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The Utterly Unbelievable Scale of U.S. Debt Right Now

The Utterly Unbelievable Scale of U.S. Debt Right Now 

– Last week, the United States national debt ticked above US$22 trillion for the first time, an amount equivalent to $67,000 per U.S. citizen

– The U.S. federal government owes more money than any other institution in the history of human civilization and it’s just getting worse

– Below, a few factoids about just how eye-wateringly, bone-chillingly large the U.S. debt has become

– The U.S. debt is now higher than the combined market value of the Fortune 500 and just with the money it spends on interest, the U.S. could run Canada or Mexico

– Debt from one Trump term could pay for another WWII and all the gold ever mined would only pay off the debt accumulated under Obama

– All the gold in the world mined since the dawn of time adds to about 190,040 tonnes or 6.7 billion ounces. At the current per-ounce price of about $1,300, the world’s goal hoard worth over $8.5 trillion would be not enough to pay off the U.S. debt accumulated between 2009 and 2016

by Tristan Hopper in National Post


Gold bars worth a small fortune that would only cover a few hours’ worth of U.S. debt accumulation

U.S. debt is now higher than the combined market value of the Fortune 500

The Fortune 500 list includes all the recognizable titans of American business from Apple to Amazon to Exxon-Mobil to the list’s ranking 500th spot, the uniform and laundry company Cintas. Taken together, they basically constitute every major consumer, media, industrial and entertainment product in the United States. If you are the average westerner, the Fortune 500 is responsible for most of your wardrobe, your diet, your home and your leisure pursuits.

 …click on the above link to read the rest of the article…

Peter Schiff: “The Real National Emergency Isn’t At The Border. It’s The National Debt!”

Peter Schiff: “The Real National Emergency Isn’t At The Border. It’s The National Debt!”

Peter Schiff, the CEO and chief global strategist of Euro Pacific Capital Inc. says that the real national emergency is not at the southern border.  The real ticking time bomb is the national debt.

We are headed for a train wreck in this country because of the national debt and yet nobody seems concerned about it.  In fact, many Americans have taken to emulating the federal government by getting themselves buried in massive amounts of debt as well, compounding the issue. According to Seeking Alpha‘s report by Schiff Gold, we should all we wary of the government’s overspending and desire to tax more to make up for it. Just because we haven’t suffered a crisis – YET- based on this debt doesn’t mean that one isn’t coming.

On Friday, President Donald Trump declared a national emergency so he could build a wall at the southern border. Based on that declaration, the president will reallocate $6.5 billion from other government programs to fund a border wall. But the problem isn’t that we don’t have a wall, says Schiff.  The problem is we’ve already built a wall of debt.

“Of course, the real national emergency is not the lack of a wall, the failure to build a wall, but building up the national debt.” –Peter Schiff via Seeking Alpha

The United States debt surpassed the $22 trillion mark just last week and continues to rocket upward with no end in sight and this is just the very tip of the iceberg.

This is just a funded portion of the debt. This is where the US government sells a bond and somebody owns that bond.

 …click on the above link to read the rest of the article…

The US Corporate Debt Bomb, Europe’s Recession, and Systemic Risk in China

The US Corporate Debt Bomb, Europe’s Recession, and Systemic Risk in China

Yesterday’s note caught a lot of attention.

In it, we argued that investing in stocks today based on the Fed getting dovish is like buying stocks after the Bear Stearns deal: you’re buying based on a development that reveals the financial system is in serious trouble.

Remember, the Fed didn’t become dovish for no reason… it because dovish because it sees systemic risk on the horizon.

Corporate America is perched atop a debt bomb of $10 trillion, of which roughly 1/3rd is junk… meaning unlikely to be paid back.

Rather than issuing debt to build factories or expand operations, these companies have been issuing debt to buy back shares, resulting in the system being MORE leveraged today than it was in 2007.

Over $700 billion of this debt comes due this year… at a time when 60% of US companies already have NEGATIVE cash flow.

Put another way, the debt is coming due at a time when most companies don’t have the money to pay it back.

Outside of the US, Europe is teetering on the brink of recession, with the latest industrial production numbers showing a year over year decline of 4.2%. This is the largest collapse since 2009, at the depth of the Great Financial Crisis.

Then there’s China, where despite claims to the contrary, the entire system is collapsing. The Central Bank of China just engaged in the largest liquidity pump of all time last month… meaning it spent MORE money propping up the system in January 2019 than it did at any point in 2008.

If things are fine in China, why is it doing this?

Again, structurally the global financial system is in SERIOUS trouble. Buying stocks today based on the idea that the Fed is not as hawkish as before is like buying stocks because of the Bear Stearns deal.

And deep down, the market knows it.

 …click on the above link to read the rest of the article…

Chapter 3: How Money Works Today: A Summary.

CHAPTER 3: HOW MONEY WORKS TODAY: A SUMMARY.

This chapter summarises how money works today. For convenience’s sake, there will be some repetition of material covered elsewhere.

Founded on debt rented out at interest, the money system is difficult for most human minds (mine, for instance) to grasp. It is counter-intuitive, so much so that a leading banking historian (Lloyd Mints) described it as work of the devil. In his own words:

‘It would seem that an evil designer of human affairs had the remarkable prevision to arrange matters so that funds repayable on demand could be made the basis of profitable operations by the depository institutions. It is wholly fortuitous that an income can be earned from the use of such funds, but this being so has resulted in the creation of institutions which have largely taken over control of the stock of money, an essential government function.’[1]

Authoritative sources describe our system of money and finance much as it is described in this chapter. Journalists, teachers and writers of textbooks, however, tend to describe an entirely different (mythical) system in which ‘savings’, rather than newly-created money, form the basis of capitalism.[2]

What is ‘Money’?

We all know what money is. It’s something we can own which can be swapped for other things that are up for sale. It is a kind of abstract property: mine is mine, and yours is yours.

For people who like their truths to be stated with a bit more gravitas, here is an economist saying the same thing:

‘So long as, in any community, there is an article which all producers take freely and as a matter of course, in exchange for what they have to sell, instead of looking about, at the time, for the particular things they themselves wish to consume, that article is money, be it white, yellow, or black, hard or soft, animal, vegetable or mineral. There is no other test of money than this. That which does the money-work is the money-thing.’[3]

 …click on the above link to read the rest of the article…

Sustainable Government Debt–An Old Idea Refreshed

SUSTAINABLE GOVERNMENT DEBT – AN OLD IDEA REFRESHED

 

  • New research from the Peterson Institute suggests bond yields may fall once more
  • Demographic forces and unfunded state liabilities point to an inevitable reckoning
  • The next financial crisis may be assuaged with a mix of fiscal expansion plus QQE
  • Pension fund return expectations for bonds and stocks need to be revised lower

The Peterson Institute has long been one of my favourite sources of original research in the field of economics. They generally support free-market ideas, although they are less than classically liberal in their approach. I was, nonetheless, surprised by the Presidential Lecture given at the annual gathering of the American Economic Association (AEA) by Olivier Blanchard, ex-IMF Chief Economist, now at the Peterson Institute – Public Debt and Low Interest Rates. The title is quite anodyne, the content may come to be regarded as incendiary. Here is part of his introduction: –

Since 1980, interest rates on U.S. government bonds have steadily decreased. They are now lower than the nominal growth rate, and according to current forecasts, this is expected to remain the case for the foreseeable future. 10-year U.S. nominal rates hover around 3%, while forecasts of nominal growth are around 4% (2% real growth, 2% inflation). The inequality holds even more strongly in the other major advanced economies: The 10-year UK nominal rate is 1.3%, compared to forecasts of 10-year nominal growth around 3.6% (1.6% real, 2% inflation). The 10-year Euro nominal rate is 1.2%, compared to forecasts of 10-year nominal growth around 3.2% (1.5% real, 2% inflation). The 10-year Japanese nominal rate is 0.1%, compared to forecasts of 10-year nominal growth around 1.4% (1.0% real, 0.4% inflation).

The question this paper asks is what the implications of such low rates should be for government debt policy. It is an important question for at least two reasons.

…click on the above link to read the rest of the article…

US National Debt Tops $22 Trillion

US National Debt Tops $22 Trillion

For 8 years, we took every opportunity to point out that under Barack Obama’s administration, US debt was rising at a alarmingly rapid rate, having nearly doubled, surging by $9.3 trillion  during his term.

And while the absolute pace is slower, the trajectory of US debt under the Trump administration looks set to be no different.

We note this because as of close of Monday, the US Treasury reported that total US debt has risen above $22 trillion for the first time; or $22,012,840,891,685.32 to be precise (11 months after topping $21 trillion).

“Reaching this unfortunate milestone so rapidly is the latest sign that our fiscal situation is not only unsustainable but accelerating,” said Michael A. Peterson, chief executive officer of the Peter G. Peterson Foundation, a nonpartisan organization working to address the country’s long-term fiscal challenges.

Putting this in context, total US debt has now risen by over $2 trillion since Trump took office… but notably slower than Obama’s pace of borrowing…

We doubt today’s milestone will be celebrated on Trump’s twitter account.

And while some can argue – especially adherents of the socialist Magic Money Tree, or MMT, theory – that there is no reason why the exponential debt increase can’t continue indefinitely… the CBO’s long-term forecast of debt issuance is, basically, apocalyptic as the following chart confirms…

But it gets worse, as Double Line’s Jeff Gundlach recently noted…


Currently $122 Trillion US unfunded liabilities per Debtclock. That’s 564% of Fiscal ‘18 GDP. To fund would require 10% of GDP for 56+ yrs.

And worse still – The Fed ain’t buying like it was during Obama’s reign…

 …click on the above link to read the rest of the article…

Debt Trifecta at All-Time Highs – Billionaires Panic

Debt Trifecta at All-Time Highs – Billionaires Panic

The “trifecta” of national, corporate, and consumer debt has reached all-time highs, and could prove to be catastrophic if a recession hits.

Let’s start by quickly bringing each part of this debt trifecta up to date as much as possible…

U.S. National Debt

The national debt, ever on the rise, currently sits at around $22 trillion:

In just the short decade since 2008, the debt has jumped from $10.6 trillion to $22 trillion. It also comes with a deficit that’s currently over $1 trillion currently. The interest payments alone may be forming a “black hole” from which the U.S. may never escape.

These facts alone should raise concern in any interested observer.

Corporate Debt

The total amount of corporate debt has never stopped rising since 1950. Corporations have taken on a record level of debt since 2007.

You can see the steady rise in corporate debt liabilities here:

One of the main problems with this type of debt, aside from getting repaid, is that some corporations are using it to buy back shares of stock. Instead of this “sleight of hand,” you’d think that they should be using it to fund growth and create jobs.

But one thing is certain, the piper will need to be paid at some point. When that happens, who knows what can happen to the economy.

Consumer Debt

Total consumer debt is near $4 trillion, and has been rising steadily since 1975. But it has risen a staggering 47%since 2008, and shows no signs of stopping.

The chart below reveals this economic “ATM” at work:

When interest rates rise, as they have been thanks to the Fed’s recent spat of rate hikes, they will eventually get high enough that consumers won’t be able to get loans, or repay them.

Economic growth requires that consumers buy things and obtain credit. If they can’t do either, the consequences could be dire.

Now, this debt-fueled trifecta has caused panic among some billionaires.

 …click on the above link to read the rest of the article…

The Most Depressing Stat Of The Month: The U.S. National Debt Is About To Pass The $22 Trillion Mark

The Most Depressing Stat Of The Month: The U.S. National Debt Is About To Pass The $22 Trillion Mark

The U.S. national debt is wildly out of control, and nobody in Washington seems to care.  According to the U.S. Treasury, the federal government is currently $21,933,491,166,604.77 in debt.  In just a few days, that figure will cross the 22 trillion dollar mark.  Over the last 10 years, we have added more than 11 trillion dollars to the national debt, and that means that it has been growing at a pace of more than a trillion dollars a year.  To call this a major national crisis would be a massive understatement, and yet there is absolutely no urgency in Washington address this absolutely critical issue.  We are literally destroying the financial future of this nation, but most Americans don’t seem to understand the gravity of the situation that we are facing.

The Congressional Budget Office projects that the national debt and interest on that debt will both explode at an exponential rate in future years if we stay on the path that we are currently on.  According to the CBO, the federal government spent 371 billion dollars on net interest during the most recent fiscal year…

In fiscal 2018, the government spent $371 billion on net interest, while the Defense Department budget was $599 billion. Social Security benefits cost $977 billion, Medicare $585 billion and Medicaid $389 billion, according to the CBO estimates.

But the CBO said interest outlays’ rate of growth in fiscal 2018 was faster than that for the three mandatory federal programs: Social Security (up $43 billion, or 5 percent); Medicaid (up $14 billion, or 4 percent); and Medicare (up $16 billion, or 3 percent). In comparison, net interest on the public debt increased by $62 billion, or 20 percent.

The 371 billion dollars that we spent on interest could have been spent on roads, schools, airports, strengthening our military or helping the homeless.

Instead, it was poured down a black hole.

 …click on the above link to read the rest of the article…

Are Investors Finally Waking up to North America’s Fracked Gas Crisis?

Are Investors Finally Waking up to North America’s Fracked Gas Crisis?

natural gas flare

The fracked gas industry’s long borrowing binge may finally be hitting a hard reality: paying back investors.

Enabled by rising debt, shale companies have been achieving record fracked oil and gas production, while promising investors a big future payoff. But over a decade into the “fracking miracle,” investors are showing signs they’re worried that payoff will never come — and as a result, loans are drying up.

Growth is apparently no longer the answer for the U.S. natural gas industry, as Matthew Portillo, director of exploration and production research at the investment bank Tudor, Pickering, Holt & Co., recently told The Wall Street Journal.

“Growth is a disease that has plagued the space,” Portillo said. “And it needs to be cured before the [natural gas] sector can garner long-term investor interest.”

Hints that gas investors are no longer happy with growth-at-any-cost abound. For starters, several major natural gas producers have announced spending cuts for 2019.

After announcing layoffs this January, EQT, the largest natural gas producer in the U.S., also promised to decrease spending by 20 percent in 2019.Embed from Getty Images

Such pledges of newfound fiscal restraint are most likely the result of natural gas producers’ inability to borrow more money at low rates.

As DeSmog has reported, the historically low interest rates following the 2008 housing crisis were a major enabler of the free-spending and money-losing attitudes in the shale industry. Wall Street has funded a decade of oil and gas production via fracking and incentivized production over profits. Those incentives have worked, with record production and large losses.

However, much like giving mortgages to people without jobs wasn’t a sustainable business model, loaning money to shale companies that spend it all without making a profit is not sustainable.

 …click on the above link to read the rest of the article…

New Monetary Theory is Like Sleepwalking

New Monetary Theory is Like Sleepwalking 

QUESTION: Bernie Sanders was basing his whole economic proposal to just keep spending and make everything free. They seem to be teaching this in school now. This macroeconomic theory whereby a country’s spending is only constrained not by revenue in taxes but by inflation when it creates a sovereign currency. It seems too good to be true, but some economists were teaching this to my son. Would you care to comment on this theory?

JH

ANSWER: The problem with what many call “new” or “modern” monetary theory is that it is like sleepwalking. You walk, creating GDP, while you are also dreaming. It reminds me of Shakespeare:

“To die, to sleep–To sleep–perchance to dream: ay, there’s the rub, for in that sleep of death what dreams may come when we have shuffled off this mortal coil, must give us pause.”

This economic theory is the same old incantation — how to prosper with other people’s money. Rome had no national debt and no central bank. It created money to fund itself. In hard times, they used the law to confiscate the property of people as they are doing today with their civil asset forfeitures.

What is missing in this theory is the question of debt. They assume they can borrow without end and never have to account for what they have done. They fail to understand that concept and try to regulate pension funds, which requires them to obtain government debt that they never pay off.

Yes, you can just create money to fund the government and it is confined by inflation. That is a true statement if taken by itself. However, you cannot then borrow with no intention of paying down the debt because the accumulative interest payments will end up representing 100% of the debt. This theory fails for it ignores dealing with the debt.

 …click on the above link to read the rest of the article…

Debts and Deficits are Out of Control

Debts and Deficits are Out of Control


Understandably, the problems and politics of the moment dominate the news and attract the attention of most policy commentators and much of the public. Will there be another government shutdown, will House Democrats attempt to impeach the president, will interest rates remain low, and will there be a trade war with China? But there are longer-term problems as well, and one of them is the rising U.S. national debt due to annual government budget deficits as far into the future as the eye can see.

The Congressional Budget Office (CBO) recently issued its latest “Budget and Economic Outlook”projection, covering the next decade, 2019-29. And it is not a pretty picture. As of the beginning of February 2019, the cumulative federal government debt is approaching $22 trillion. This comes out to a per capita burden of nearly $67,000 for all those residing in the United States, and about $179,500 per U.S. taxpayer.

The CBO predicts that between 2019 and 2029, the government’s gross national debt will increase to almost $33.7 trillion because of annual budget deficits that beginning in the years immediately ahead will be over $1 trillion a year all the way to 2029 and will continue that way for every year after that to 2049 in the CBO’s much longer-term forecast. 

Not that the Congressional Budget Office’s projections will be right on target. The report admits that the agency has been wrong in its past forecasts. But virtually always its error has been to underestimate the growth in the federal government’s deficits and debt. So, if its track record follows form, when 2029 rolls around and the coming 10 years are looked back on, the national-debt problem may very well be noticeably worse than the CBO is currently anticipating.

 …click on the above link to read the rest of the article…

Chapter 4: Early Days

CHAPTER 4: EARLY DAYS.

The situation we are in today has evolved over many centuries. Economists had plenty of time and opportunity to comment – and comment they did. Only recently has it become highly controversial to notice that banks create money, let alone to discuss the implications.[1] This makes the comments of earlier economists particularly interesting – for their honesty and perceptiveness.

This chapter begins with economists commenting on the increasing power and influence of bank-credit. It finishes with a fascinating (and very modern) suggestion from 1707 of how money shouldbe created, fairly and realistically for the benefit of all. The proposal is similar to many reform proposals being put forward today.

Here are some features of bank-money that writers on economics were reacting to (some unfavourably, some favourably):

  • Bankers create more in ‘credit’ than they have in ‘cash’.
  • Their credit becomes money when it circulates in making payments.
  • When bank-credit becomes money, interest siphons money from working and productive people to wealthy and powerful people.[2]
  • Money created by banks increases the powers of government and concentrates the power of capital in fewer and fewer hands.
  • Bank-credit feeds war, predatory nationalism and national debt.
  • Increased concentrations of power bring new moral values: neglecting justice in favour of social management, exploitation and direction from above.

For roughly two thousand years, from the days of Aristotle to the end of the Middle Ages, economists did not pretend to be ‘scientists’. First and foremost, they were moral philosophers. They wrote about money and power in relation to law and the morality of human well-being. Aristotle, for instance, believed that money should be a means of exchange, not allowed to ‘breed’ more money.[3] Money, he said, is a human invention. We must be careful that it produces good, not evil.

 …click on the above link to read the rest of the article…

How An Italian Debt Crisis Could Take Down The EU

How An Italian Debt Crisis Could Take Down The EU

Plagued by another run of bank bailouts and simmering tensions between the partners in its ruling coalition, Italy’s brief reprieve following the detente between its populist rulers and angry bureaucrats in Brussels is already beginning to fade. As Bloomberg reminded us on Monday, Italy’s $1.7 trillion pile of public debt – the third largest sovereign debt pool in Europe – is threatening to set off a chain reaction that could hammer banks from Rome, to Madrid, to Frankfurt – and beyond.

Italy

Just the mention of the precarity of Italian debt markets “can induce a shudder of financial fear like no other” in bureaucrats and businessmen alike – particularly after Italy’s economy slid into a recession during Q4.

Italy

While much of Italy’s debt burden is held by its banks and private citizens, lenders outside of Italy are holding some 425 billion euros ($486 billion) in public and private debt.

Bank

The Bloomberg analysis of Italy’s financial foibles follows more reports that Italy’s ruling coalition between the anti-immigrant, pro-business League and the vaguely left-wing populist Five-Star Movement has become increasingly strained. Per BBG, the two parties are fighting a battle on two fronts over the construction of a high speed Alpine rail and a legal case involving League leader Matteo Salvini over his refusal to let the Dicotti migrant ship to dock in an Italian port last summer.

After M5S intimated that it could support the investigation, the League warned that such a move would be tantamount to “blackmail” against Salvini, whose lieutenants have been pushing for him to take advantage of the party’s rising poll numbers and push for early elections later this year. However, Salvini has rebuffed these demands, warning that there’s nothing stopping Italian President Sergio Mattarella from calling for a new coalition instead of new elections.

 …click on the above link to read the rest of the article…

Hurtling Toward Bankruptcy

HURTLING TOWARD BANKRUPTCY

The federal government owes people almost $22 trillion. That means that American taxpayers owe people almost $22 trillion. That’s because the federal government has no money of its own. The money it gets comes entirely from American taxpayers. That’s what the IRS is for — to make certain that everyone sends his required amount of taxes to the federal government to enable it to cover its expenditures.

According to usdebtclock.org (which is an Internet spectacle worth looking at), federal tax revenue amounts to around $3.3 trillion. The amount of federal expenditures is over $4.1 trillion. That means that almost another trillion dollars will be added to the government’s debt load, making it $23 trillion. 

The share of the debt for a U.S. citizen amounts to more than $219,000. For a U.S. family, its share of the debt is more than $856,000.

This is what is occurring year after year, thanks to the massive welfare-state, warfare-state way of life that conservatives and liberals have foisted upon our nation.

Some statists argue that it’s all no big deal. They say that since we are all Americans, we owe all that debt to ourselves. That ignores the fact that there are individual and institutional creditors who have loaned money and expect to be paid back. The fact that some them are Americans is irrelevant. They expect their money, which means that the federal government will have to tax American citizens to get it. Thus, we don’t owe all that money to ourselves. One group is owed the money and American taxpayers are on the hook for repaying it.

Moreover, the debt is also held by foreigners, all of whom expect to be repaid in full the money they loaned to the federal government. One of the principal creditors is Communist China, whose regime was one of the big lenders for President George W. Bush’s invasion and occupation of Iraq.

 …click on the above link to read the rest of the article…

A World of Debt–Where Are the Risks?

A WORLD OF DEBT – WHERE ARE THE RISKS?

  • Private debt has been the main source of rising debt to GDP ratios since 2008
  • Advanced economies have led the trend
  • Emerging market debt increases have been dominated by China
  • Credit spreads are a key indicator to watch in 2019

Since the financial crisis of 2008/2009 global debt has increased to reach a new all-time high. This trend has been documented before in articles such as the 2014 paper from the International Center for Monetary and Banking Studies – Deleveraging? What deleveraging? The IMF have also been built a global picture of the combined impact of private and public debt. In a recent publication – New Data on Global Debt – IMF – the authors make some interesting observations: –

Global debt has reached an all-time high of $184 trillion in nominal terms, the equivalent of 225 percent of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income per-capita.

The most indebted economies in the world are also the richer ones. You can explore this more in the interactive chart below. The top three borrowers in the world—the United States, China, and Japan—account for more than half of global debt, exceeding their share of global output.

The private sector’s debt has tripled since 1950. This makes it the driving force behind global debt. Another change since the global financial crisis has been the rise in private debt in emerging markets, led by China, overtaking advanced economies. At the other end of the spectrum, private debt has remained very low in low-income developing countries.

Global public debt, on the other hand, has experienced a reversal of sorts. After a steady decline up to the mid-1970s, public debt has gone up since, with advanced economies at the helm and, of late, followed by emerging and low-income developing countries.

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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