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This contrarian sees a strong consensus around the notion that hyper-inflation is the inevitable end-game of nation-states / central banks issuing fiat currencies, i.e. currencies that are not restrained by being pegged to tangible assets such as gold reserves. The temptation to issue (via “printing” or borrowing new currency into existence by selling sovereign bonds) more currency becomes irresistible to politicians and central bankers alike. as the means to mollify every constituency, from elites to the military to commoners dependent on state-funded bread and circuses.

This unrestrained creation of new money far in excess of the expansion of goods and services (i.e. the real economy) devalues the currency, as “all the new money chases too few goods and services.” Gresham’s law kicks in–bad money drives good money out of circulation–as precious metals, fine art, gemstones, etc. are hoarded and the depreciating currency is spent as fast as possible before its purchasing power declines even further.

The Cotillion Effect also kicks in: those closest to the spigot of new money get first dibs on converting the depreciating currency into tangible goods, leaving the non-elites to sweep up the “trickle-down” shreds left as the currency loses purchasing power daily.

The consensus holds that there is no way to stop this decay of purchasing power to near-zero, i.e. hyper-inflation, once it starts. As in a Greek tragedy, the fatal flaw of the protagonist–in this case, fiat currency–leads inevitably to its destruction.

In the real world, things having to do with money tend to occur because they benefit powerful interests. This leads us to ask of hyper-inflation: cui bono, to whose benefit? Exactly which powerful interests benefit when a currency’s purchasing power plummets to near-zero?

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

There’s More to China’s U.S. Debt-Dumping Rush Than Meets the Eye

May 27, 2024

There’s More to China’s U.S. Debt-Dumping Rush Than Meets the Eye

Unprintable Alternative to Debt, De-Dollarization, Not Just China, Leaving the West for the East

“Gold is money. Everything else is credit.”
~ J. P. Morgan

Earlier this week, I told you how China has accelerated its de-dollarization efforts with rapid-fire sales of U.S. debt.

The country offloaded $53.3 billion worth of U.S. Treasuries and U.S. agency bonds. This is the largest single sale of U.S. debt in its history.

But, as I explained, even U.S. allies like Belgium and Switzerland have recently dumped an impressive $20 billion and $43 billion worth of Treasuries, respectively.

If this trend keeps up, it could be a big problem for the U.S. government. That’s because about one-third of its debt, or $8 trillion, is held by foreign countries.

The Unprintable Alternative

Now, the main reason foreigners own such a large portion of U.S. debt is simple: the U.S. dollar is the world’s primary reserve currency.

Currently, central banks hold about 58% of their foreign reserves in U.S. dollars. To earn returns on all this cash, they invest it in U.S. Treasuries, which are considered the safest assets in the world.

There’s just no alternative… or is there?

Well, China certainly seems to think so.

Just take a look at the next graph showing China’s holdings of U.S. Treasuries and gold as a percentage of its foreign reserves since 2015.

The chart above shows that as China cut back on U.S. debt, it ramped up its gold purchases. This inverse relationship between China’s gold and U.S. debt holdings became really noticeable around 2018, when the trade war with the U.S. kicked off. And as I mentioned in my last essay, by 2019, China had given up its spot as the biggest holder of U.S. debt to Japan.

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

China Just Dumped the Largest Amount of U.S. Debt in History

May 22, 2024

China Just Dumped the Largest Amount of U.S. Debt in History

Dropping It Like a Hot Potato, the Lowest level of U.S. Debt Ownership in Decades, Not Just a “China-Leaning” Countries Problem

At this point, the government is completely and totally bankrupt. It’s like Wile E. Coyote that’s walked off a cliff, but doesn’t really realize it yet.
~ Doug Casey

We just learned that China has accelerated its de-dollarization efforts with record sales of U.S. debt.

Turns out, China dumped a staggering $53.3 billion worth of U.S. Treasuries and U.S. agency bonds in the first quarter of this year.

Interestingly, the Chinese government announced the sale right after issuing a joint statement with Russia, where both nations emphasized their resolve to keep moving away from reliance on Western countries.

No doubt, this will seriously dent the appeal of U.S. debt on the international market. But let’s take a closer look to see exactly why.

Yes, It Is a Big Deal...

Now, this isn’t the first time China has unloaded a portion of the U.S. debt it owns. For example, the country sold $21 billion in U.S. Treasuries and agency bonds in late 2023.

But what makes this latest dump stand out is that it’s the first time China has shed such a big chunk of debt so quickly.

The move brings the nation’s holdings of U.S. government debt to around $767 billion. That’s the lowest level of ownership in decades.

It’s quite something when you think about it… Just a few years back, China was leading the pack in investing in U.S. debt. Things changed around 2018 though, when the trade war with the U.S. began. By 2019, China ceded the position to Japan as the biggest holder of U.S. debt.

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

Because We’re Still Not Sufficiently Indebted…

May 19, 2024

Because We’re Still Not Sufficiently Indebted…

Now the government wants your home equity

Zero Hedge just posted a long look at how the “buy now, pay later” (BNPL) industry now accounts for about $700 billion of largely unreported “phantom debt”. This, speculates ZH, is why the economy hasn’t fallen into recession.

Now come the unintended consequences:

Pernicious effects of BNPL credit are piling up: the Harris Poll survey conducted last month, provides some crucial clues about how Americans use BNPL. For one, splitting payments into smaller chunks encourages more spending, obviously.

More than half of respondents who use BNPL said it allowed them to purchase more than they could afford, while nearly a quarter agreed with the statement that their BNPL spending was “out of control.” Harris also found that 23% of users said they couldn’t afford the majority of what they bought without splitting payments, while more than a third turned to the services after maxing out credit cards…

…In other words, not only do we not know just how big the BNPL problem is, it is actively masked by credit agencies which can’t accurately calculate the FICO score of tens of millions of Americans, and as a result their credit capacity is artificially boosted with far more debt than they can handle… and that’s why the US consumer has been so “strong” in recent years, defying all conventional credit metrics.

BNPL is obviously dangerous and stupid because the last thing working people need is another way to wrack up more unpayable debt. But it’s not the worst thing the US is considering:

Enter…Government-Funded Home Equity Loans

$3 trillion could be injected into the U.S. economy without any federal spending by tweaking this corner of the mortgage market, ‘Oracle of Wall Street’ says

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

Record Household Debt, Jump In Delinquencies Signal “Worsening Financial Distress”, Fed Warns

May 19, 2024

Record Household Debt, Jump In Delinquencies Signal “Worsening Financial Distress”, Fed Warns

While the market remains focused on tomorrow’s CPI print, and to a lesser extent the April retail sales reports, which will both be released at 8:30am on May 15. we should flag another important report that doesn’t typically get a lot of attention: the New York Fed’s Household Debt and Credit Report for 1Q 2024 which was just published, and where the latest data on credit card debt and delinquencies has recently been the most important part of the report.

While we already know that in the latest monthly consumer credit report published by the Fed last week and covering the month of March, total consumer debt hit a record high (despite a sharp slowdown in credit card growth) even as the personal savings rate plunged to an all-time low, hardly a ringing endorsement for the strength of the US consumer…

… today’s report provided more granular details which however did not change the conclusion: the US consumer is getting weaker, and while not in a crisis just yet, will get there soon enough.

As the chart from the NY Fed shows, at the end of the first quarter, US household debt reached a record and more borrowers are struggling to keep up: overall US household debt rose to $17.69 trillion, the NYFed’s Quarterly Report on Household Debt and Credit revealed (link here). That’s an increase of $184 billion, or 1.1%, from the fourth quarter.

Consumers have added $3.4 trillion in debt since the pandemic, and that increased debt bears much higher interest rates.

And with both credit card rates and total credit at all time highs, the data corroborate the mounting financial pressures on American families in an age of elevated inflation. The persistent rise in the prices of essentials such as food and rent have strained household budgets, pushing people to borrow against their credit cards to pay for necessities.

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

How Powell Destroyed His Inflation War as he Eats the Poor

May 18, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong…

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

How Powell Destroyed His Inflation War as he Eats the Poor

May 17, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong. Not only are popular gauges of the investing climate famously loose — some are looser than before the Fed kicked off its historic monetary-tightening campaign more than two years ago.

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

This Is the Proverbial Ball You Should Be Keeping Your Eye On…

May 17, 2024

This Is the Proverbial Ball You Should Be Keeping Your Eye On…

Gold, the Brief History of U.S. Debt, Not a Great Club, and the U.S.’ Debt-to-GDP Surpassing Venezuela’s

“Blessed are the young, for they shall inherit the national debt.”
~ Herbert Hoover

If you’re like me, you probably sometimes come across an important economic or geopolitical event in screaming headlines and think, “That’s bullish for gold.” But then the metal moves in the opposite direction from what you were expecting. Doug Casey always tells us not to worry about short-term fluctuations — and he’s absolutely right — but it’s still frustrating at times.

Now, it’s easy to dismiss these thoughts because gold has recently hit new all-time highs, topping $2,400 per ounce.

But remember, there’ve been plenty of corrections during this gold bull run. And trust me, there’ll be many more.

When they happen, it’s easy to get distracted, lose patience, even sleep, and get shaken out of an otherwise winning investment.

That’s why it’s crucial that you always keep your eye on the ball. Which, I should say, is more like a snowball in this case.

Snowball's Gonna Snowball

Major financial, economic, or political shifts don’t just happen overnight. They’re more like a snowball rolling downhill, picking up speed and size along the way. Eventually, they reach a tipping point, transforming into full-blown crises, catching the unprepared off guard.

And, of course, there’s no better example of this today than the the ever-growing snowball of the U.S. debt that has become so big it’s already engulfing our whole economy. Consider this chart.

Notice that government debt was practically nonexistent halfway through the 20^th century, but has seen a dramatic increase in the following decades. This happened with the expansion of federal government spending under Presidents Franklin D. Roosevelt, Lyndon B. Johnson’s, Richard Nixon. And debt just kept snowballing since.

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

You Need 2 Years of Food – Martin Armstrong

May 9, 2024

You Need 2 Years of Food – Martin Armstrong

Legendary financial and geopolitical cycle analyst Martin Armstrong has new data on how well the Biden economy is doing. Spoiler alert: It’s not doing well, and the financial system is about to tank. I asked Armstrong if the US government could default on its debt if countries around the world continue to stop buying it? Armstrong explained, “I think the US could default on its debt as early as 2025, but probably in 2027. We have kicked the can down the road as far as we can go. It’s not just in the United States. Europe is in the same boat. So is Japan. This is why they need war. They think by going into war, that’s the excuse to default on the debt. They simply will not pay China. If they try to sell their debt–good luck. We are not redeeming it. The same thing is happening in Europe. So, once that happens, you go into war, and that is their excuse on this whole debt thing to collapse, which wipes out pensions etc. Then they can blame Putin. This is the same thing Biden was doing before saying this was Putin’s inflation. Then, with the whole CBDC thing (central bank digital currency) . . . . the IMF has already completed its digital coin, and they want that to replace the dollar as the reserve currency for the world. . . . These people are desperately just trying to hang on to power. Nobody wants to give it up, and nobody wants to reform.”

I asked Armstrong what should the common person be doing now? Armstrong surprisingly said, “I think you need, safely, two years’ worth of food supply. . . .This is what I have. It’s not just prices will go up, but mainly because there will be shortages….

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

David Stockman on the $1.3 Trillion Elephant In The Room

May 3, 2024

David Stockman on the $1.3 Trillion Elephant In The Room

These people have to be stopped!

We are talking about the nation’s unhinged monetary politburo domiciled in the Eccles Building, of course. It is bad enough that their relentless inflation of financial assets has showered the 1% with untold trillions of windfall gains, but their ultimate crime is that they lured the nation’s elected politician into a veritable fiscal trance. Consequently, future generations will be lugging the service costs on insuperable public debts for years to come.

For more than two decades these foolish PhDs and monetary apparatchiks drove the entire Treasury yield curve to rock bottom, even as public debt erupted skyward. In this context, the single biggest chunk of the Treasury debt lies in the 90-day T-bill sector, but between December 2007 and June 2023 the inflation-adjusted yield on this workhorse debt security was negative 95% of the time.

That’s right. During that 187-month span, the interest rate exceeded the running (LTM) inflation rate during only nine months, as depicted by the purple area picking above the zero bound in the chart, and even then by just a tad. All the rest of the time, Uncle Sam was happily taxing the inflationary rise in nominal incomes, even as his debt service payments were dramatically lagging the 78% rise of CPI during that period.

Inflation-Adjusted Yield On 90-Day T-bills, 2007 to 2022

The above was the fiscal equivalent of Novocain. It enabled the elected politicians to merrily jig up and down Pennsylvania Avenue and stroll the K-Street corridors dispensing bountiful goodies left and right, while experiencing nary a moment of pain from the massive debt burden they were piling on the main street economy..

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

Recession Watch: Why isn’t “inevitable” becoming “imminent”?

April 29, 2024

Recession Watch: Why isn’t “inevitable” becoming “imminent”?

Because “fiscal dominance”…

So that recession I keep whining about still hasn’t arrived. What’s going on out there to keep “inevitable” from becoming “imminent”?

It might be as simple as a government borrowing insane amounts of money and giving it to arms makers, banks, and AI companies.

This “fiscal dominance” strategy invokes some serious unintended consequences, including stubborn inflation and rising interest rates. New car loans, for instance, are now more expensive than they were prior to the 2008-2009 crash:

While bank credit is falling into pre-crash territory:

Offices are emptying out:

But unemployment is ridiculously low. With everyone working, how can growth possibly turn negative? Well, if everyone is working multiple part-time jobs and still unable to make ends meet, that might do it:

Meanwhile, lots of under-the-surface stats support the gloom-and-doom thesis. The next chart compares the stock prices of a major shipper and a major pawn shop chain:

According to financial analyst Danielle DiMartino Booth, we might already be in a recession:

Financial turmoil in Canada – and what it means for the rest of the world

April 28, 2024

Financial turmoil in Canada – and what it means for the rest of the world

Max Bernier, leader of the People’s Party of Canada, says the new federal budget will send the country deeper into debt than it already is.

Our latest episode of the Collapse Life podcast features a returning guest — Maxime Bernier, leader of the People’s Party of Canada. He says the new federal budget is anti-growth and will send the country deeper into debt than it already is. He tells host Zahra Sethna there is no way Prime Minister Justin Trudeau can win the October 2025 election given the inflationary economic crisis people are experiencing. But he argues that Pierre Poilievre, leader of the Conservative Party, is ‘meet the new boss, same as the old boss.’ Find out what Bernier says this anti-growth budget means for Canada, and how policies in Canada might start to affect people in other countries, too.

Watch on YouTube:

Watch on Rumble: https://rumble.com/v4rnttc-canadas-anti-growth-budget-is-an-indicator-of-financial-crisis.html

Listen on Spotify

Give Me Liberty or Give Me Debt

April 22, 2024

Give Me Liberty or Give Me Debt

Some people are more observant than others. Some are more capable of thinking outside the box than others. Whether this is by nature or nurture is a moot point.

When we are children, we tend to look upon the world in all its wonder. We are amazed at what exists and we absorb it like a sponge. Then, when we are in our teens, we begin our second wave of discovery. We begin to pay more attention to the things that we find confusing; we become absorbed in issues like world hunger, warfare and political strife. These situations seem senseless and we repeatedly ask, “Why should these things be?”

Typically, in our twenties, we have not yet found any solid answers and our mood turns from interest to anger. We tend to gravitate toward liberal philosophy, as liberal philosophy tells us what we would most like to hear; that these terrible things should not exist and that we should take every step available to us to end the injustices of the world – at whatever cost to ourselves and others.

Most of us continue in this approach for several years, but in our thirties we begin to recognize that, no matter how many steps are taken in this effort, the problems seem to be self-renewing and, at that point, a split occurs in philosophical outlook. Many people cease to grow at this point, as they do not want to live in a world where it is necessary to accept that suffering of one type or another is perennial. They may become increasingly stubborn in this view and, from this point on in life, tend to dig in their heels increasingly and fail to continue to grow in their understanding of the world.

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

IMF Warns Biden’s Fiscal Profligacy Poses “Significant Risks” To Global Economy ‘In Great Election Year’

April 17, 2024

IMF Warns Biden’s Fiscal Profligacy Poses “Significant Risks” To Global Economy ‘In Great Election Year’

The IMF said the the quiet part out loud today (admittedly wrapped in 100s of pages of PhD-ese) in their benchmark Fiscal Monitor this morning: pointing out that America’s recent economic performance is partially the result of the country’s unsustainable borrowing, and that the US’ massive fiscal deficits have stoked inflation and pose “significant risks” for the global economy.

“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” the IMF wrote in its latest World Economic Outlook. They added that: “Fiscal policy developments in major economies, notably in the United States, have implications for global financing conditions.”

The IMF said the US had exhibited “remarkably large fiscal slippages”, with the fiscal deficit hitting 8.8 per cent of GDP last year – more than double the 4.1 per cent deficit figure recorded for 2022, calculating that ‘Bidenomics’ (and its Inflation Reduction Act) had contributed 0.5 percentage points to core inflation (due to its fiscal profligacy).

Who could have seen that coming?

The fund further said in its Fiscal Monitor report that it expected the US to record a deficit of 7.1 per cent next year – more than three times the average for other advanced economies. It also raised concerns over Chinese government debt as Beijing copes with weak demand and a housing crisis.

The US and China were among four countries the fund named that “critically need to take policy action to address fundamental imbalances between spending and revenues.”

The others were the UK and Italy.

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

David Stockman on How the US Federal Debt Has Gone Parabolic…

April 16, 2024

David Stockman on How the US Federal Debt Has Gone Parabolic…

The federal debt has been recently increasing by $1 trillion every 100 days. That’s $10 billion per day, $416 million per hour.

In fact, Uncle Sam’s debt has risen by $470 billion in the first two months of this year to $34.5 trillion and is on pace to surpass $35 trillion in a little over a month, $37 trillion well before year’s end, and $40 trillion some time in 2025. That’s about two years ahead of the current CBO (Congressional Budget Office) forecast.

On the current path, moreover, the public debt will reach $60 trillion by the end of the 10-year budget window. But even that depends upon the CBO’s latest iteration of Rosy Scenario, which envisions no recession ever again, just 2% inflation as far as the eye can see and real interest rates of barely 1%. And that’s to say nothing of the trillions in phony spending cuts and out-year tax increases that are built into the CBO baseline but which Congress will never actually allow to materialize.

So when it comes to the projection that the 2034 debt will come in at just $60 trillion, we’ll take the wonders any day of the week. The fact that it will likely be much higher also means that the Washington UniParty’s prevailing fiscal policy path will lead to $100 trillion of public debt sometime in the early 2040s. And that means, in turn, that annual interest expense will then be greater than the entire federal budget during 2019.

Needless to say, neither Trump nor Biden has said, “Boo,” about this looming calamity. Sleepy Joe has even had the audacity to brag that he has reduced the federal deficit by more than half.

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

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