Trillions whooshing by so fast they’re hard to even see. And now the TGA is spiking again.
By Wolf Richter for WOLF STREET.
The incredibly spiking US gross national debt hit the big one: $30 trillion. That’s the amount the government owes and has issued in Treasury securities that are outstanding as of January 31. Since March 2020, the US gross national debt has spiked by a monstrous 27%, or by $6.5 trillion. Over the past 12 months, during the strongest economic growth since 1984, the national debt has spiked by 2.2 trillion.
The flat spots depict the uniquely American political charade of the Debt Ceiling, the periods when the gross national debt bounced into the Debt Ceiling as set by Congress. These flat spots are the days when everyone in Congress is trying to hijack the Debt Ceiling law in order to arm-twist the other side into approving their favorite priorities! Hahahaha, Congress, thank you for that hilarious charade.
During the debt ceiling charade, Congress tells the administration to keep spending the money that Congress told it to spend via the spending bills, but prohibits the administration from borrowing the money that Congress told it to spend. If this lasts beyond the out of money date, the US government would have to default, which would set off some magnificent fireworks in the financial markets.
Each time after a Debt Ceiling charade is resolved in Congress, the administration is then free to borrow the money that Congress told it to spend, and the US national debt spikes to make up for the flat spots. The one thing the Debt Ceiling never does is slow down the growth of the US national debt.
In 2021, there were two Debt Ceiling charades, and each time it was resolved, within days, the debt spiked with renewed vigor to make up for the flat spots. The chart below magnifies the daily debt levels since December 2020:
And the TGA is spiking again.
The government’s checking account, the Treasury General Account (TGA) at the Federal Reserve Bank of New York, has become a wild phenomenon in its own right – and it’s spiking again and hit $742 billion as of January 31:
In the spring of 2020, the government added $3 trillion of new debt by selling Treasury securities to fund the emergency spending programs. The Fed was buying about that much debt over the same period, neatly monetizing the whole thing. But the government didn’t spend all of this borrowed money, and the TGA balance ballooned from $400 billion before the crisis to $1.8 trillion by July 2020.
Toward the end of 2020, the government decided to start drawing down the TGA balance by reducing the amounts to be borrowed. This was sped up in early 2021 to bring the balance down to $500 billion by the summer of 2021.
On August 1, 2021, the amount of the gross national debt outstanding at the time, $28.4 trillion, became the Debt Ceiling. And the government was forced to draw down the balance during both Debt Ceiling charades in October and December, bottoming out at $42 billion on December 16, which was as close to zero as Congress had the nerve to get, given the gigantic amounts of money that pass through this account on a daily basis.
After the Debt Ceiling charade was resolved, the government began borrowing again on a large scale, and the proceeds from these debt sales went into the TGA to await getting spent, and the TGA has now spiked again to $742 billion as of January 31. These are just gigantic amounts of money that are getting borrowed and thrown around here in a matter of days.
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I’m not an economist, but it seems like the only solution for this is to tighten our collective belt and live more frugally.
But that doesn’t win votes, I suspect.
I feel badly for my grandkids.
The solution is to repatriate as many value-creating jobs back to the USA as possible.
Without a core of value creating, profitable product creating, tax base, the USA is bound to blood-let itself by borrowing that which it cannot repay, spend conjured money not innately created profit, and push up prices for the illusion of Wealth.
Does anyone seriously want to suggest that Maoist China has grown 20 fold in the past 30 years by closing factories and destroying working families?
How much economic value would be created by stopping the imports of $500 billion of products from a country that is behind the death of America by a thousand cuts?
Point taken.
That’s why I visit this site! I get educated.
All points taken but it wasn’t China that destroyed our industrial base. We did that all on our own.
Yep, union workers became vilified as being greedy and CEOs became celebrated and richly rewarded for moving jobs to China.
I remember a story long ago about a US steel mill that that China purchased and they literally broke it down and shipped it to China. God bless America, we’d sell anything for the right price….
You are right ! Regardless of politics that taint some of the replies, Capitalism includes outsourcing. If China was democratic and capitalist we’d find equalibrium. Since they are neither we may need to move away from capitalism. But then we’d all go backwards on standard of living. Maybe not a bad thing? I think more than half of Americans are spoiled, entitled and lazy. We need a wake up call. I am deeply concerned that the wake up call will manifest as some nonsensical division from within. Oh did I mention that people are too lazy to think (objectively, logically, ethically) for themselves? Thanks for posting.
Frank
and this is why we dont hear “trade deficits don’t matter”…anymore.
The dollars come back, but ownership and control moves to the creditor nation.
@ historicus –
Cheney was an ass and an idiot, and ruinous. He was helpful to Carlyle types.
‘to repatriate as many value-creating jobs back to the USA as possible’
Sounds great!
Even Living wage jobs are attracting enough candidates. Unless our Corp willing to pay, what really required to entices to ‘repatriate VALUE creating jobs?
B/w ‘Value’ for whom? Consumer, Corp? Country?
Why did the Congress made laws that encourages US Corps to keep their profit overseas? That doesn’t help American Workers.
A US Citizen has to pay tax on his/her total GLOBAL income. Why NOT the US Corporations? After all SCOTUS declared (2014) that A Corporation is also a citizen!
Under Oligarchy directed by Corporatocracy, working stiffs get the shaft!
US corporations don’t pay tax on global income?
@drifterprof
They don'[t pay very much. Recently the governments of the world haggled out a minimum tax of 15% for all corporations on all territories. This was up from the 12.5% that low-bottomer Ireland was gifting the big corps so they could skim a lot of that cream from them.
The national debt has risen 50% since 2017, 50% in 5 yrs.
4 yrs of Trump
1 yr of Biden
Only people pay taxes, not corporations, regardless that TEH USC claims “they” are citizens. The taxes supposedly paid by corporations are coming out of someone else’s hide: shareholders, creditors, suppliers and employees.
The only legitimate argument that a job is not receiving a “fair” wage is due to monopoly or oligopoly conditions which isn’t directly related to foreign trade. Maybe it is and maybe it isn’t.
If anyone thinks the compensation for some job is too low, they should start their own business and pay them more.
David Hall – You are cherry picking the data.
President Bush added $5.85 trillion to the national debt. That’s a 101% increase. Bush launched the War on Terror. Bush also dealt with the 2001 recession and the 2008 financial crisis.
Under President Obama, the national debt grew the most in dollar terms ($8.6 trillion) and was by percentage at 74%. Obama fought the Great Recession.
Trump added $6.7 trillion to the debt between fiscal year 2017 and fiscal year 2020, a 33.1% increase, largely due to the effects of the coronavirus pandemic and 2020 recession.
Joe Biden October 1, 2021, at the end of fiscal year 2021, the national debt was $28.4 trillion. Between the end of fiscal year 2020 and the end of fiscal year 2021, the national debt grew $1.5 trillion, a 5.6% increase year over year. For fiscal year 2022, President Biden’s budget includes a deficit of $1.84 trillion.
‘Bush also dealt with the 2001 recession and the 2008 financial crisis.’
I can’t believe someone would try to get away with this. Bush LEFT office in Jan 08. How could he deal with the 2008 crisis if he wasn’t there? Bush himself conceded it was just starting as he left office. Here is the exact quote as he signed the first part of the GM bailout just before he left: ‘I didn’t think he (Obama) should have a crisis on his first day’.
Also the GFC was not limited to 2008. The Fed had to insure the deposits of over 500 failed banks in 08 AND 09.
Nick
Bush left office in January 09. Obama was elected in November 08.
Absolutely. We need to END CITIZENSHIP BASED TAXATION (which is slavery and well understand by EU nations) AND change the code to heavily encourage every form of manufacturing here (“Down to the Paperclips”) while punishing outsourcing.
Last I checked, the US was one of three countries with this system, the other two being the Philippines and Eritrea. I’m sure Filipino and Eritrean expats are paying their taxes (not).
My brother lives in Canada with dual citizenship. For the reason you gave, I told him not to register his daughters as American citizens. They may choose to do so later if they want to work and live in the US but otherwise, it’s an economic liability. They have until 18 to make a choice.
No what we need is a revolution. A end to corporate welfare another $100 billion in subsidies just passed for semiconducters and electronics.
“The more I see of the moneyed classes, the more I understand the guillotine.” ~ George Bernard Shaw
Amen. However, while Soros reportedly wisely warned against any investment in China recently, most of the other ultra rich love getting stuff made on CCP-subsidized, quasi-slave labor-run factories in China, since they STILL DO NOT PAY US OR MOST EU income TAXES on their foreign income from such CCP-linked investments. Huge profits on which no US taxes are paid are the reasons for the US trade deficit.
RH
So the arrangement is something like this?
Nike China makes gym shoes in China, sells them in the US, but Nike China does not pay taxes in the US?
Interesting if true. Is it?
I do not know about Nike China, specifically. What is done generally is that two entities are used: a US entity that buys goods at inflated prices from the commonly owned, China entity, so the US entity’s purported “profits” are minimal. The required, Chinese entity, which has CCP and US ultrarich owners, pays no taxes, unless that new property tax there ever is enacted, if it owns real property, which most do not.
Of course, the CCP’s closest buddies get even better special deals, e.g., Wall Streeters, etc. Read how Apple avoided paying $50,000,000,000 according to Gizmodo in their fine site. Without a wealth or other tax, which they defeat every time it is proposed, the ultrarich have been using that US foreign income tax loophole for decades to evade US income taxation.
Historicus,
Read “Super rich hold $32 trillion in offshore havens” in Reuters for 2012, which grossly underestimated what was held in tax shelters in 2012. More than 55,000,000,000.00 in UK pounds were held around that time just in UK tax shelters per “Britain’s Second Empire: The Spider’s Web.” I contend that there is a class war, and the ultrarich won it via a secret, Pearl Harbor like attack decades ago, when they created GINORMOUS tax loopholes.
The ultrarich also won the class war when they created the fake, “Federal” (but actually privately owned) bankster Reserve banking cartel. That entity has done more to transfer Americans’ wealth to them than could be believed possible by most Americans with QE commissions, “Fed” dividends, ultra low interest rate loans to banksters and their cronies, effective guarantees of banksters’ loans (so they pay low interest rates even to third party lenders), insider information to enable banksters to trade advantageously, etc.
Ever wonder why 15 billionaires own US media per Forbes? Like the CCP, through similar tactics, the ultrarich in the USA want to control all the information that we see. Search for banks and crimes and you will see that those results have now gotten buried in the search results, even though the banksters’ banks have had to enter into stipulated judgements to avoid verdicts for federal crimes and paid huge fines for decades, again and again. If only Lucky Luciano had been able to operate using a bank as a shield from prosecution, he would have owned the US by now, like the banksters own it now.
No, it’s that exporters without a physical US presence don’t pay any US taxes. They have no US based revenue, it’s the importer who does.
I’m not sure how this applies to a company like Nike. Nike is a US based company, it’s subject to worldwide taxation under US tax law, but there are “loopholes” (a complete fiction since this implies it’s the government’s or someone else’s money) to noticeably reduce the effective tax rate.
It’s also possible (or even likely) that certain sovereign (government owned) organizations may be exempt from taxes in some countries, including the US. I don’t know any specifics through.
I would guess the manufacturer of Nike shoes have no physical presence in the USA. Even if said manufacturers are owned by Nike in some way. Anyway, the fee to use the brand name Nike is probably washed trough some tax heaven.
The problem with bringing the jobs back is cost. If a company paid workers enough to live, the company would be out of business in short order. If they charged enough for the product to stay in business, nobody could afford to buy it in America. The horse is out of the barn. For example, Chinese auto workers make the equivalent of $5.75 US an hour. This is a good job with good working conditions, job security, a pension, health insurance, paid vacations, and enough wages to equal Detroit in its heyday. How much would Detroit have to pay to equal this? What would a car cost?
That one is an interesting one. If the Chinese works make an equivalent of US $5.75 an hour in a job with good working conditions, job security, a pension, health insurance, paid vacations, and enough wages to equal Detroit in its heyday, how come that Chinese workers are cheaper than the American worker?
There must then be a cost in the USA not tied to the compensation of the worker. Someone is skimming a lot of money in the USA
“The solution is to repatriate as many value-creating jobs back to the USA as possible.”
That would be great, but the US government and big corporations seem to import visa workers in excess of the jobs.
Maybe the reason is that the US school system is not providing the technical and critical reasoning skills needed for the jobs. Or, enough cost can be saved on lower wages alone without relocating facilities and capital overseas where the lower paid workers reside.
I consider the US “education” system generally mediocre but the other part of it seems to be that employers can’t afford or can get away with having someone else (like the previous employer or the taxpayer) pay the cost of training their employees for them.
I agree with you on the visa quotas but don’t see a solution. Get rid of it and even more jobs would probably be offshored.
Ultimately, it comes down to the foreign worker being able to do the same job (similar though maybe not completely equal productivity) at a much lower cost.
It’s not like 1945 to maybe 1980 during the heyday of American expatriates when there weren’t enough qualified candidates elsewhere.
Wrong. It depends on foreigners being allowed to compete with US workers. Shut down the borders for capital and labor, and watch the country’s wellbeing skyrocket. Otherwise, it’s all greed and brainwash to the bottom.
About 50% of Chinese imports to US are of two categories: consumer electronics and apparel incl footware. There is no possibility of doing the vast majority domestically. In electronics, the US was out before China was a player. Last US TV Zenith 1995. Taken out by Japan, now Japan almost out.
Then there is all the other Walmart stuff: toys, housewares. fans, budget bedding, giftware, junk, etc.
I think Wally probably represents about 70 % of Chinese imports. Few US outfits are attracted to any of it.
If China is perceived as enough of a threat to ban imports, then other Asians or India or Mexico will have to take up the slack. This is easier said than done. Thailand, Bangladesh etc. can do skirts and shirts but boots and winter coats are harder.
As former financial advisor to Trump, Gary Cohn, pointed out, people love the idea of manufacturing as long as they don’t have to do it. ( He wasn’t fired, he quit)
Most manufacturing for mass market is assembly line, or standing at a machine 8 hrs a day. The union auto cos pay well, most don’t.
It’s about as popular as picking lettuce.
But this is America where the worker gets screwed. We export jobs and import workers. Thats just a fact and its not gonna change. The government has never paid one dime of debt back ever. They borrow more to pay off previous debt. Governments love fiat currency because it gives them a blank check. Only sound money the elimanation of the corrupt Federal Reserve and smaller government will work. It is impossible to pay off this debt and that $30 trillion doesn’t cover all our liabilities. Default we will. All fiat currencies collapse. All empires die. The average span of empires is 250 years. This empire is over. This country is owned and controlled by the elite. Politicians are just puppets having there strings pulled.
“The ideal Government of all reflective men, from Aristotle onward, is one which lets the individual alone – one which barely escapes being no government at all.” ~ H. L. Mencken
“Men are not governed by justice, but by law or persuasion. When they refuse to be governed by law or persuasion, they have to be governed by force or fraud, or both.” ~
George Bernard Shaw
“Whatever it is, I’m against it.” ~ Groucho Marx
Politicians won’t solve our problems. The only way we can solve our problems is to have a massive depression possibly in which tge dollar becomes worthless, then rely on a new money system possibly gold and crypto. I’m not a fan of crypto, don’t understand it. Then people will have to get back to work and producing things. There are so many non producers in our economy, it’s causing our system to be unbalanced. There will much pain in the sort run, but it will be beneficial to our country in the long run….just one man’s opinion..
Depending on their age :)
I suspect young people will be fine as their earning power will keep up with inflation. At some point, creditors and folks (most of the time old) on fixed income will get boned
I am almost 40, I will move my pension to realestate long term in order to have a real fixed income.
any asset is also a liability
Don’t think their wages will keep up with inflation at all That’s a pipe dream Axel
Absolutely.
The average American is destined to become poorer or a lot poorer over the indefinite future. Same story in many or most other developed economies for similar reasons.
Only escape for most is to have enough capital and likewise for their children. Living standards for most people in most of the world at local wages with limited credit access at much higher rates isn’t what Americans aspire to for their future.
And their Grandkids…
I am an economist, but you are right. It’s all about greed. It’s human behavior and very hard to overcome.
Don’t forget fear. Much of the government spending is to assuage carefully curated fears.
Xavier, do you think that big government is making things better or worse?
I prefer smaller government and I will take my chances with free enterprise [level playing field and penalties for breaking the rules, but not government handicapping to ensure “equal outcomes”].
I see big government as more of a problem than a solution.
The government and FED have been huge help to real estate investors over the last several years/decades. They bailed out many and floated many others to properity.
“The government and FED have been huge help to real estate investors over the last several years/decades. They bailed out many and floated many others to properity.[sic]”
Yes the government (taxpayers since the government has no money) helped to fix the real estate mess that the government created by forcing Freddie and Fannie to issue loans to people that were under normal times not eligible.
All this debt will get inflated away by the central bank. By the time any of this gets paid back Powell will make sure 30 trillion will buy a loaf of bread lol
How can we capitalize on this situation? Just keep buying equities??
Plant wheat.
Yes. The QE of 2010-2015 was creating 15%+ returns in the market (double the norm) which still had a few years of run time. When QE 2 / 3 / 4 rode in on QE 1’s coat tails, it extended the trend, which, in reality, is not really a trend anymore. It’s the norm.
It could be decades of inflated broad index returns to get this monetary rat through the belly of the snake.
The debt doesn’t get paid off. It’s simply rolled over. The only way the debt would get paid off is if we starting running surpluses that last happened in the mid 90’s. That will probably NEVER happen again. And, you know what they say about never say never.
Negative interest rates would take care of that debt just nicely.😉
China and India have started to release digital central bank currency. If they have implemented it the “right” way they are coming to a position where they can run negative interest rates on debt.
MiTUrn
The game is this….
It used to be polite and responsible for each generation to pay its own debts.
In 1990, that’s 200 years of the nation….national debt was $4 Trillion.
In 2009 it was $9 Trillion. In the next 12 years they tacked on $21 Trillion.
The responsibility has been shifted, shirked. The immediate gratification has been bankrolled, LIKE NEVER BEFORE, by stealing and pulling forward wealth and money from the future. The mechanism is the fake interest rates as sponsored by the Federal Reserve.
The wealth and money pulled forward from the future of the generations behind us is CLEVERLY being used against them. This pulled forward wealth is bidding away shelter, bidding away reasonable equity prices from the generation behind us that is having THEIR FUTURE EMPTIED by central banking (Fed) policy.
Historicus,
Would you say that the what, Ten Trillion?, handed out to corporations and casino gamblers, was enough motivation to promote lockdowns, that didn’t really do any good except to hand market share to corporate donors of politicians as small businesses were extinguished?
The Fauci book is now online for free. Got low blood pressure?, start reading that and you won’t any more. This is going to get ugly when people start reading it in larger numbers.
“It used to be polite and responsible for each generation to pay its own debts.”
Historicus (great handle, by the way), I agree. Hence, this practice brings curses upon the following generations.
Unless it is changed. No heroes on the current horizon…
RE “used to be polite and responsible for each generation to pay its own debts.”
NONSENSE! It was never about manners or a sense or responsibility to the next generation, except maybe rhetorically.
Debts were paid because bankruptcy was punitive (both financially and socially) and printing money for bailouts wasn’t an option.
People didn’t take on as much debt because they knew there were consequences – that was seared into the social memory from 1929-1932. That mindset dominated until about 1980.
Money-Printing for bailouts wasn’t an option because the supply of money was anchored to the supply of gold (except in wartime), and gold can barely be mined, much less printed. There was no mechanism to simply “create money”, there was no “Quantitative Easing” and governments couldn’t borrow out the wazoo either because lenders didn’t have enough loanable funds from accumulated savings. Hence the massive wartime bond sales drives from 1914-1918 and 1941-1945.
I appreciate even-handed criticisms of systems, especially monetary/fiscal policy handbooks, but to be honest, the entire last half of this post is absolute drivel, and an exercise in mental masturbation to a reality that has never existed.
You and I and everyone reading this website know that financial crises, *especially* ones created by mismanagement of governmental/central banking policy, quite literally pre-date the modern millenium. We have bank records going all the way back to the early Roman Empire of government bodies misusing and abusing the financial systems available to them and causing either inflationary traps or permanent, systemic rate imbalances.
Mechanisms to simply “create money” have existed as long as the theory of money itself has existed.
Wisdom
“manners or a sense or responsibility ” nonsense?
“People didn’t take on as much debt because they knew there were consequences “….that would fall under my mention of “responsibility”.
“money was anchored to the supply of gold”…..again, there were many reasons NOT to go into debt.
I think we both agree that QE was a departure from that which restrained debt creation.
Wisdom
“NONSENSE! It was never about manners or a sense or responsibility to the next generation, ”
I’ll point to WWII
We didnt print …we sold War Bonds to fund the effort. Amazingly responsible effort not to draw off future wealth with the ease of printing. That attitude disappeared.
How was Desert Storm, Iraq, Afghanistan paid for? And that is the change in attitude, “responsibility” I point to.
As an aside, perhaps the ability to immediately fund via bond sales should be the litmus test for military forays.
Alexis Machine
You’re absolutely right.
It would be fun if there was a Wolf Street blog in the early Roman Empire days that we could read to see what was on the minds of the people commenting back then.
Historicus –
We agree there was responsibility, but I’d argue it was personal/family related, not out of some generational sense of identity… but I suspect that’s what you meant, it just wasn’t clear to me.
Alexis – I appreciate your criticism, and certainly agree if you’re willing to go all the way back to the Roman times. I was thinking only of US history, and specifically about “money for bailouts” as opposed to other purposes (wars). Both 2008 and 2020 had print-and-bailout exercises on the order of 10% of GDP. I don’t believe there are any prior events of that scale in US history. Outside of wars I’m also not aware of any money-creation shenanigans comparable to quantitative easing. Are you aware of any other time in US history when anything like that was done?
Conversely, there are many examples where the government was constrained by borrowing limits, where corporations were not bailed out, even during a pandemic far more severe than 2000. I stand behind the underlying point that the current financial system enables vastly more irresponsible behavior than was previously possible in the US under the gold standard which prevailed until 1971.
$2.7 trillion MBS on the balance sheet, average home $350k, the fed is sitting on 7-10 million homes as the lender of last resort. What would rates be if those mortgages hit the free market? Enough to put millions of people into default I suspect.
Tom S.
Yep. In 2006, the Fed held NO MBSs…..30yr mortgages were 6% with much less inflation than now.
Now, just coming off of 3.2%…..as the Fed owns 24% of all residential mortgage paper. Why, one might ask, did they do this?
Somebody benefited greatly, and many were deprived reasonable entry into real estate, owning their own home.
What will stop the next generation from pushing it onto the next and so on?
The decline and then end of the USD as global reserve currency and a collapse of its exchange rate, that’s what.
This is the ultimate limit on “extend and pretend”, the difference between the USG and FRB versus (most) other countries.
How and when will it happen? Slowly and then suddenly.
There is no way to avoid this outcome without noticeably lower living standards first. That’s the corrective prescription to resolve the current situation. Decades of accumulated extensive social decay, a fake economy, an asset mania, and an entitled population.
The country no longer makes enough “real stuff” to support its recent consumption, over the last few decades. The rest of the world isn’t going to subsidize American living standards forever.
“Services” inflate GDP and it provides employment but that’s substantially due to the fake economy and asset mania. Some of it is real production but much (and maybe most) of it isn’t.
Your grandkids will also have grandkids they can borrow from. As long as there are Anericans, the U S. Government cannot run out of the thing ($) only they can make.
There is no solution with the current currency. You could set income tax rates at 100 % for years before you would make a dent – impossible – there will be a currency crisis.
I used to think how wonderful it would be if we could all just pull together and pay 50% income tax for five years (or something like that) to get out of debt once and for all. But how naive I was, as if that were even possible — and as if anybody in the government actually wants to solve this problem.
The best one can do these days is live in a state that itself isn’t too far down the path of destruction and stay out of debt yourself.
You nailed it, like totally Tex!
”The best one can do these days is live in a state that itself isn’t too far down the path of destruction and stay out of debt yourself.”
As a native son of FL, born during WW2, I can testify that it used to be that way here, with the GUV MINT, local and state doing all possible to keep taxes low.
Similarly in the ”flyover” state WE moved to in ’99, where in both the state and local level, any one, elected or appointed who even suggested raising taxes was OUT and ASAP,,, as it should be…
FL and even CA have limits on property tax RISES, as should be done everywhere, every state, every municipality able to tax, no matter the name of those taxes as ”fees” etc.
That, and about 5 or 6 amendments to the Constitution of USA would at least make it possible for WE the PEONS to live!!!
Not too sure otherwise based on current trends.
That is what the trillionaire families want you to think. They hold hundreds of trillions of dollars in hidden, tax sheltered assets and just avoided taxation last year AGAIN. If we were tax away just 5% of their trillions each year US and EU debts would disappear. See “Britains’ Second Empire: The spider’s web.”
Watch “Once Upon A Time In America,” which is an awesome, courageous movie about this.
Most “wealth” today and in the recent past is fake. It’s either someone else’s debt, the result of the greatest asset mania of all time, or both.
It’s impossible to tax fake wealth at such a large scale and then mass distribute it into the economy or to the general population at anything close to current nominal value to increase or maintain society’s living standards. That’s what the recent Democrat “billionaire tax” proposed to do and it won’t work for the same reason.
Even assuming your number is accurate (which it isn’t), this fake wealth can only maintain its current value precisely because it is held by a small number of families or individuals in the equivalent of an alternate universe. Try to bring it into the one most people live in and spend it and its value collapses because the “value” isn’t tied to real production in the physical world.
To attempt what you imply isn’t noticeably different than government “printing”.
They are managing debt service cost, locking us into negative real rates as far as eye can see and diminishing the value of your savings. Consider stacking at least some of your savings into gold as the net after tax cost to get any more out of the ground is in the $1500 range and that cost will only go up with time.
Good luck with that. We’ve been averaging $545T in interest expense the last 4 years. And, now that’s set to rise dramatically over the next 5 years.
Medicare Part B (Doctors) is in the red $500B, and Medicare Part A (Hospitals) will start paying more than it take in by 2026 which will probably bump forward to 2025.
SS goes belly up in 2033 which will probably bump forward by 3 years, unless all of these covid deaths extend the trust fund’s solvency. It will probably take a few more years for the SS Trust Fund to figure this out.
What I want to see is a Wolf chart that predicts what happens to our interest expense given a few key variables that are well estimated may with low, medium high predictions:
Where will treasury rates be over the next 3-5 years?
How much debt is due to roll over at higher rates?
How much new debt will be issued at higher rates?
And, finally, I want someone in the know to stick their neck out and make a prediction as to how many trillions of dollars in debt becomes the point of no return where the bond market has a massive temper tantrum and says “enough is enough” and Congress at least tries to head your warning: get your physical house in order?
I personally think this number is between $35-40T in total debt. This will give us about 5 more years to let the annual deficits to run amuck at more than $1T, defense spending will become an issue along with Medicare costs / deficits that are paid for out of general funding and then we’ll be approaching the moment of truth for the SSTF.
Not a good situation for the USA, economically & financially.
There isn’t a “line in the sand” on outstanding debt.
First, while the US nominal debt just reached $30T, the amount which must be financed is noticeably less. Need to subtract UST owned by government “trust funds” and FRB QE. It’s more like $20T than $30T.
Second, there is no specific number or range. It’s based upon confidence which is psychological. Spain’s debt crisis in 2011 occurred with a debt to GDP ratio of 54% to 62%, as the numbers I read conflicted. Conversely, Japan has a higher ratio than the US and has for years.
This is most frequently attributed to who owns it – foreigners versus locals – but that’s not a real reason. Domestic holders can equally lose their confidence, as they don’t automatically or necessarily have any increased inclination for voluntary financial self-destruction due to altruism. Believing otherwise is a belief in bogus kinship.
There are numerous actions USG can take to stabilize its finances. Taxes will be raised, probably primarily through a national sales tax.
Spending will almost certainly be cut somewhat, though maybe not in ways that are directly evident to the majority of the population. Though most consider it impossible, I still expect the government to default on some of its social commitments. Whatever happens will be determined between competing constituencies where the most likely outcome is that the public will be thrown under the bus in an attempt to preserve the empire. As usual, the losers will be those with the least political influence.
There was also an op-ed around 2011 by Jeffrey Rogers Hummel (San Jose State I believe) where he made the case that it may be in the interest of the USG to selectively default on the national debt. Most don’t believe it will happen but if you think about it, it makes more sense to only destroy the bond market versus both the bond market and the currency by “printing to infinity”.
If this does happen, I think it will be by involuntarily extending maturities at artificially low interest rates. Sorry, that 2YR note you own just became a 30YR bond but with the same coupon rate. Bond holders will get their nominal principal back but take a (massive) haircut in real value.
Other options include mandating UST purchases by retirement and pensions funds, means testing of social security and government pensions, and attempting to compel US citizens and residents to repatriate their foreign domiciled assets so that it can be used to finance the national debt. With FACTA and FINCEN, they know where a lot of it is held. It’s a second reason why I believe they require this reporting, not just for detecting tax evasion.
If any of this seems hard to believe, remember we’re talking about a “national emergency”.
As to when, it won’t be anywhere near the peak of this mania. If history is any guide, it will at or near the bottom of the future bear market and economic depression.
AF… I sort of like this selective default scenario. At least it would deeply hamper the .gov’s ability to run fast deficits going forward.
I completely disagree with your passing over my central point. Yes, absolutely, yes, there’s a number that the debt can’t rise past without some sort of extremely significant economic downturn occurring, just like Spain, Greece, et al. Again, I’d love to see a real in-depth analysis by someone in the know with a reasonable prediction.
90% of your reply is about things that the US may do to limit the economic fallout from the event. But make no mistake that this event IS looming on the horizon and will happen. We all know it.
More than anything, its timing depends on what happens in the next five or so years. Within 5 – 6 years, recent analysis suggests China’s economy will move past ours. As you well know, the dollar’s days as the world’s reserve currency are numbered. Here again, analysis is needed, and China is moving well ahead of the US with rolling out its CBDC. While JPowell and Yellen continue to study ad nauseum a digital dollar, China is moving forward rapidly and certainly plans to use its CBDC as a weapon to erode the status of the paper dollar and any future CBDC that eventually appears.
And by the way, debt is debt. The intragovernmental debt is growing and represents debt on future liabilities of actual social programs, the most out of control part of the federal budget. So, let’s not cast this as a good thing, okay?
And last, the FED has a nearly $9T balance sheet. Sure, there’s $1.9T in reverse repo assets sitting around that could soak up 25% of the FEDs balance sheet, but what happens after that? The FED’s balance sheet, for the most part, represents fake, banana republic monies that the FED monetizes. But, it’s fake money used to juice the economy.
Again, what is it? $35T, $40T, $50T? And let’s not use Japan as a poster child. They’re a creditor nation. We’re not. We’re the mother of all debtor nations.
Take care!
If any of this seems hard to believe, remember we’re talking about a “national emergency”
The last two years have convinced me that everything is now subject to emergency rule with no consequences. Similar to how we now fly the flag at half staff because something bad happened to someone, somewhere.
MiTurn
Virtually NO ONE seems to understand how US Public Debt really works.
Your grandkids will never, ever, have to pay it back. Seems to be a secret nobody knows is that US Public Debt is NEVER, EVER paid back.
ALL money the government spends from Public Debt comes from those that buy NEW Treasury bonds–which is already “paid for” only by them.
Don’t believe it?– here it is:
The only exception: a teeny tiny amount was paid back was by the Clinton administration. You probably can’t even see it on the graph.
Yes, your grandchildren might have to pay more interest. But if so, I guarantee they will ONLY be paying that to OTHER grandchildren who hold treasuries, so there there will be no net gain/loss to grandchildren–unless Congress passes a law to allow time travel for grandchildren.
And if the money goes for better infrastructure, our grandchildren will likely have better roads, and safer bridges they won’t have to pay for, paid for (guess who) US!
Wolf–thanks for publishing my comment. And people can search on FRED to find the graph you didn’t show.
But one thing I didn’t get quite right:
I said in the last sentence of my post that the money spent from public debt is paid for by US– for the better infrastructure that our grandchildren could inherit.
That wasn’t quite right. It is fully paid for by the suckers(?) that are now willing to purchase the Treasury Bonds at super low interest rate. Thank you! Thank you! We should eagerly take advantage of their very kind generosity, and possible naivete, by piling up even more debt, if they are willing to buy the stuff –to pay for infrastructure that will benefit both us and our grandchildren.
But please don’t anybody tell them they won’t get paid back.
The tightening will happen, but not because of the debt. Pulling forward wealth with debt is no problem as long as it for a nation is in its own currency. The debt is rolled over.
T
he trouble start when finite natural resources are exhausted. Then there will be price hikes that have nothing with (monetary)inflation to do. Depending on if something vital get to expensive the economic system vill tank son thereafter.
30 trillion for nothing but stuff shirts that undermined the value of housing, turn hospitals into for profit for death centers , turn food into lab grade cancer agents and turn social media into censorship, sold out to opioid producers, export manufacturing and imported slave labor etc etc etc Fiscal responsibility died with the greed ridden short sighting freak of the generation in control just like the last 20s
A solution is inflation. Oh, wait: perhaps it’s happening right now?…
The CAUSE can NEVER BE THE SOLUTION….
Johnson’s Razor
“A solution is inflation. Oh, wait: perhaps it’s happening right now?”
That’s not a solution, but that’s their plan. Behind closed doors, the bankers “sell” their “let inflation run hot for a while” rhetoric, and the pols eat it up, because they think they can spend even more.
doesn’t that mean that the treasury won’t have to issue too many news bonds, so interest rates rising won’t have much effect in the short run?
Wolf is right. The song and dance around the FedGov debt, is a charade.
I probably mentioned this once before. Way back when Ronnie was snoozing in the oval office (and tripling the Fed debt with his tax cuts and borrowing). I took a long car ride with the local pol…….an elected “R” even. He said something that he should not have: he said “that debt is never going to be paid.”
Ok. Now you can cue the wailing and hair pulling from from the Usual Suspects about how we are leaving these debts to our children, grand children, etc.
Masked Ghost
Correction: “That debt is never going to be repaid by those that spent the money.”
But all Debt has a cost, a crowding out, a signal of profligacy, a quiet tearing of the cloth of the American Civilization.
It has a cost and you can see it everywhere in America.
US government debt is going to be paid back through lower future living standards or by stealing the purchasing power of someone’s savings.
Some of this theft will be from foreigners owning USD assets but most from those living in the US.
There is never something for nothing.
Revenue to the Federal Government doubled under Ronnie.
Maybe we have a spending problem.
Let’s not get partisan regarding government spending. Both parties (to some, one and the same) are just as guilty of it. There are no politicians that are for small government just like there are no barbers that are for long hair styles for men.
Let’s get partisan. Most of the dems and reps work for the same master(s), have the same personal advancement goals, and have proven to be detrimental. They are similar enough to recognize them as the overseers of the working class and lackies for the master class.
Platitudes.
Go back and match up the presidents, their revenues, their wars, and their deficits: the facts tell a different story.
The only presidents who left office in recent times with a balanced budget were both democrat: Clinton and Carter (FWIW).
2banana: “Revenue to the Federal Government doubled under Ronnie.”
Revenue doubled. Debt tripled. Thanks for helping me make my point.
Maybe we can solve the homeless problem by all running out and buying 2 or 3 more year around residences ?
We might be repaying the debt indirectly by devaluation of the dollar.
At Dan R, agreed.
Can’t raise taxes or cut spending without a fight, gotta finance the debt/deficit thru printing which causes inflation (supply chain issues also contribute).
The dollar’s reserve currency status/petroleum dollar allows the US to get away with printing more than most central banks.
I think the run away asset prices are just a side effect of the policy, a feature of the system, not a bug.
Time to load up low cost debt that will be devalued???
Will the US housing market look like Canada/NZ/AUS/Germany next?
My crystal ball is broken, but the Fed gov loves inflation & so do your local property tax collectors. I think inflation is here to stay albeit at a slightly lower level…4% CPI (~8% after factoring in the CPI miscalculations).
Savers will continue to be taken to the cleaners, that’s the reward for fiscal austerity.
It will get paid……by a reduction in the standard of living of the middle class……particularly the lower and middle of that class……by an inflation tax that the fed knows it has to allow……..good luck getting the cash back that has been stolen from you or a raise that is greater than the inflation rate.
Ask anyone working for the US government how their pay has gone the past ten years.
The poor will not feel much of a difference, the rich will be protected by an economy being fed huge sums of cash by fiscal and monetary means.
Fred
I remember a day when if you couldnt get a job in the private world, you would have to resort to working for the government.
Then public unions and 20 year inflation protected pensions…
and now gym teachers and drivers ed teachers retire with 6 figure retirements…
Not to mention the “husband wife” double pension games of Washington DC…. (Mitch McConnel and his wife, Fauci and his wife, etc etc)
But then you have Janet Yellen with 3 government pensions (Uof C, Fed, Treasury).
what a game!
Yep…..if you know you are middle class only a fool works for the private sector or a non union shop unless you have no alternative. If you served in the military and did not get a retirement the government allows you to convert that military time to pension time. Imagine how much cash you’d need to produce a $80,000 yearly pension with nearly free health care and a COLA each year right now with these rates.
In addition its a 40 hour week instead of all the crap that these modern managers pull on their defense less workers. I figured out one year that my 6 figure salary was nearly $15.00 per hour compensation….the new minimum wage. They might as well ask us to learn Chinese or Mexican. Its going that way.
Your first chart says it all ,straight up borrowing this will end bad ,I remember China,Russia,and Iran at a g- 20 meeting being in a group discussion, now they will gang up on U S ,not going to be good
Is the plan to issue the debt while interest rates are still low and pile it up in the TGA, ready to use, in case borrowing costs go up significantly?
I’ll never get this, if you create money out of thin air (counterfeit) you dilute the value of all existing dollar assets- you win big and all other holders get chiseled down a bit. So what is all this talk of “our poor grandchildren”? Do the private owners of the Fed (who already profit greatly from this process) actually expect to be repaid in full, in real dollars for phantom value? I might be hopelessly in these matters,
No, if you issue credit to pay for the creation of additional wealth then you are flat or ahead.
For the thousandth time on this site :-)
Wealth creation – fine issue credit
Rentier activity – no new credit
There is no distinction between wealth creation (building factories) and rentier activity (monopolizing existing housing for profit).
Our country has been playing “take as you go” for decades on a massive scale. The game is simple. Each generation takes from its children and leaves them to take from their children. Some of this shows up in officially reported debt. But it’s mostly hidden in the form of unfunded liabilities. The Inform Act is a bipartisan bill, which I largely drafted and which has been endorsed by thousands of economists, including 20 U.S. economics Nobel Laureates. It would require the Congressional Budget Office, the General Accountability Office, and the Office of Management and Budget to do fiscal gap and generational accounting annually and for all major fiscal reforms proposed by Congress. Fiscal gap accounting puts all of the country’s obligations, including all its off-the-books obligations, on the books and compares them with the country’s projected tax and other receipts. It would bring an effective end to deficit accounting, which has no basis in economic theory. Instead, what we measure as our government’s deficit and, associated debt, is solely a figment of how we label government receipts and outlays, i.e., of the government’s choice of fiscal language, not its fundamentals. Fiscal gap and generational accounting is now being done on a systematic basis by the European Union and has spread around the world. It’s time for our government to make public, what it knows in private — our country is dead broke. It’s fiscal gap is north of $200 trillion and represents a fiscal sword of Damocles for every young and future American.
max
“. The game is simple. Each generation takes from its children and leaves them to take from their children.”
It used to be incumbent on every generation to pay its own debts….
this changed….and those who change it are the culprits…
those who HIJACKED…..yes HIJACKE the Fed in 2009 are to blame for the change…the theft….
Wait till Gen X, Y , Z found out what happened.
Historicus
That’s right. People fret about the US evolving into a European-style socialist economy, or worse. But the model we are following is more like Argentina, with all the social and political implications thereof: massive wealth discrepancies, elites everywhere living off the dole and a roller-coaster of Left – Right governments. We all know where it ends.
“Wait till Gen X, Y , Z found out what happened.”
Yep, it ain’t gonna be pretty. Plan accordingly…
Even without a change to inflation on goods and services, uncontrolled government borrowing and no subsequent change to taxes on high earnings results in a wealth transfer from the young and the poor.
Yeah but if taxes go down on the wealthy more jobs are created.. that can’t be filled.
30 trillion, that’s all? Keep printing and spending as long as the rest of the world will give us their production. I do not see a down side. We are a booming! We don’t need jobs anymore. Nobody can tell you what or the downside is. Lots of conjecture, lots of words. I flap my beak about it so much people avoid me. They may come and net me and haul me off. I will tell the guys in the white coats its this madman out in San Fran that drove me off the edge. I wonder If I can take my Heck Mug with me to drink my warm milk and Benadryl happy drink out of after my Electro-Therapy?
DD
That is funny but true. I suspect we can offshore production and most services for decades before there is any real blowback.
American middle class will lose some standing, but it will be in the “frog in lukewarm water’ format and thus unrecognizable.
The tradeoff is to be a professional consumer as a career – being creative with unlimited free time while living a comfortable life. US middle class citizenry looks pretty good for the foreseeable future.
They have no need to pay it off. There is always
a time when it all hits the wall and they will deal
with it then. Until the general public demands it
to be fixed, why should they.
Let’s not forget that the Debt is owed TO somebody. As long as they continue to roll it over, when it falls do, it does not have to be re-paid. But when, for example, pension funds, and the SSI Trust Fund become net withdrawals, look out!
It’s unlikely that the new debt, used to repay the spent debt, will have such a low price tag as we see now.
The answer, of course, is to TAX to pay for Congressional expenditures, and tax the only ones who can afford to pay…the rich.
If the Fed can always create new money to pay the government’s debts, what’s the big deal/ Yes, inflation does occur when it does this. But that’s the only downside, and up until now inflatin has always been within mangeable limits.
When I was a kid my older brother and his friend decided to see how far they could stretch a really big rubber band they found. The room turned out to be too small so they took it out in the yard and tied one end to a tree and another to a broomstick. Went an impressive distance before both of them needed to pull to go even further. I stayed a goodly distance back from the action. It did not end well. And neither will this. I’m still trying to stay a goodly distance from the action, but that’s not so easy these days.
What I just paid for a three pack of chicken breast from Costco makes me think revolution needed.
You my friend and your need of extravagance, my god chicken, and the breast no less , are in need of a hedonic adjustment. Chicken liver’s should do the trick. Chicken breast! , 3 pack! Outrageous. Shameful!
Learn how to cut a chicken and buy them whole. Much cheaper.
Starbucks is getting ready for their third price increase in the last 18months. They CEO stated that the price increases are not impacting sales or profits. The snap will be nasty for those expecting things to continue without hazard
I disagree but I am but a home brewer of coffee
Take out coffee is for suckers. Fattest margins in the world. Pay $3.50 for a drip coffee that costs 26 cents to make at home?
Thank you PG,,, been saying same for many years,,,
ONLY time ever had a cuppa from SBs was in an airport at 0500 with NOTHING else open,,, worst cuppa in recent memory, worse by far than the ”cowboy” coffee made by throwing the grounds in the kettle and boiling the ”heck” out of it I experienced on some ranches in the 40s and 50s.
Cannot understand the mentality that continues to pay approx. 10-20 times the value of coffee, etc., AND gets an inferior product according to almost everyone who cares at all about quality.
VV, well to be fair, Starbucks has its time and place.
Once in a blue moon if I need to “rent” a table in a well air conditioned or heated public space for an hour, I suppose the $3.50 I pay for a cup of coffee also includes 15 sf of prime commercial real estate in some swank part of town ;)
I just don’t understand the people that go through the drive through and pay those outrageous amounts every single morning as a habit. That doesn’t make sense to me.
Peanut Gallery
And they make lousy coffee.
The Fed is like cancer. It will expand until it kills it’s host. In that sense it is fatally stupid. It is self reinforcing. Nothing will stop it.
The Fed is like cancer:
Yes, Thats right, Not Even a Mastectomy well Help, you need to remove the whole Body & Cremate
What’s Happening with the Fed is “Now Legal” it seems like as No Law enforcement agency has stepped in.
The President has Not removed the Cancer and so it seems wants it to Grow and Kill all the normal cells
I am Hoping Wolf has a Chart about the Now Legal Economy strategy of the USA along with the personal
investments of all the current Government Members with Annual Income from such Investments
Of course, if it’s all Legal Now that’s not very uplifting kind of like attending a wake for the Nation
Bottom.
The Taylor Rule is in the proper direction.
GDP expansion should dictate monetary base expansion.
Inflation should dictate Fed Funds.
Formulas to be determined, but the Fed has had WAY WAY too much latitude……30% jump in money supply in a few months…..WHAT!!?
If the Fed was trying to promote hyper inflation, they would have done exactly what they ended up doing…massive money supply increases with ZIRP.
Nationalize all banking, healthcare, etc, etc operating based in the US and for those who run, chase them down. Claw back every penny unjustly handed to the wealthy and corporate overlords, even the rich have the freedom to sleep under a bridge. Sieze asstes across the globe for any corporation or “entity” which at one time claimed domicile in the US. Turn the SOF loose. For starters…,
+1
1) On Feb 18 the gov might shutdown. US gov debt might rise again.
2) Debt to foreign entities is falling, in relative terms. Debt to JP is growing, but not to European or Japanese levels .
3) In the last job reports US gov employment is constantly shrinking.
4) Inflation accumulation. In the last two years the accumulated inflation
might be 8%.
5)
6) We might be on the cusp of recession. Few options :
7) JJ PUT to support banks and zombies companies, Greenspan policies.
8) JJ, two hundred miles bikers, will ride to the other end of the tunnel and finish the run : let the zombies die, clear the deck, with symbolic social support.
9) They are the most hated anyway.
If the Federal Reserve had done its independent job and not ENABLED the weak Politicians and Governments to spend like wild drunken sailors we would not be in this mess.
This is mostly the fault of the US Federal Reserve and they have brought the rest of world down with them. IMHO send them to Prison.
Marco…
I heard a person on cable back a Fed nominee because she was tuned into climate change, and the like.
Supported by her creds that she was with the Chicago Federal reserve, thankfully the interviewer noted……she was affiliated for 28 days.
Jamming through the unqualified is the sport of this administration.
Not arguing with your specific case, but “qualified” Fed governors (Greenspan, Bernanke, Volcker, etc.) have caused catastrophic damage to the United States.
+10
Volcker saw what he had to do….and did it.
He had balls. And what he did, cleanse the system of fluff, allowed the mid 80s to 2000 to be on firm foundation.
drifterprof
I would leave off Volcker, but keep the other two who did cause catastrophic damage to the United States.
Volcker was an American Hero. He saved the country.
Volcker? So you don’t like inflation hawks or doves.
Volcker was staring at a US dollar crisis. Tourists around the world were being asked to pay in local currencies including Italian lira. The US had to issue bonds denominated in Swiss francs to get a better rate. This was when silver hit 50$ an oz and the Hunts planned to issue a silver backed bond, which could have entered circulation as a currency.
Then Volcker brought down the hammer. It was a tough for a while. but stabilized the ship for decades.
Marco
1000 +’s
Prison? Sounds generous to me. Death penalty is likely more appropriate for this reckless behavior.
1) Meta is down 23% in AH trading. AAPL made a great effort to close above Jan 12 close. For entertainment only.
2) Jan low is a warning sign : debt is rising, QQQ is falling.
3) QQQ big red Sept 2021 close need a setup bar, a close under Sept 2021 close. It might come this month or in Mar. Or…
4) After few green monthly bars, in reaction, a trigger, a low < the setup bar.
5) JJ have seven years left to make billionaires pay. All they need is to bring this debt to a sustainable level, – not to zero, one step at a time – with low interest rates, to manage it for the next spenders, the next leftist….
Michael, don’t you find a lot of this swing volatility on one earnings call strange? FB way down. PayPal, way down. Google way up. There is no moderation whatsoever?
I’m not ME but would like to reply to your question.
These massive swings in after-hours trading after an earnings release have been going on for years. They’ll take the form of an over-night gap the next morning. I read some years back that Warren Buffet recommended that the individual “investor” completely avoid stocks and buy index funds. I believe he said this because of these overnight gaps that often occur after earnings are released. With index funds or ETFs, you avoid the volatility. You can be sure that some poor fool, not knowing about the earnings date, bought just before the announcement and if not aware of after-hours trading, will wake up to a 23% paper loss tomorrow morning. Many years ago, I did exactly this, and was down $5000 overnight. A few days later, I sold for the realized loss. From that experience, one of my many rules came to be: NEVER INITIATE A POSITION OR ADD TO (LONG or SHORT) AHEAD OF AN EARNINGS REPORT. If you’re gonna play individual stocks, you really have to be on top of your game. If you’re a day trader, you don’t care, because by definition, you’re in 100% cash overnight. Because of these insane gaps, can we, the speculators, be blamed for treating the stock market as nothing more than an online casino?
World famous psychic hit the bullseye with Facebook. He only mentioned one stock to sell/sell short late last year on youtube. Craig Hamilton-Parker. 2022 predictions for America video.
Wolf
I read an article today that said Treasury auction amounts were going to decline.
Seems counter intuitive with the national debt hitting an all time high…
Is it because so much money borrowed has yet to be spent?
Going to decline from the HUGE auctions since March 2020 ($6.5 trillion added in less than 2 years). They will still be gigantic. But it appears that there are no more stimulus programs, and so the auctions will be somewhat less gigantic.
The Fed won’t be buying anymore either. So there will be a lot for the market to swallow.
The Fed will do whatever they want to do.
Their goals could change after their next meeting.
Maybe even after the January employment report.
The fed will do what it is mandated to do by law, unless someone in a position above the law demands they ignore their mandate for said yellow haired person’s personal gain.
Richard…
In a system of “checks and balances”, where is the “check” on the Fed?
*Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. The free money to promote inflation is borrowed by the federal government and paid out in a fashion that discourages employment. Fail.
Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION, which is now running circa 7%. Fail
Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 4% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.
Where is the Senate Banking Committee? Spending the near free resourced monies. Sherrod Brown, the head of the committee, questioned Powell about social issues.
“So there will be a lot for the market to swallow.”
“The Fed won’t be buying anymore either.”
Uh Oh! If the Fed won’t be buying those who will, will want a much higher rate of interest.
Does it matter if the bond market crashes? (Asking for a friend.)
If the yield goes high enough, I’ll be buying Treasury securities. Yield fixes everything. And yes, existing holders can hold them to maturity and then get face value while earning the lower yields, or they can sell at a loss. Up to them. It’s really no biggie.
Bond markets have been in a 40-year rally, which is now over, due to massive inflation for the first time in 40 years, and bond holders are going to give up some of the gains they have made over the past 40 years.
Buyers of bonds with higher yields will be happier. There are always two sides to every trade.
Wolf,
Since basically any bond holder can technically hold to maturity (if they don’t want to realize a loss), then basically aren’t all bond crashes or crisis essentially liquidity crises?
Well, yes, and more. The problem is that bonds are used for highly leveraged speculation — and it’s that speculation that blows up, and then there’s the contagion from imploding speculative bets to banking and other elements of the financial system.
The three new Fed appointees are all “Woke” bankers. Their priorities are Climate Change and Social Justice. One of them even has a history of promoting “Reparations”. Fortunately, they are all going to have trouble getting confirmed. The Fed is going to have 3 empty seats for a long while.
They may be inflation hawks because they all know that inflation is the biggest tax on the lower-income people. One of them has written about that in past, it seems. I think this is going to be interesting.
Powell and a bunch of the doves are Republicans, including ultra-dove Kashkari. Volcker was first appointed by a Democrat.
Hi Wolf,
You can defend the Democrats all you wish but nowadays they are no longer at a ‘Volcker nominating’ standard.
Let’s face it, the whole Federal Reserve Board let the US Government and Politicians spend all that money over numerous Years just to be politically popular and knowing that the honest, the Savers, the Retirees, the future generations, the Home Owners, the poor … will be the ones to pay for it later via a deliberate Policy of back-theft Inflation… if this was a Court Case this would be described as criminal intent.
Pointing out that Republican criticisms often reflect the fact that they are the world’s grand-masters of hypocrisy is not defending Democrats.
Drifterprof,
Both sides are equally repugnant.
If there were no double standards, there would be no standards at all.
Expand that graph to include this entire century and it goes from $5.6T to $31T to up the wazoo.
On top of the bailout to save the country from another 1929 moment in 2008 (and maintain that for 8 years) and then heap a criminally insane tax cut for the ultra wealthy (2016-2017). Then to bail out the country from another 1929 moment because there’s there are no rainy day resources to draw from when COVID hit (2020-Whenever). Not to mention the $5T it cost to get your ass kicked throughout the Middle East and what do you have? A $25T+ “Investment” just to keep the economy afloat and our masters satiated (momentarily)
Just from personal observation I have never seen as many empty buildings, storefronts, for lease signs as I see today. Hard to believe this turns around.
MarkinSF said: “On top of the bailout to save the country from another 1929 moment in 2008”
—————————————————————-
sounds like propaganda ………………….
(selected groups were favored and bailed out at the expense of the unfavored)
(and 2008 wasn’t some black swan event; it was created by FED and banker/wall street/gov policies that allowed enormous leverage, imprudence and theft)
One issue that is coming up is the Fed getting involved with the banks in curtailing lending to the fossil fuel industry. This is the Climate change component of the “Woke” agenda. I don’t see how this is going to help lower income people who just want to fill up their tank and have to drive a long way to work. Gas is already $4/gallon around here with oil $80/barrel.
30 trillion among a 300 million population is only $100,000 per person. What’s the problem? I think we can all stand $250,000 on the back of each citizen before any real calamities break out. Maybe 500k.
PLEASE, keep voting in the same lifer politicians so they can vote in the same lifer Fed board members.
make $ worthless enough through continued digitizing, and we can all stand $1,000,000
that’s where we seem to be headed (perhaps that’s why the smart money continues to leverage up and and buy real assets, overpriced or not, but of course through limited liability entities and putting no personal money at risk) Isn’t America grand? Aren’t Romney and Powell heroes?
Make America Great Again —- be a private equity operator
Parabola!
Missing is a chart of interest paid on the federal debt, which is not unusually high — roughly 2.5% of GDP compared with 5% of GDP from the mid-1980s through the early 1990s. The financial burden of the federal debt increases as interest rates increase, but is not currently high. Since the federal debt will never be repaid, the interest on the debt is the critical number. The debt increase in recent years is very inflationary as the Fed bought a similar amount of Treasury debt.
When you start comparing something with the GDP back then versus now, my mind goes blank. Calling it the GDP is misleading. It seems more related to the velocity of money. It would be better to have something called Industrial Domestic Product for comparisons — something related tor a real product being produced.
FRED:
1.Real Gross Domestic Product (GDPCA)
2.Industrial Production: Total Index (INDPRO)
Free book in PDF format,courtesy of much-maligned Fed:
“NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts”
What remains to be done is to disentangle the cost of computer software (which is still counted as service) from the cost of manufactured goods.
They put on a lot of debt at bargain prices. The question now is how do they roll it over. With inflation running ahead of bond yields that gives them a head start. They cash in inflated dollars X and sell bonds at par – X.
A smart investor would borrow lots of money long term at interest rates well below the rate of inflation.
So the federal government borrowing lots of money long term at low interest rates is not inherently bad (for them).
The problem is excessive government spending.
It government spending was a much lower percentage of GDP, borrowing a lot of long term low interest rate money for USEFUL government spending would be okay.
But that never happens.
We get reckless government spending even before Covid spending raised that to unprecedented levels in peacetime.
When reckless spending is financed by borrowing (especially with low interest rates) people don’t have higher taxes to complain an about.
But with the Fed creating credit at a rate similar to government borrowing, we get inflation, after a few years delay.
So now we have the worst of all situations:
(1) Reckless government spending (total federal, state and local government spending is about $10 trillion of the $23 trillion GDP = over 40% — that’s socialism by my definition)
(2) Excessive government borrowing, which is painless at low interest rates, but interest expense rises as interest rates rise
(3) Excessive Fed credit creation, causing high inflation, that will require higher interest rates to reduce — see (2)
(4) Stock prices ended 2021 at the highest valuations in the history of the stock market, based on the price to sales ratio, and market capitalization as a percentage of GDP.
(5) The Fed is talking about fighting inflation and is reducing debt purchases (although so far there’s more talk than action– but they can’t ignore the inflation they caused, even in an election year)
(6) Consumer confidence is way down from one year ago, per the University of Michigan indexes — often a good leading indicator of a recession.
(7) This expected Fed tightening adds up to at least a stock market correction (already in progress) and possibly a bear market and recession in the first half of 2022.
Although the debt number is increasing, the actual debt is not when you consider that prices doubles every 11 year.
Debt was 15T$ in 2011 so it should be 30T$ in 2022. And it will be 60T$ in 2033 give or take a year or so. Real inflation runs about doubling prices every 11 year or 7%.
The loosers are those holding cash or holding those useless 1% bonds.
Well, actually as a % of GDP, it is increasing though.. alot.
1980: 30% of then GDP
1990: 52% of then GDP
2000: 58% of then GDP
2010: 87% of then GDP
2020: 108% of then GDP
2022: 123% of current GDP
(source: FRED: Federal Debt: Total Public Debt as Percent of Gross Domestic Product)
Yes and if GDP contracts the percent will be even higher. I’m not aware of a cutoff percentage where it becomes a problem, but greater than 100% sure doesn’t feel like a good situation to be in.
But the interest expense on the federal debt has declined by 50% as a percentage of GDP, thanks to low interest rates relative to the inflation rate.
Well, they can’t raise interest rates or the national debt payments would make us go belly up. I guess that’s why there’s all the war talk. Or at least that’s one of the reasons.
On Dec. 14, 2021, the debt ceiling was raised by $2.5 trillion, with a new limit of around $31.4 trillion
So we should be good until the end 1Q22??
I recall there being a one-time vote that was allowed to be 50/50 with a VP tie breaker to increase the debt ceiling rather than the standard 60 votes. Perhaps the Treasury is planning to fund operations out of the TGA for the next battle in front of the American people.
The debt ceiling is just something to keep the peons distracted and win political points
National debt-related fun facts brought to you by treasurydirect.gov: *
1790: $71,060,508.50 (first entry in data series)
1816: $127,334,933.74 (highest up to that year)
1835: $33,733.05 (lowest up to that year)
1863: $1,119,772,138.63 ($1B+, first time ever)
1943: $136,696,090,329.90 (new all-time high)
1975-1985 National debt “rounded to millions”
1982: $1,142,034,000,000.00 ($1T+, first time ever)
2022: “Debt out the wazoo”
1834-1835: Largest percent decrease (YOY): -99.3%
1837-1838: Largest precent increase (YOY): +881.8%
Conclusion: Starting from the year1790, the national debt has never been paid off.
* Data not seasonally adjusted
* Data not annualized
* Data not adjusted for inflation
* Data not “chained to 2012 dollars”
Data not “chained to 2012 dollars”
LOL, was that a little dig on Wolf’s previous charting?
Yeppers!
This is what happens when the entire country is run by grifters, touts, shills and criminals. They are looting the US Treasury for personal gain, and selling off the US to the highest bidder. It’s a non-partisan affair. Both Nancy P. and Mitch M. have presided over the entire thing, as have all these career politician scvm.
“It’s a non-partisan affair.”
Nothing new. Go to YouTube and look for Huey Long, “The difference between Democrats and Republicans” – from the 1930’s. History rhymes…
These vile sociopaths in DC are running the government like the wife who has the shoe collection of Imelda Marcos but the salary of a barista, or the husband who has a $100k truck but the salary of a construction laborer, all purchased on credit cards and loans. They are guaranteeing a life of debt servitude for the young, or complete default.
You never hear anything about cutting back, it’s all about how much more they need to spend. Just look at these filthy swine right now – “but we’ve got to pass 6uild 6ack 6etter.” Nevermind the fact that the country is so grotesquely overstimulated that it is falling apart, they want to do even more damage. It’s like, step awaaaaaaaaay from the credit card, you idiots. JUST STOP.
new analogy. Bald tires on 70 Chevy flying down the freeway at 85…and it starts to rain. What could go wrong?
So who is buying all this debt?
The Treasury department never seems to have any problem selling its debt instruments and the Fed does play a part in purchasing them but where is the rest of the money coming from.
The World’s GDP 10 years ago was around 73 Trillion, today it is around 95 trillion a net gain of 22 Trillion.
The US GDP 10 years ago was around 15.5 trillion, today it is around 23 trillion a net gain of 7.5 Trillion.
The Federal Reserve currently holds 2.5 trillion of US Treasuries.
10 years ago the US national debt was around 14 trillion, today it is over 30 trillion a net obligation of 16 trillion.
So if all of the US’s GDP over the last 10 years has been spent purchasing treasuries and you add in the Fed’s current holdings of 2.5 trillion you have a total of 10 trillion. That means the remaining 6 trillion of the worlds 22 trillion GDP generated over the last 10 years has been spent buying US treasuries. To me it is amazing that over the past 10 years 27% of the Worlds GDP has been spent purchasing US treasuries?
George Wood,
“So who is buying all this debt?”
I’ll do my Q4 update as to who bought all this debt when last batch of data is released.
This is through Q2, which will give you an idea:
https://wolfstreet.com/2021/08/17/who-bought-the-5-trillion-piled-on-top-of-the-monstrous-us-national-debt-in-15-months/
Ok, but what I would really like to know is how all these treasury purchases are being funded and why.
To me the GDP numbers just don’t add up. There has to be a lot of margin involved for the numbers to start to make any sense.
Since bond prices trade inversely to their market yield. The Fed’s ever lower interest rate policy has created one of the safest, highest yielding investment to be found anywhere.
If I am wrong and all these treasury purchases are being made as long term investments, then the demand for treasuries should soar as interest rates climb to 2 – 3% and beyond.
If interest rates start to climb in a predictable manner, then holding treasuries on margin becomes a losing proposition and the Fed will need to expand its holdings exponentially.
I think the real question is, not who is buying all the debt now, or who was buying in the recent past. (It was predominantly the Fed under the guise of QE, to cover deficit spending.) Surely the real question is who is going to buy that government debt, to fund its deficit spending, in the months and years ahead i.e in future? It’s not necessarily that there will not be buyers. But as Wolf says, “the Fed will not be buying any more either” (in his reply to a historicus post @ 6.55pm.) The presumption is if the Fed is not buying, it will be left to the market to do the heavy lifting. The market will be much more demanding about the rate of return, aka the yield, on those bonds. In the past they always demanded a yield that was ABOVE the rate of inflation, not 6% below it.
George Wood,
CLICK ON THE LINK THAT I PROVIDED AND READ THE ARTICLE. IT WILL ANSWER YOUR QUESTION.
I cannot help you if you refuse to read.
BTW, GDP measures the flow of spending by consumers, businesses, and governments in the economy at a certain point (end user). It’s a measure of flow of economic activity denominated in dollars. It includes consumption items (fuel, rent, healthcare, etc.) and investment items such as the construction of buildings and roads, but not buying/selling stocks, houses, etc.
GDP does not measure where the funds came from, and it doesn’t measure government debt.
Lots of ‘We should tighten out belts and bring back manufacturing’ or ‘Central banks need to stop printing and let a recession happen’ replies. You have to know by now that, that’s akin to saying aliens need to come to Earth and fix the economy, right?
In the real world here, if the Fed stopped printing on a permanent basis there wouldn’t be a recession or depression; it’d be The End. Banks collapse…everyone wiped out. All but a few companies making basic staples…bankrupt. Global trade ceases! Starvation, then global war over resources. Not somewhere else but tactical nukes on American soil.
They stop printing and the only one’s left are the cockroaches. All other options are fairy tales. This is why hyperinflation IS the soft landing. Because on the other side of it emerges a global population that finally understands the value of real goods, real assets and productive labor.
“They stop printing and the only one’s left are the cockroaches.”
And Keith Richards.
Prophet
and Mayer Amschel Roachschild
son of Amschel Moses Roachschild who is still knocking about……though he does look a little tired.
Hyperinflation IS the soft landing,
“In the real world here, if the Fed stopped printing on a permanent basis there wouldn’t be a recession or depression; it’d be The End. Banks collapse…everyone wiped out.”
Hahahaha, good lordy, what a wheelbarrow full of ridiculous BS. Who are you trolling for?
@ Wolf –
The FED. Whether he knows it or not.
LOL. I shoodathoughtofit
@ Hyperinflation Is the soft landing –
Bank collapse might be a good thing – or at least a forced restructuring, which there would be
Everyone would not be wiped out
Global trade would not cease, though it might slow way down – so what?
No need for global war, though we have had continuous war for decades.
You are on to something expecting inflation, but not for the reasons you state. It is just that inflation is the most advantageous path for the FED, Government, and Elite masters. Your statements are exactly the type of proagaganda the FED/G/Elite use for cover. (sort of like “trickle down” for tax cuts)
Hyperinflation IS the soft landing
Who paid you to post this bull s$it on Wolf’s valuble Web site? And how much cash did they give you?
This debt can never be paid and that was by design. Honest Default will not happen either. A Dishonest Default will happen instead. More debt,much more will be added and the debt service will be paid by printing ever increasing and rapidly debased currency to the point it will be useless as the reserve currency and functionally a default due to being useless but technically not a default. The 1% will be long gone by then. They will jet off like the locust looking for new fruit to de-flesh and consume. Alas, they will have eaten all the substance of the fruit of our economy in both the future and the present and will spit the seed out after sucking it clean.
Very true but I no longer call it debt as that’s something that either must be repaid or defaulted on. Debt implies that the Fed’s only borrowing the money when this is just banana republic style currency devaluation. Are we Americans so grandiose that we have to pretend all of this is somehow debt issuance when it’s just Jay Pow having someone type numbers into a fake checking account and buying stuff?
Many think some sort of bubble burst style collapse will happen but can it really?
– Joe, Mary and Bob all have $100 and are dying of thirst in the desert. How much is a bottle of water worth?
– Jay Powell gives Mary and Bob both a $1 Million
– How much is that bottled water worth now?
– Is it in now in a ‘bubble’ or are there just many more devalued Dollars chasing the same asset? How many of these same people would agree that Venezuela’s in a bubble economy and their prices are about imminently collapse in Bolivar terms?
Others say some sort of conveniently unspecified event will lead to a deflationary collapse. OK that’s fine as long as you believe…
A) The Fed will stand by and do absolutely nothing while that deflationary crash devastates the economy; even though all they’d have to do is type a 1 with lots of zeros into a screen to fix it. aka like that ‘deflationary crash’ in March of 2020.
B) The Fed will somehow be forced to stand by and do nothing while this happens, in order to ‘defend the currency’. The problem with that is the currency isn’t of much use if there are no banks left.
In short, it’s popular today to throw around words like bubble, collapse and crash without ever taking the time to quantify or qualify exactly how asset prices would be allowed to permanently crash in a world of limitless currency. This is the boogeyman of our generation.
“How much is that bottled water worth now?”
depends on the bottlenecks /s
China is attempting to reign in their bubble with the CCP increasingly focusing on the “prosperity of the common person”. It is causing mayhem in real estate, education and with their visible rich elite “influencers”. Not clear that they will succeed but they do have a gigantic export/manufacturing machine going for them.
We also need to desperately tighten our belts but there will be no political will to do so. The very survival of the politicians depends on not rocking the boat. Any belt tightening will be very regressive and hit the bottom 50% much more than the elite. For me this implies prolonged high inflation.
This last minute of the CCP to back away from a 20 year bubble it created is such clumsy propaganda. NOTHING happened in China without CCP approval. Selling development land was the main source of money for local CCP controlled govts. Doing a project was a way for lower CCP members to rise.
Xi’s conversion is laughable but if CCP history is a guide, there will need to be scapegoats. If I was CEO of Evergrande or Country Garden, etc., I’d emigrate.
When you are deep in debt, you do as your bank says, as they own you. I wonder who owns the USA…….
Can someone please explain to me how the Fed prints money?
I read comments about it all the time on this thread and everywhere.
The Treasury department issues bills, bonds, notes to fund Govt. activities or whatever. Debt is issued and money is received, it is not printed.
The Fed can buy treasuries if they choose to do so but how is that printing money.
The Fed prints physical money, $1, $5, $10, $20 for transactional purposes. The 16 trillion in national debt is created through issuing treasuries not through physically printing paper dollar bills.
Easy….
Printing money does not mean they “print” money, it just means that they print money.
George Wood- “ Can someone please explain to me how the Fed prints money?”
Definition of Debt Monitization –
“ Debt monetization or monetary financing is the practice of a government borrowing money from the central bank to finance public spending instead of selling bonds to private investors or raising taxes. The central banks who buy government debt, are essentially creating new money in the process to do so.”
From Wikipedia (sheepishly!)
It’s all digits on a computer. The stuff that goes in your wallet is a claim against the FED mass of computer digits. The printing part (paper) is really just so you don’t have to carry around your computer to pay for things.
It’s “money” in electronic form. In effect it’s the Fed creating electronic money “out of thin air.” Where does the Fed record this? On it’s balance sheet. It’s actually the U.S Treasury that is the only one authorised to print Dollars. It’s the government that will have to pay back the Fed. (The Fed being the lender and the government, the creditor or borrower.) Since the US Gov is authorised by congress to print Dollars, it’s highly likely the Fed will be repaid. If it didn’t happen that would be a US default. And game over for planet Earth.
George Wood,
The Fed creates “credits” (with the click of a mouse) in the accounts at the Fed of its primary dealers, which are the big banks that are approved to do business with the Fed. In exchange for these credits (money), the Fed buys securities from these banks. The banks take this “money” and buy something else with it… and thereby the “money” was created and is now circulating.
Obviously, “printing money” today is a figure of speech. The Fed doesn’t actually have a printer and doesn’t actually “print” this money.
The Fed also manages the paper dollars (currency in circulation called “Federal Reserve Notes”), which are printed by the U.S. Bureau of Engraving and Printing. The Fed distributes, removes, and manages them via the banking system. Banks have to exchange collateral with the Fed to obtain these paper dollars. For example, if a bank wants $100 million in currency from the Fed, it might hand the Fed $100 million in Treasury securities.
“The 16 trillion in national debt is created through issuing treasuries not through physically printing paper dollar bills.”
1. If you read the article, you would know that the national debt isn’t “$16 trillion,” (I wish), but $30 trillion. At least read the headline before posting.
2. When the government borrows, it sells Treasury securities to investors and in return gets cash from investors to spend. This is not money creation.
And then North Korea is said to have printed a few millions of counterfeit US dollar bills.;)
That make no impact as the amount of cash in coins and paper is miniscule compared to the amount of cash on the books.
Now could the North Korean activity be pulled of electronically with bank accounts?
The North Korean government has been counterfeiting dollar notes for decades. Those notes are useless until they’re spent outside of North Korea. This is when they enter circulation. When they enter the banking system in any developed country and most emerging countries, they will instantly be flagged as counterfeit and will be confiscated, the person that tried to deposit it will lose this money and might even get arrested, and the counterfeit notes get sent to the Fed, which investigates the situation and destroys the notes. So the net impact on the US is rather small.
Think of the Fed as having a checking account with no funds in the account. Yet they are allowed to use their “checks” to buy assets, such as government debt securities. Their checks are accepted as if they had money in their checking account. Wish I could do that.
The result is the creation of credit (out of thin air) used to buy government debt on the open market. The interest from that (free) debt is used to fund the Federal Reserve Bank, and pay salaries. Some goes to member banks. Most (over 90% the last time I looked) of the interest paid to the Fed on the US Treasury debt (purchased with credit “created out of thin air”) is returned to the US Treasury
The financial institutions who sold treasury securities receive the (free) money from the Fed, then have money to buy new Treasury debt from the US Treasury, if they want to.
Actual paper money is printed, and coins are minted, by the US Treasury, not by the Federal Reserve Bank
Since there is no political will in Washington DC to either reduce spending or increase revenues, it seems it’s fallen onto the FED to simply continue to let inflation run hot.
makruger
Wrong
The Fed should do its job and stop monitizing the deficit. They have become facilitators of the insanity that is going on here.
The various suggestions here show how we are far down a road of various parties getting their cut from a status quo (postwar USA world order), as it gradually decayed and evolved, and wringing out every advantage. This has led to a jumble of very complex problems that piled up — but that’s nothing new. All of earth life has lived in the edge of chaos from moment one. By now, from my POV, the options are all dicey, he downsides crowd on both sides of our road forward. The problems BTW are global, not simply based on some party or faction or government agency in the USA. China is spending lots for x amount of production too. Germany has inflation and political fringes making noise. There is no “outside” or other optimal system to escape to. But the US economy (to me, locally: daily functioning at the market, prices, etc.) is surprisingly functional, given the weirdness in recent times. But I was well prepared. We have been developing tools too, alongside various forms of the recent trends of social decay, but my question is, when something accelerates changes again in a crisis (shock), whose ox gets gored? I suspect, the usual suspects: those who have not prepared, cultivating all forms of health and fitness. The weakest points will be stress-tested. The real test is, where are your (my) actual bets placed (not what is the tone of my righteousness and bloviations here)? Nobody has it made, though the ultra-rich seem to have been on a fantastic run. A critical mass of folks in the USA have that casino mentality that they, too, will win the big lottery, so defer to the zillionaires. Fascinating messy dynamics all around.
Can some knowledgeable reader or Wolf comment on how the US monetary/banking system recovered from the Civil War finance debacle?
Is their a correlation to today, or useful lessons that could inform today’s challenges?
To John H
“Is their a correlation to today, or useful lessons that could inform today’s challenges?”
Sure is, for recent experience – Argentina economic collapse 2001.
A more historic example not an exact copy of what is happening today, but shows what happened when they tried to do a controlled slowdown, this happened – “He depreciated the currency and the shares by half, but the decision triggered a selling frenzy that drove the share price down sharply. The paper currency became worthless and Law found himself in exile all over again.”
From Investopedia.com – What burst the Mississippi Bubble?
The period from 1865 to 1913 in the US was marked by boom and bust cycles. Two of the more famous recessions started in 1873 and 1907. The second example later led to the creation of the Federal Reserve System in 1913. Overall, the period was marked by rapid growth and massive immigration from Europe. There was no social safety net and the federal government spent only a tiny percent of GDP. Its revenue came mostly from import duties. Immigration for whites was relatively unrestricted until the first quotas were put in place in 1921.
The Old South remained relatively poor for about a century after the civil war.
Agree with your history, except MUST ADD:
Crashes in that era, 1865-1907. were BAD for the Banksters and others supporting them/those banks…
LOL, (Little Old Ladies,, {of each and every gender,, just as prevalent then as now BTW} ) put their gold into jars and buried them in the ”good times”,,, then took them out and bought bought bought at the bottom, locally, etc., to the clear detriment of the banksters and their cronies…
And SO, the FRB was started to make sure, damn sure, that the LOLs would not and could not take advantage of their thrift,,,
and down WE the PEONS have gone ever since…
Been trying to get this across to folks for at least the last 40 years, since figuring out the stock market was a totally rigged game, with lots of upside to the ”club” of which I was clearly NOT a member.
Thanks for the comments about 19th c. boom/bust cycles. That period, then, allowed a Darwinian cleansing of the system, weeding out the dead wood and overly aggressive banks to fail, leaving healthy banks to pick up the pieces, yes?
What I was asking more specifically about was the end of the Greenback era of un-backed paper money (used to finance the was, since tax increases and massive US bond issuance were not politically feasible). I’m also curious the Species Resumption Act, which put a limit to money-printing back in place. I’m not necessarily arguing for a gold standard, but asking how we establish some system that works as well to limit government spending via money production.
Isn’t a return to a system of monetary constraints the prescription for what ails the money/banking system today??
Read Gods of Money for a point of view that describes how the most powerful robber barons set up and profited off of the bank crises.
1) COLA might be negative in 2023/24, with few executive orders.
2) Most US gov debt is to itself. JP earn gov dividends. By the end of the year JP return his net back to the gov, after taking a cut for himself.
3) In real terms, in the last two years, with an accumulated inflation of
8% – 10%, on average $28T debt, the gov paid minus $3T dividends. US gov debt : $28T – $3T = $25T.
4) China glorious winter game start tomorrow in a sixty thousands
concentration camp. There are more medical inspectors and secret police than athletes.
5) Athletes are more afraid of covid than breaking a leg.
6) If u email : Shi Shi Ping suck, u will arrested, China is no fun, u will be banned.
7) QQQ rise is very shallow. Despite all the input yesterday close is
lower than Jan 12 close.
To those skeptical that Feds will really raise interest rates in March and that 50bp hike and QT are off the table:
The Bank of England just imposed back-to-back interest rate hikes for the first time since 2004 and began the process of quantitative tightening.
Markets had broadly expected the 25 basis point rate increase, which the Monetary Policy Committee voted for 5-4 and which takes the main Bank Rate to 0.5%, as the central bank strives to contain soaring inflation. Four members voted to increase rates by 50 basis points to 0.75%.
The Bank of England stuck with past guidance to the market to expect quantitative tightening once the Bank Rate reached 0.5%, reducing its government and corporate bond purchase target by ceasing to reinvest maturing assets. A program of corporate bond sales is set to be completed no earlier than late 2023, which would fully unwind the central bank’s stock of corporate bond purchases.
and the ECB….
with inflation running hot says…”we are unanimous in our concern”
Wow!
It seems that comment was co authored by Powell.
‘To those skeptical that Feds will really raise interest rates in March…’
Don’t bother reading them, they are delusional.
Goldman now predicts 5 hikes up from 4.
BofA now says 6 (or it was it 7?)
WTI hits 90$.
Oh boy! And the arrival of spring is usually a seasonally strong time for oil prices. $100 by summer?
1) For entertainment only, SPX daily :
2) On Nov 22 SPX had a buying climax. Backbones led to Satya climax.
3) Between Oct low and Nov high there are two backbones that sent SPX higher :
4) A tiny BB #3 : Oct 26 hi/ 27 lo. // BB #4 : Nov 5 hi/ 10 lo.
5) Yesterday price reached BB #3.
6) There was a selling climax on Jan 24 lo and a bounce to Jan 26 hi. After an inside bar SPX moved up.
7) Jan 24 lo/ 26 hi might form a trading range. SPX will bounce up
and down.
8) SPX retraced 0.618 of the move from Jan 4 high to Jan 24 lo.
9) Price might test/ breach the low more than once.
10) Violent and wild. It will claw inflation, help JP.
11) Forget about six rates higher.
OK. I give up. I am going to borrow a ton of money and remora the Too Big To Fail. I guess the ideal is then to buy BlackRock shares and ride the shark from Panama or the Cayman Islands.
Good start j2, but ya got the ride backwards:
The ride is TO Panama, or Cayman, or Bahamas, or Bermuda,,, etc., etc…
Good Luck!
The political reality is that the 1% need to protect and increase their share of wealth so they use their pawns elected to office to do that. That allows them to offshore anything they want, create a tax code that only their CPA’s can understand and work through, and then donate millions to campaigns to say thank you . The pawns then complain that there isn’t enough money to pay for government programs so taxes need to be increased on you guessed it, the 99% only and regardless of social status (whether your on social security or medicare or both to name one).
This is not cynicism, it’s reality and it’s vicious, immoral, reprehensible but will never stop. Look at the players on both sides (because there are officially sides now) and see why the pawns allow themselves to be played: They’ve become rich.
Cash is a fast getaway horse,saddled up and topped off with oats. When a shoot-out and fire starts in the Crooked Fiat Saloon because the Cowboys want to cash in their chips and the House is broke, they will not be time to cash in your chips nor enough money if you had time. House was broke all along. Whatever chips you had on the table they became worthless quickly. That’s your loss. Everybody was grabbing for whatever cash was on the table while the bullets were flying. That ain’t your play if that fast horse is yours. You can leave the Saloon real quick and watch it all burn from a safe distance. There is always another crooked game in another crooked saloon in the next town if you got a fast horse.
You reap the benefits of borrowing today, while paying it back becomes somebody else’s problem tomorrow. Same as if you mortgage was paid back by somebody else.
$30T? I wonder at current trajectory if my 5yr old will get to see the big Q in his lifetime? I like the sound of $30Q..that Q sounds so cool.
Yes. Things will only accelerate, barring some catastrophic event. That is not to say seeing it in their lifetime is a good thing.
To your first chart:
Up, up and away,
In my beautiful, my beautiful balloon.
— The Fifth Dimension
😄️
You don’t need to be a economist, when the open destruction of the 1st amendment is worth half a trillion in their terms. Face-crap-book (monopolized and centralized against their own fundamental laws, 1A isn’t censorship and anti competitive means how much stock can we buy if we make exceptions). Fundamentals went to heaven with the towers.
Again, lockstep on graft and financial fluff since y2k was a dud. All this techno psycho corporate garbage needs to be vaporized, it hold no value except as a pension backstops; along with bit-shit-crypto , and unimaginable wasteful surveillance, green- waste-paperwork for empty investment buildings, 30 percent heavier, drivable batteries or ‘cars’ that need entirely new infrastructure system plus endless bonds and gov fantasy carbon credits, affordable housing, 5G installation etc etc etc. they are way out of their box and then spend to contradict all the thing they should have (by law and fundamentals) NO involvement in.
Fear mongering now cost us trillions directly and zillions in actual clown world by the time the clown janitors clean up. LMFAO for issues that stem and are spread from their very system. The corporate and gov, PRE MADONNA, PARASITES need to go pound sand in hell, they re 13 years pass due. Demons of waste, with sub cattle ‘economist’ herd in tow. And only continue to waste and destroy on a greater scale. Another 15 trillion since 16 GTFO with economist. Oh you mean modern non logical economist attending theater class on how to pump and dump the mirage.
For some perspective on where we are, a couple of books that are worth the read: “Debt and Delusion” by Peter Warburton, and “The Dictators Handbook: Why Bad Behavior is Almost Always Good Politics” available as as a free .pdf. They were both very enlightening!
(Wolf, please delete if this it’s out of line)
If we’re doing book recommendations, I would say The Authoritarians by Bob Altemeyer, available as a free e-book, is also a seminal text for our current era.
Oh, and Big Like by Wolf Richter. Wolf, please delete if this is out of line. :P
I got one ‘the ketchup and mustard of value investing’ by warren buffet. No reading or thinking skills required. Every other page is a ketchup and mustard finger painting followed by 800k Clayton home advertisement for a 100k structure. 8x taxes for you, but the market profits circle right back untouched!
See the fraud yet anybody. Wallstreets made your grandkids bed, and gov insist they lay in it. Their fake scheme, fake livelihood and fake pensions depend on it. They indoctrinated you out of production so they can ‘tax’ not only your basic needs but even the condiments!
The Bank of England has put interest rates up again to fight inflation. The is also a small tax increase for most workers from April 6th… There will also be a rise in the price of domestic natural gas of 54% from April 1st. Good job winter is nearly over by then…
Strange as it is, The ECB thinks everything is going well and doesn’t want to change anything until next year. What the heck are the Germans doing to allow all this possible massive rise in inflation. It’s like we are are back in the Weimar Republic.
German 10y turned positive – interesting.
Yes, going to happen in euroland too…
https://wolfstreet.com/2022/02/03/global-tightening-february-update-shock-and-awe-rate-hikes-by-many-central-banks-even-reckless-fed-and-ecb-get-in-line/
Did everyone see how the market moved around 1PM EST when the Ukraine news hit? That is the story to watch.
Crude ran up while the SPY and QQQ spiked lower. Algos were able to get SPY and QQQ back up for a little while, but that all faded.
This Ukraine story seemed to be getting better, but now, it is clearly getting worse. Very dangerous equity market conditions.
If this continues, we will see substantial inflation with a negative GDP print. This will trigger a run for hard assets … with very little housing supply available. Also, a very dangerous market to play in.
“This will trigger a run for hard assets … with very little housing supply available.”
For once Socaljim is right. Everyone is getting out of the stock market and using the money to buy Condos here in DC. We did one this weekend that was sold before it was half completed. Units are going for full price. A lot of new ones were build during the past few years and they are selling without any problem. They are the only affordable RE available. And there is plenty of supply.
Not everyone gets out unscathed. And leave one bubble to try another?
Wait a minute. If someone gets out of the stock market, someone else must be buying those shares. What you’re saying is that people living in San Diego or DC or wherever are selling their shares to people living in Dallas or wherever? But then why would the market be hot in Dallas when all those people are plowing their money into the stocks that people in San Diego and DC are selling?
In reality, big gains in cryptos and stocks can be leveraged, and people feel rich, and they can borrow against them and use the proceeds for a down payment.
When the stock market gets rattled long enough and far enough, and the losses are piling up for investors esp. those with big stakes in the most crushed highfliers, the housing market is likely to start feeling it too. We saw that during the dotcom bust.
Wolf
The stock market hasn’t got rattled enough to make a difference yet. It may happen in the future, agreed. Right now people are cashing in gains made in 2021 and it’s flowing into Condos. New administration came in resulted in a lot of turnover in RE. The new buyers can’t afford the high prices of Townhouses in DC which average $700,000. 2 BR Condos in decent locations are going for the low 500s. A lot of people here don’t even own a car as the public transportation is very good.
Russian stocks were down less than US stocks yesterday.
And Treasury yields were up so there was no flight to safety.
So unlikely that Ukraine news was behind the big sell off yesterday.
“debt” implies something that needs to be paid back…but how can we pay back $30 trillion in Treasuries? issue greenbacks in their stead? would holders of Treasuries really prefer greenbacks? and then what happens to the financial system if $30 trillion in Treasuries would suddenly be pulled out?
rjs,
Right on. I’m an elder now. When I was a teenager, 55 years ago, there were already cranks on TV trying to warn about the US national debt. I never paid much attention, and as things have worked out, I guess I shouldn’t have, since the crisis foretold has never materialized. National debts are never paid off in any country.
I know it is hard for people to believe that a sovereign government is in a fundamentally different position regarding its “Debt” than is a household.
Default is impossible unless it is deliberately sought through something like a debt limit law.
Does this mean that sovereign governments can spend without constraint? Obviously not. They have to protect the VALUE of the currency they control against inflation.
I believe the bond market will crash before the stock market. Especially the High Yield and the BBB rated bonds. The spread will widen between this sector and AAA rated bonds. and that will that could trigger a mass exit out of this sector. Wolf, we could use an update of the graph you posted before, unless I missed it.
Nice post thanks a lot