limits of their self-interest. This is a deeper bond than mutual greed, in my opinion you have fallen for the, “Const. puts self interest above mutual interest,” canard.
The Constitution defines the foundation and limits of self-interest, as being based in the perpetuation of the mutual right of each citizen to define, and live by their own religious-philosophical perferences, while not imposing such prefs on others. The restraint of imposition is the main failure here…
It is the (generally intentional) ignorance of this basis of legitimacy and soveregnity (this restraint of imposition) that allowed unfettered self-interest to replace mutually gaurenteed rights as the nexus of our existance and expansion. We can’t stop telling each other what to do, to serve our own self-interests, despite the clear words of our Constitution.
Thus, you are not an, “American,” because you pursue the, “America Dream,” of unfettered greed and wealth fed to us by our corporate masters, their media and politicians, but you are only an American when you submit yourself philosophically and physically, when you restrain yourself within the principals of our Constitution and Bill of Rights.
Thus noone who claims to be above the law at our border, anyone who ever puts themselves above our Constitution, can ever claim to be a citizen. By my recokening we have millions of people who have been sepecifically granted citizenship because they put themselves above our soveregnity, our law, and our Constitution.
How we gonna fix that?
The lies of the, “American Dream,” driving these waves of relentless greed over the decades were put forth by our rising Robber Barrons of the 1880s as they strove to replace the Constitutional principals that previously guided our country with the ancient principals of the greedy pursuit of now corporate-aristocratic wealth and power that underlay and maintained their position then and now.
Thus many who claim, “citizenship,” today are no more than Consumers of a Corporate Fascist State (judged by their words, acts, and the state’s actions), rather than Citizens of the American Republic, by the, “Freedom is a dream, money is real,” people.
Principals legitimize or delegitimize authority, and that of the parties and classes that have hijacked our country have been gone since the 1880s… People have begun to believe and live by corporate lies, rather than the ethical principals underlying our Constitution & Bill of Rights.
We all see what is happening to money & society as the last bits of the principals underlying our Constitutional Republic evaporate away around us.
This then represents the next evolution of the conflict between Liberty and the creation and consolidation of centralized wealth and power; Greed vs. Principals. We are finding out what happens after greed has won, and exactly how it’s trying to ride this horse down into the ground without losing its heads, or getting machine-gunned in the palace basement.
Our Revolutionary Forefathers wiped away a heriditary aristocracy-repudiated the very concept of heriditary aristocracy-only to, “clear the decks,” for a new evoltuion of aristocratic development, the industrial aristocracy, (AKA, the Robber Barrons…et al…,) who also happended to be accessing the only continients not touched by modern forestry, mining, or any significant economic-environmental by the thousands of years of growing mass civilizations in the Old World and The East, as had the rest of the world.
Maintaining principals vs. greed was vitally important, as our failure of principals has led us to develop an industrial aristocracy and corporate empire even more evil than the Brit one we rejected…
…our forefathers are rolling in their graves looking at this corporate aristocracy and its evil empire, except for Hamilton, who is apparently doing various jigs on stages…which is somhow both appropiate and hilarious, so he’s probabally spinning in his grave too, but for a different reason!
These American Revolutionary sweepings-away of aristocracy and royal restraints in the face of virtually unlimited natural resources in America (at that time…) became the basis for the evolution of most evil aristocracy (the industrial) and the most evil empire (Corporate Empire) that the world has ever seen…
Frying pan to Fire…
A new party to fix this? We freeking need a New Revolution (American Constit Based!!) to sweep away these corrupt practices and principals.
That’s my view from this American’s perspective…
As I have commented before, Hamilton was a banker. He and Isaac Roosevelt co-founded the Bank of New York which shortly thereafter was the first publicly traded stock on the New York Stock Exchange.
This is why Aaron Burr is one of my heroes.
@Paulo, what’s all that above have to do with the growing national debt here?
First, at 91%, no one will work. It’s that simple. Or they’ll find ways to spread the income among family members or something else. I don’t know exactly where the line is, and I don’t think the Republicans are being intellectually honest when they claim a raise of the top marginal rate from 37% to 39.6% will discourage work, but 91% definitely will.
Second, the only way to reduce the deficit is to drastically reduce spending, INCLUDING entitlement spending, and to institute a VAT. Everyone would have to pay more taxes, not just “the rich.”
Third, the CBO is wrong on its estimates so much that they have no credibility on this issue whatsoever.
“At 91% no one will work.”
That is a provable and heinous lie. History has literally proven otherwise.
Also, calling the social programs that keep people from starving shows how l it te grasp you have of whAt it’s actually like to be poor. I’m poor. My whole generation is poor. Take your neoliberal drivel and stuff it. We, your inheritors, are done listening.
LOL. I’m 38, so not sure what you mean by “your inheritors.” I’ve long opposed ZIRP, QE and other measures that are intergenerational wealth transfers.
But you’re very off base here. It’s not a provable lie. At 91%, people will either find a way to avoid the tax or they will stop working. During the Eisenhower era, almost nobody paid those rates, so pointing to them is dishonest and stupid.
Take a successful small business that does HVAC repair. If the owner crosses the income line to 91% in June, why not take the rest of the year off? Do you think he’s really going to work for 9% for the rest of the year?
At 91% personal taxation money will be left in corporations who will “invest” the money in stock buybacks further increasing the unrealized gains of the wealthy. We see it happening now with much lower personal rates.
How much of the debt has already been monetized?
Is it possible for the US to default similar to Greece in 2015?
US could face a liquidity crisis, forcing the government to seek bailout funding. Since we are much more of an exporter than Greece, that helps, BUT assumes many countries would buy assets for pennies on the dollar?
“Is it possible for the US to default similar to Greece in 2015?”
It’s not possible. Greece doesn’t control its own currency. It uses the euro and cannot print euros. It doesn’t control the ECB, which prints euros. For Greece, the euro is like a foreign currency. And so Greece borrowed in a foreign currency that it then could not print to get itself out of a debt default.
The US issues its own currency and can print an unlimited amount, which will ensure that the US will never default on its debt, like Greece did. The US however can create so much inflation that it represents another type of default: it will pay off the debt with increasingly worthless dollars.
Even that consummate bankster lobbyist, Greenspan, said:
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”
He also said:
“We can guarantee cash, but we cannot guarantee purchasing power”
Just because he was corrupt didn’t mean he did not understand what was really going on.
Not sure it will work out, but someone smarter than me said that Fed’s plan is to run real interest rates below inflation for a very, very long time. Covid response is a big shot of fiscal stimulus in the short term, but just will make debt bigger, long term financial repression deeper. When you have power to tax and power to print you have immense power, but unless you are willing to crack down on people hard it will not work, because rich and poor people are smart and will find ways to get around the system repression. If government goes too far they kill they goose that’s laying the eggs.
In retrospect, the $3T sale seems like a brilliant move. If anything, the federal government should have sold more 30-year-bonds when the yields were so absurdly low. Prices were high then and have dropped, what, 25% now?
thank you, Wolf for putting this process with the TGA into plain english
This won’t end well. It never does when governments print their way to prosperity. No where in history has this ever worked. Usually war follows this kind of stupid politics.
You can bet there are plenty of MIC contractors who want it regardless. If money printing and financial calamity sways people to angrily support war, they are probably in backrooms energetically encouraging it.
The US debt and the dollar is backed first and foremost by US military strength. People have confidence in the dollar because they have confidence in the military. Perhaps too much confidence.
People loan money to the US government because they have confidence it will be able to repay it.
Now imagine this scenario. The US gets itself into a proxy war in Ukraine, which it is ill equipped for, having scaled back its European forces to a fraction of what they were in the Soviet era, and fielding its “woke” forces, against Russia, it goes poorly.
As casualties mount in Ukraine, China sees this as an opportunity, and invades Taiwan. The US attempts a response and looses one or two carriers.
Nuclear response is not an option as both China and Russia are capable of MAD response. The US is forced to accept humiliating losses on both fronts along with the world confidence in our military prowess.
What do you think happens to interest rates and the governments ability to finance its debt, and the value of the dollar as a reserve currency?
The Rubicon has been crossed. 28 trillion now, it will be 40 trillion the day when Harris is reelected in 2024, and 100 trillion by the end of the decade.
These kinds of curves never go back down without a monetary catastrophe.
If I picked any person who has commented here and gave them the power to print money for their own benefit, or that of their friends and family even to the detriment of others which saint would say no?.
If you confirmed to them that their printing destroys the rest of society as a result that’s closer to the truth and a far more accurate question. I would say most people here, given that caveat, would say no.
Thanks for the info. Seems like there will be a lot of printing coming up after June.
Or higher yields.
Yes. Concentrating all of the wealth in a few hands leads to a situation like in the third world where the wealthy have to build secure compounds to live on.
I’d rather be middle class in a safe, suburban neighborhood in the U.S. than wealthy behind a fortress in Caracas.
RightNYer – if you work for the federal government you can be safe in Washington behind razor wire and armed troops.
This is really pointless because it isn’t just the US that has been printing.
Europe, Japan, China etc – almost everyone has been doing it.
So bemoaning the US debt is silly since this isn’t a Zimbabwe situation.
Secondly, nobody is refusing to buy these Treasuries – which are the counterparty to the debt.
Unless and until Treasuries go unbought – what is the problem exactly?
Sure, foreign countries have basically stopped buying US Treasuries (net) since 2012 – but there’s still plenty of demand from billionaires and banksters.
What I would suggest you do is to study, really understand, how government debts are used.
In Argentina and Brazil, for example, 45% interest rate US dollar bonds were used to crush the rest of the population and guarantee political and financial supremacy for the elites..
Uhh, people are refusing to buy them at market rates. If there were willing buyers in the free market, the Fed wouldn’t have to buy a single one.
It’s like when people say that Americans won’t pick tomatoes. Maybe they won’t pick them for the $6/hour illegal immigrants will, but at the right price they will.
I agree with you that at the right price, you can find a buyer to every Treasury. But that “right price” has been deemed too high by our leaders, so they force the price down below what the market would demand.
The Fed isn’t the buyer of last resort for Treasuries.
You really should at least try to understand what is actually happening.
I know of two fellow ticket brokers who weren’t always honest with their clients & pocketed a few extra bucks occasionally.
For me, it was always that my word was the most valuable thing I had and owned. If the sell price of clients’ tickets didn’t match expectations, I would forgo or reduce my commission, but my accounting to clients was accurate to the dollar.
There are honest people out there. I made it my hallmark. It more than paid for itself in referral business, and that loyalty was returned back to me by clients and customers.
So yeah, I’m a saint that would say no!
To the general public the number in front of the trillion is not easily understood or relatable to them unless we end up getting hyperinflation or deflation to a point general consumers can see it through everyday goods like milk, bread or cup of latte. At this point 16% raise in nation debt in 13 months is alarming by any measure but the public doesn’t seems to flinch. I wouldn’t be surprise we take it up to triple digital trillion in a matter of couple of years..the word trillion has about as much meaning as parsecs in America’s consciousness
The average American’s calculator quit working for him when the numbers became billions, long before the trillions.
And Gold should be back to $1050/oz by the time that debt has doubled cause, ya know, the Fed’s gonna tighten and raise rates any day now.
So now to use this power wisely, print just enough to pay off your mortgage, and of course look after you and the wife in retirement, and of course lets do the same for your brother, oh and the kids will need to get through college, and its not much more for a decent deposit for a house for them, oh and your drinking buddies, the ones who work in the local factory making widgets for the defense industry, they came round and asked if you could just print a little more to help them over a rough patch, and after all the factory does employ a lot of local people and it won’t have much affect on the rest of the population, its only a tiny bit of inflation, the point is the people in power are just that, people.
If you want people to be “good” you have to place constraints on them to stop them being bad, as in the examples above, and people being people will always try to find ways around constraints, its called being human.
Thus, Rome, the Ottoman empire, the Spanish empire, the British empire, the USA, and given some time in the future, China.
I’m going to print for the poor people. There’s a lot of them and they have more votes. There are more inmates than staff and the democratic majority wins.
What is stopping china to sell their US $ treasuries & buy maximum allowed deliverable COMEX contracts of Gold,Silver, Platinum, Copper etc & ship it to home land via cargo aircrafts operated by PLA (do the same in London as well )
(Sell paper curency & get precious metals )
And then Midas-tolkapiam, what do you do with the metals? Barter doesn’t work well for global trading.
The whole economy is a complete sham. There is no market for US Govt debt. The only people stupid enough to keep believing in this charade are people that have not learned basic math which sadly if a large part of the US population. The era of cheap imported goods paid for by the fiat petrodollar is coming to an end. Such a complete waste that $28T in debt (not counting the unfounded social programs which make the true debt much higher), the US has nothing to show for that. It’s infrastructure is very poor.
Building beautiful infrastructure is a known vanity failure. Infrastructure is needed, but really it is only needed to make society more productive other wise it is drag on living standards.
Also infrastructure can lock in society to fixed location. Maybe New Orleans is good example. Some of it is below sea level and much right at sea level. But for historical reasons city was built and it needs a robust system to ensure it stays dry. Costs a lot of money, but it’s a sunk cost of a city I guess so more will be spent to keep it dry.
New Orleans is a good example of the corruption in infrastructure spending. After Katrina, NOLA received $1B to upgrade their sewer system. The money was misspent on other things by the dems in the city. The feds sued them to get the money returned and I guess they will have to foreclose on the entire $***show, or just watch the city die.
The sewers are so bad in NOLA, to this day, they are actually interesting. During any rainstorm you will be amazed to see geysers blowing out from storm drains. People running like crazy to move their cars off the streets to higher ground or running home to sandbag their homes. Everybody there owns a pair of rubber boots, maybe that’s where the infrastructure money went.
update on NOLA:
Just read on NOLA.com the stimulus bill routed more money to dem areas in Louisiana, than rep areas. I’ll guess it’s the same all over the country.
You remember “Starve the Beast”, so do they
In 2010, there was some stimulus money for infrastructure. The local government took 1 million dollars and planted about 20 trees at the local college. I think all the people planting the trees were illegal aliens. I am sure we will see the same type of things.
Nobody said “beautiful” infactructure, speaking of power grid, road systems, rail systems, water systems and the like. The US has been financially raped by the military industrial complex which charges obscene amounts of money on high tech gadgetry that is either not maintained well or doesn’t deliver as promised. The US off-shored it’s manufacturing capacity and now has a very hollow economy.
Commercial rail funds its own infrastructure and still makes a ton of money. Passenger rail is a money loser except in high density areas. Even in NC we just had a boondoggle on passenger rail. Spent a lot of money and never laid a foot of track. It’s all a nice dream til you get to the end and you realize you are burning a $100 loss on every passenger.
Infrastructure definition: Dang juicy fat glorious government contracts.
Anyone worth less than a billion need not apply.
There is a right and wrong approach to every situation. New Orleans and Galveston are perfect examples. Galveston used to have a similar problem to New Orleans, being too low in elevation to prevent flooding in bad storms, but instead of relying on levies to divert the water which are subject to failure, Galveston increased the elevation of the entire city at considerable costs, which was a permanent solution.
Infrastructure is a necessary investment in the future, providing it is done correctly.
Default, get 28trillion dollars worth for free, and Chinas portion of treasuries is tiny, mostly it is agents of the Fed who own treasuries,, hence the largest holder is nominally the Cayman islands, now you know why the offshore scam is allowed to keep going, and of course all the similar operations.
1) In 2020 AAPL jumped.
2) SPX : Xmas 2018 low was below Feb 2018 low. Mar 2020 low was lower than both.
3) Sept 2018 high was above Jan 2018 high. Feb 2020 was higher than both.
4) This widening triangle is Schabacher megaphone pattern. It’s very bearish. Traders hate it. SPX should have gone down in flames, but it didn’t. Warren Buffett massive buyback saved the market and himself.
5) When price crossed the megaphone half line, the bearish pattern
is likely to fail.
6) Failed for bears is “A” for bulls.
7) Between Q1 and Q3 2020 WB spent 17B on buyback. WB buyback
lifted AAPL, BRK/B biggest holdings.
8) AAPL is in a trading range for 7 months. WB never sell. His proxies do sell.
9) It take time to liquidate whales holdings.
10) In the next few weeks/ months we might get few inside days, few 1-3 days up, followed by a big red shakeout bar, to sell, to takeout SL, a spring to lift the market again.
11) The last spring will lead to a change of character and to large supply bars.
Ever wonder why the THIRD MANDATE of the Fed is cut out with the “dual mandate” misdirection play?
“The Federal Reserve Act states that the Board of Governors and the FOMC should conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”
See the third one? Promote moderate long term interest rates. The wisdom of this mandate, and how it has been ignored, is essential to our current condition.
Moderate means “not extreme”…..too high OR TOO LOW. Too low allows irresponsible debt creation that empties out future generations, allows borrowing from the future to “fluff” the present.
Too low , or too high, skews the relationship between borrower and lender. For the past 12 years, the lender has been SLAVE to the borrower. The world has been upside down, courtesy of the unelected central bankers.
Promoting an inflation rate that rips 22-28% off the dollar in ten years is a violation of the second mandate of the Fed. It is also an implementation of a “tax”. Taxation without representation…(ring a bell?) the citizens have NO REPRESENTATION on the Fed board.
Heard a smart guy say Fed’s main job is to protect US financial system. If you are counting on Fed put, you might be surprised if next stock market crash doesn’t threaten US system. Same for world system, if it doesn’t threaten US financial system Fed is going to say it’s your problem. Not sure, but time will tell.
” For the past 12 years, the lender has been SLAVE to the borrower. ” As near as the facts are concerned, your statement is precisely the opposite of reality. Reality: The creditor class has made trillions in profits during the GFS and the pandemic infused recession. The underclass, that 40-50% of the population, has been crushed. They live in a debt deflationary environment. They cannot pay their bills without subsidy. Stop the subsidy and the entire house of cards corrects.
“By June, this pressure valve will close, and the government will borrow more, and the market will have to digest it, and there is a huge amount of new borrowing being lined up to fund the added spending. This will put further upward pressure on long-term yields.”
And this comes on top of a massive jump in “transitionary” inflation. It’s going to be interesting to watch the bond market in the next few months.
Btw: “transitionary” is such b0ll0cks. Even IF it is transitionary, inflation is the SPEED of debasement. But the realised debasement is permanent. If we get 4% “transitionary” inflation in a given year, that means 4% of your savings hase been stolen forever. You’ll never get it back. And your real wages have been reduced by 4% permanently.
And this is why “rate of inflation” charts are meaningless.
A flat 2.5% rate of inflation for ten years looks like nothing happened….but the dollar dropped by 28%.
Aggregation and compounding is the game. Try and find a chart of accumulated and compounded inflation.
Lagarde said she would “see through” any inflation “spike”. And Powell basically said the same.
In other words we will allow inflation….despite being bound to “stable prices”. It is inflation that will put the pitchforks and torches into the hands of the citizens.
In case of the ECB, “price stability” is the ONLY mandate that they have. In my book, “price stability” means 0% inflation, not 22% debasement every decade. And Lagarde want to “see through” a spike that is even higher than that rate.
We deserve honest money. Fortunately, private initiatives are emerging that bring this about.
The moment these clowns decided to go outside of their mandate, they should have been reigned in or shut down. They’ve basically gone rogue.
Accept #MMT, or you can keep winning…Plus we’ve gotta tax the wealthy & corporations.
Hey why does this matter now? The US has the the world’s best military, the world’s best tech companies and the world’s best central bank! Print to prosperity.
Wage Controls are here already.
I hate to break it to you but we’re already under wage controls. Just did the books for our small real estate appraisal business. When you take out expenses and add the free labor that I provide the family business we’re netting less that a clerk at McDonalds makes. After these DC clowns raise the min wage for them we will be making less that them. People are quitting this profession left and right because of this, and now we are swamped with so much work we can’t handle it. I don’t feel so bad. A lot of people are in the same boat.
Pandemic recovery plus stimunculus means Dow 40,000.
Debt doesn’t matter if you believe someone else
will have to pay it off.If you wanted to control the debt
just agree to pay it back the following year .So boys we
need a trillion ok.Yep now every American needs to
pony up 3000 the following year.How many Americans or
anyone anywhere will line up for that deal.We love
As long as the FED monetized the government debt, it will be alright at the end of the day. Be it 100 Trillions or 1000 Trillions. Rate without suppress by the FED surely will skyrocket but it will not happen under current circumstances.
Obviously, we will heard of tonnes of discussion from the mainstream business channels but the reality is proven, don’t FIGHT THE FED!
Don’t fight the central bank of Argentina either. They have their own printing press you know….
This oft-recited argument (which is getting puerile) only works so long as the dollar maintains its value in the eyes of the rest of the world.
The wealthy are already chomping at the bit. Can you imagine what the “Infrastructure Bill” will be filled with?
Folks, this one should top all ‘inside jobs’ and ‘ wealth transfers ‘ in history.
Think: Solyndra squared.
1) By June, US saving account will drop to zero the want of $
2) By June, WB will realize that BRK/A cannot save the market forever and had better liquidate for rainy day, now, because BRK/A liabilities are growing.
3) By June Germany, france, UK… will enter recession and their demand
for dollars will grow.
4) By June SF home owners who bought a second home, will realize that they have been conditioned for buy & hold, because the market always
come back, as it did in 2009 and in Mar 2020.
5) If WFH rules will change in the middle of the game, they will be deleted, stuck with a large farting stinky mortgage.
6) By June China will realize that their silky spider web was dissected
in the Suez canal, without a shot, by a sand storm.
7) China barter with Iran. Oil for Chinese gadgets, at less than half $Brent. By June, with a rising $, Iran might realize that China is a con game. The 25Y ponzi plan, to takeover the world without a shot, is failing. Iran can sell $Brent at full price, be friendlier with Germany, cut capex and write off the aggressive option losses for the peaceful and profitable option, in order to strengthen their economy and survive the new coupe attempts pandemic.
The currency of any country that must float more national debt in order to service its existing or outstanding debt, as the U.S.A. is currently doing, is destined for the dustbin of history. While foreign central banks and investors are paring back their holdings of American Junk Bonds, aka U.S. Treasuries, a trend which has been in place for some time now, the burden of ownership falls on the Federal Reserve as buyer of first resort and the American investing public to absorb the endless supply.
Based on the almost 14% loss in long-term Treasuries for just the First Quarter of 2021, stay tuned for more fun and games in the weeks and months ahead; the uninitiated American investor has had his or her head handed to them and they should be running a little gun-shy of Treasuries at this time. Yields for this so-called Risk Free Asset, a mislabeled security moniker for AmJB’s if there ever was one, are headed to 3% and 4% in 2021 as Wolf opined yesterday. And this is only a first stop for a Bankrupt Nation. We will not get into how Bankrupt the Swamp is from a moral, ethical, lawful, and integrity standpoint, not enough pixels available for that dissertation.
If you must wander into this swamp of crawling debt instruments, you had better buy individual Treasuries that you can put in a drawer and not price for the next 3 to 5 years. Although free from State taxation, that will not be enough, in my opinion, to make up for the loss of purchasing power over the relevant maturity period.
BONDS ARE JUST A VERY BAD DEAL RIGHT NOW AND BEST TO STAY AWAY FROM THEM. If you go to Corporate Junk Bonds or Emerging Market Debt in the crazy, crazy chase for yield since 2000, make sure you nail the second-story windows shut.
The good old FED can always move towards yield curve control. Print trillions more and get total control of the bond market. Just look at JGB’s, the Japanese have debt to gdp over 200% with crazy monetary policies and they’re still going ok. Modern economies are different with all the tech and diversification, a lot more bad behaviour can be tolerated for much longer.
VK, I have been an active investor for over 45 years and yield curve control is not going to get the Fed or the U.S. Government out of this financial system and economic mess. You can play on the railroad tracks of debt instruments, I certainly am not. Human behavior is what drives markets, not technological mechanisms that are developed to make them more transparent and efficient.
Japan is another ticking time bomb. Bad example, what about Turkey?
Nothing’s going to get out of this mess, but in the meanwhile we are going to party!!!
Japan is in a better place than us though society wise. They have high social coherence, and most ordinary Japanese can be trusted to do the right thing in everyday life. In major cities, you can leave your backpacks, Apple laptops, expensive cameras, etc in Starbucks, parks, etc and they wouldn’t be stolen.
Monkey, not to mention that they still produce far more than they consume, and people don’t not work just because someone will hand them permanent unemployment/disability/whatever.
They also respect their elders and are so law abiding that their police don’t even have to carry guns.
Edit: Apparently the Tokyo police (not sure about the rest) are armed now, but they basically never have to even draw them.
The whole world is doing the same thing. It’s close to MMT. But where do you put your money.
Just make stuff. That’s what China does. Need a stimulus? Just build a city.
Nearly whole developed and developing world’s got flat population growth and low productivity. That’s two dominant growth factors.
Which means, over the longer term, consumerism isn’t going to continue. Because it can’t.
“the incredibly spiking US gross national debt…”
I guess it’s my turn to post ol’ Herbert Stein’s warning: “If something cannot go on forever, it will stop.”
But not ’til it’s too late. That’s because our dear leaders got everything under control. They know what they’re doing. Diggin’ a hole.
Borrowing from Paul to pay Peter to play debt & roll over, is what has become of us.
Funny how John Oliver actually did a piece on national debt just as the same time as Wolf published this article. Hopefully that will get some attention from the general public. Sadly though he didn’t talk much about how much the FED played a crucial role in all of this.
Heard this before. Thelma and Louise economy. Hit the gas as you approach the cliff.
The Magic Mountain says debt does not matter!!!
Free moolah for everyone!!!
Below is one of the only charts that could stop the Fed induced “Debt out the wazoo” mania (hint – wage inflation is not easy to stop once started, even by Fed Monetary Gods):
Chart 4: Wage Inflation is Coming! (per Nordea and Macrobond)
So, aside from the always popular response of farmland ( bc not everyone wants to ya know be a farmer) what are you putting your dollars into?
Agribiz is moving into hydro and controlled growing, the notion of farmland, is arcane, perhaps like “factory” land. Who you rent your dollars to is your business. The Fed may institute “rent” control, this market is about to get away from them on the upside. Keep front running them, you will see where the problems are ahead before the train derails.All the rest are eating their dust, to bring your farmland note full circle.
1) US 30Y T Bond is gone.
2) Not yet !
3) In June 1984 US 30Y Bond Futures collapsed, but instantly bounce back from July 1984 low (which was the open) @59.38.
4) The dotcom inflamed the T bond.
5) Within one month, from Dec 1999 open @111.84, it plunge to Jan 2000
low @89.00 and bounced back.
6) Take a support line from July 1984(L) @59.38 to Jan 2000(L) @89 and a parallel line from Dec 1999(O) @111.84.
7) Mar 2020 high was a huge selling tail @200.00
8) Mar 2021(L) @153.23 buying tail is a spring.
9) US bond market is NOT dead.
10) For TA pedants : a parallel line from Sept 1987 close, or Oct 1987 big green bar open @81.84. // a log chart
At this point i have nothing but contempt and antipathy for the whole system and everything in it. My only goal now is to get through life with as little debt as possible, and thus minimize the inevitable discomfort to come.
As it is, given what i know about the dirty limerick that is human history, i expect the next verse (read ‘next few decades’) to contain a nice big superwar to destroy a large portion of the world’s collected wealth as the hyperrich fight among themselves like they usually do when capitalism reaches this part of its development. This time though, it’s an open question as to whether anyone will remain to pick up the pieces.
I hope so. And i hope they spit on the memory of this era and everyone in it for so blindly squandering what they had.
Where is the government getting all the money from? Each year I am definitely spending more money than the previous year, but I am actually paying less federal taxes! Makes no cents!
Check this, we need to go even deeper, even faster in debt!
National debt was $6T in 2000. Now in 2021 it is $28T, an increase of $22T. But total US net worth over that time went from $44T to $130T, an increase of $86T! That is a great return! (And the net worth of the top 10 percent increased from around $26T to $86T, and even greater return). This is truly an age of economic miracles! We proved we can have massive debt generation to generate increased wealth for the top tenners. That box is checked bucko! Good job! Now on to deficit spending for “Infrastructure Projects for the People!!!” (trademarked). Yes, we can have our wealth inequality and robust spending on social programs too! Won’t even have to change our current economic system of low taxation, trade liberalization and financial deregulation! Just spend, baby, spend! USA!, USA!
I’m still not convinced the long term net outcome is inflationary.
We’ve seen trillions $ thrown in recently, and in the last 5-10 years and the only blips to inflation have been generated by supply side and demand side forces that are temporary due to covid19.
Even giving people money to spend isn’t pushing inflation meaningfully higher as they’re saving it or gambling it, as they can only buy so much ‘stuff and services’
I saw a graph showing google hits for inflation over time, vs actual inflation and interest rates, the opposite to expectations happens when inflation expectations spike it falls and so do rates.
We’ve encouraged people to spend, forced them to spend, and now even give them money to spend, and it’s not giving meaningful inflation.
Consensus is wrong when it comes to inflation it seems? Unless this time is different?
Kenny, you must believe the CPI figures. Look at Shaddow Stats, where CPI is calculated the old school way before the BLS instituted all kinds of adjustments. Look back at Wolf’s home/rent price chart as well. Rents are up 20% in So Cal, home prices are up ~10%, just in the last 6 months.
Real world inflation has been running well above 2%, likely >4% for years. You should know this from your own anecdotal experience. My favorite example is always organic spinach. It has now crossed the $12/lb mark in multiple markets here in So Cal. Even cheapo Trader Joe’s recently shrunk the package to 6oz, raising the price 25% to $6/lb. I could list dozens of items like this. Check out the price of used cars, and interesting used car (often classics) auctions on Bring A Trailer. Even a simple macchiato (another favorite benchmark), nothing more than espresso and an oz or so of milk…$4 commonly (it’s still 1-1.10 Euros in Europe).
This is not just covid. These are long term trends reaching pain points now to where more of us are noticing. But yes, to your point, accelerating now.
So inflation is officially under reported.
It’s here now and it’s high. Soon to be higher.
Government acknowledge it’ll be higher and have suggested they won’t raise interest rates as they want some inflation (loads really)
They get their debt deflated.
But it’ll still require salary rises which can’t come.
The debt will still need servicing which costs a fortune.
Yes I know XYZ costs more, but what if people buy less/none?
Tons of supply and no demand?
More job losses, less demand.
Isn’t this all deflationary?
Unless we assume, as per Wolf’s other recent article that consumers are willing to pay the extra?
Then it’s inflationary… but how long is that going to last?
Stimulus costs more money than it gives back in GDP, with interest on top too.
I just can’t see how this app works out hyper inflationary unless everyone is willingly happy to pay more and more for everything, somehow?
I know we’ve seen inflation for now, because mostly people have had money and jobs and credit cards and cheap credit.
If that’s all over, what will power inflation without demand?
National debt has existed as long as nations have. It is money owed by tax payers to people who are able to lend their surplus funds to Governments. In my opinion it is best thought of as a philosophical concept rather than something to worry about. It only becomes a problem when people won’t lend and you have to put rates up to attract investors. Consider the following :- a citizen is born into a country with zero govt debt and dies in the same country with trillions of govt debt. That means, all things being equal, that citizen has enjoyed more govt spending than he has paid for in taxes during his lifetime, nominally a win for such citizens. To be philosophical about it, that citizen might not actually enjoy what the govt spends the ‘bonus’ on, eg war or flash offices etc. So discontent about the borrowing should only be about spending priorities. Is it ‘moral’ to take the freebies of a lifetime and pass the repayment obligation to future generations? It could be said, yes because they come into a world with established hard assets. eg roads, bridges ,water supplies, etc etc. and don’t have to start from scratch. A bigger moral issue is the treatment of the lender. Is he entitled to return of the full value of his lent balance plus interest to compensate him for doing without his cash. I would say yes, but governments tend to cheat him by devaluing the currency and manipulating interest rates lower than he would be entitled to in a free market. Conversely, a guy born into a country with a trillion dollar debt and dying in that country with zero debt has paid more tax than he got in Govt spend, sucker. Is there an alternative to any of this? I don’t think so, and history seems to agree.
Conversely, a guy born into a country with a trillion dollar debt and dying in that country with zero debt has paid more tax than he got in Govt spend, sucker. Is there an alternative to any of this? I don’t think so, and history seems to agree.
Folks are going to have WAKE UP to the bleak REALITY that our corporate-controlled political system will not allow taxes to be raised to reduce deficits/debt.
Since Depression-inducing spending cuts are NOT IN THE CARDS, deficits will continue unimpeded – not a question of IF but WHEN the USA defaults.
Corporations and wealthy will regret some day their fight against increased taxes.
My point was that Govts need never default. They can just print the face value of the debt and hand it to the lender when the time falls due. Lenders will tend to get wary when the interest burden of country encroaches on the potential tax take of the country.
Govts can only be caught out if people won’t lend to them at rates they can afford to pay. Something not even on the horizon at the moment but the real nightmare scenario for treasuries. Many other lending option countries will always be a worse bet than USA so USA will always ‘get away with’ lower rates than others. It is a moral issue of ripping off savers and lenders.
We may not get away with “lowest rates” forever as there is no absolute that there will ALWAYS be buyers of the debt.
And that is why it is essential that USA should continue to be an efficient performer that people want to lend to.
It’s the name of the game for all nations in this globalised world.
Our National debt is now 28 Trillion. Just this year we have already passed 1.9 more Trillion without support from the senate or congress. Now our president wants to put AT least another 4 Trillion into it in just 4 months (how much more do they want?). That is 25% increase in 4 months of this administration! WTF! At this rate we will have 10+ trillion in 1 year to our debt. Our Kids are F’ed.