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The United States economy recovered at a 6.5 percent annualized rate in the second quarter of 2021, and gross domestic product (GDP) is now above the prepandemic level. This should be viewed as good news until we put it in the context of the largest fiscal and monetary stimulus in recent history.

With the Federal Reserve purchasing $40 billion of mortgage-backed securities (MBS) and $80 billion in Treasurys every month, and the deficit expected to run above $2 trillion, one thing is clear: the diminishing effect of the stimulus is not just staggering, but the increasingly short impact of these programs is alarming.

The GDP figure is even worse considering the expectations. Wall Street expected a GDP growth of 8.5 percent and most analysts had trimmed their expectations in the past months. The vast majority of analysts were sure that real GDP would comfortably beat consensus estimates. It came in massively below.

What is wrong?

In recent times, mainstream economists only discuss the merit of stimulus plans based on the size of the programs. If it is not more than a trillion US dollars it is not even worth discussing. The government continues to announce trillion-dollar packages as if any growth at any cost were acceptable. How much is squandered, what parts are not working, and, more importantly, which ones generate negative returns on the economy are issues that are never discussed. If the eurozone grows slower than the United States, it is always blamed on an allegedly lower size of stimulus plans, even if the reality of figures shows otherwise, as the European Central Bank (ECB) balance sheet is significantly larger than the Fed’s relative to each economy’s GDP and the endless chain of fiscal stimulus plans in the eurozone is well documented.

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

Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default

August 7, 2021

Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default

Photo by Senator Mark Warner CC BY 2.0

Two years ago, the debt ceiling was lifted. Lifting the debt ceiling to make room for more government spending has been pretty routine since since 1917.

Until now…

While it’s quite likely that U.S. debt had already reached the point of no return around three years ago, amazingly the situation might have just gotten even worse. Why?

The debt ceiling extension that was granted back in 2019 has expired. Oops.

Janet Yellen is taking what are called “extraordinary measures” that hopefully will keep the U.S. economy from spiraling into a historic disaster of defaults on bond payments and government obligations, skyrocketing interest rates, and massive inflation.

The non-partisan Congressional Budget Office (CBO) predicts the Treasury will run out of cash in October or possibly November.

So as reported above, the U.S. risks default within 90 days if nothing is done.

Yellen wrote a strongly-worded letter to Speaker Nancy Pelosi, describing the potential for “irreparable harm” if no action is taken.

But it might already be too late…

A closer look at the official U.S. debt reveals an unbelievable increase over the last 20 years:

Data from St. Louis Fed

That’s a 4.6x rise in “public debt,” meaning money the U.S. government owes. It’s called “public” debt because all of America shares the responsibility for paying it back. It’s public debt because the public, you and me, are on the hook for it.

Amazing, isn’t it?

Even so, this isn’t the first time “extraordinary measures” have kept the government spending machine humming along in response to debt-ceiling politics. But this could be the first time the clock will run out before a solution is reached.

Surprisingly — or perhaps not — the White House appears to be simply avoiding the current problem.

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

A dangerous misunderstanding

April 25, 2021

How much money should there be in the world? It is an interesting question; to which, at any time, there is a correct answer that is unknown to anyone. It is the amount at which money is able to perfectly perform its two key functions – being a medium of exchange and a store of value. Too little money in circulation and it would cease being a fair store of value because its value would be increasing – something that hasn’t occurred in half a century. Most often, money ceases to be a store of value on the downside – losing its value – because it is far easier for states and banks to create new currency than it is to destroy it.

In practice, whether there is too much, or not enough money in the system is largely a matter of political economy rather than science. There are two broad economic camps – Monetarists and Keynesians – which largely correspond to conservative and liberal politics. The conservative-monetarist camp has been arguing for more than a decade that there is too much money in a system which should have been allowed to fail back in 2008. The liberal-Keynesian camp in contrast, argues that the absence of productivity gains, inflation and wage growth pressure show that there is too little money in circulation.

The liberal-Keynesian camp appears to be winning the argument for now. This is because the economic fallout from the pandemic and the response to it would – at least in the short-term – have been devastating were it not for the various grants, loans, bailouts, stimulus payments and public services spending embarked upon by states and central banks around the world. Moreover, by pumping trillions of newly created dollars into the system, the Biden administration may well create a short-term post-pandemic bounce which will prevent the immediate onset of depression.

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

‘Spend as much as you can,’ IMF head urges governments worldwide

January 25, 2021

‘Spend as much as you can,’ IMF head urges governments worldwide

MOSCOW (Reuters) – Policymakers worldwide should embrace more spending to help revive their stuttering economies, the head of the International Monetary Fund said on Friday at Russia’s annual Gaidar economic forum.

Managing Director Kristalina Georgieva did not give any specific economic forecasts, but made clear her desire for governments to up their spending and that a synchronised approach internationally was best for growth.

In 2020, the IMF provided support to 83 countries, she said.

“In terms of policies for right now, very unusual for the IMF, starting in March I would go out and I would say: ‘please spend’. Spend as much as you can and then spend a little bit more,” Georgieva said.

“I continue to advocate for monetary policy accommodation and fiscal policies that protect the economy from collapse at a time when we are on purpose restricting both production and consumption,” she said.

Georgieva praised Russia’s synchronised response to the economic challenges created by the COVID-19 pandemic, mentioning both the central bank’s monetary easing and fiscal stimulus from the finance ministry.

She also called for more international cooperation, as has been seen in the race for a COVID-19 vaccine, on the push for digital and green growth.

“IMF staff calculated that a coordinated G20 fiscal stimulus in green infrastructure, if it is done in a coordinated manner, would deliver two-thirds more in growth … than if each country acts on its own,” she said.

The Next Wave Of Spending Will Not Bring Prosperity

January 22, 2021

The Next Wave Of Spending Will Not Bring Prosperity

We Are Starting A New Series Of Mistakes

The surprisingly bad job numbers recently released show America lost 140,000 jobs in December. A big part of the problem is that this is only one indicator of the carnage taking place in our economy. As small businesses close their doors forever, many of these jobs won’t be coming back. This translates into far higher deficits going forward as many more Americans exit the workforce. Adding to our dilemma is the answer to our problem being touted around includes giving substantial amounts of money to most Americans which reduces their incentive to get out and hustle to find work. This underlines the fact we should not confuse what some call “the latest economic rebound” with a “recovery.”After these numbers were released, Biden came out declaring his administration with its two newly elected Democrat Senators would hit the ground running.

“The price tag will be high,” Biden said of his planned package in Wilmington, Delaware. He promised to lay out his proposals before taking office on Jan. 20, he also stated, “It will be in the trillions of dollars.”

The package Biden laid out only came in at 1.9 trillion dollars disappointing some of his followers. This is because it does not include a great deal of what he has promised. Missing were things like spending on infrastructure and forgiving student loans. This, however, is only the first of many packages that will be rolling through congress in an effort to halt the economy from unraveling. To see how devastating the pandemic and the lock-downs instituted to slow its advance have been on the economy we only need to look to cities such as New York where it has become obvious the effects will be long term. Recent revelations that many large and notable companies now intend to relocate to smaller cities in coming years will only exacerbate these problems.

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

Dear Governments, Spend as Much as You Can

January 18, 2021

Dear Governments, Spend as Much as You Can

This week we heard further details about more trillions in upcoming spending and even changing monetary issuance laws (for CBDCs) worldwide.

The International Monetary Fund (IMF), what critics might call a supranational leveraged buyout bank, was out this week making calls for governments worldwide to spend as much as they can.

The IMF also noted that monetary issuance laws would need to be changed in 104 nations to directly issue fiat Central Bank Digital Currency or CBDC for fuller global fruition.

Sounder money advocates yet to banned off of Twitter are predicably pissed off.

Global Government Bonds

—

SDBullion Market Update

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

There is nothing in any definition about how fiscal dominance, which considers our still having the dominant fiat currency of the world, utilizes yield curve control, with suppressed real interest rate yield, rigging inflation and unemployment data, while still dominating the world in most price discovery powers.

Yet on the cusp of losing economic output dominance to over 2.5 billion Chinese and Indian residents, they tend to stack physical gold and silver as they get wealthier increasingly.

Another week of up then down spot price action for silver and gold. As we head into this Monday’s thinly traded Martin Luther King holiday, note that the spot gold price sits just below its 200-day moving average.

During gold bull markets outside of the global financial crisis, that is typically an excellent time to add to bullish and betting long positions.

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

The Wonders of Free Money in Two Pictures

August 15, 2020

The Wonders of Free Money in Two Pictures

Lesson of the Day

If you give away enough free money, spending recovers.

Census Report on Advance Retail Sales

The Census report on Advance Retail Sales provides half of our “Lesson of the Day“.

Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent from the same period a year ago.

The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.

Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent from last year.

Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.

Spike in Government Spending

The chart from Pew shows stimulus and deficits exceed that in the Great Recession.

Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.

That is the second half of the Free Money Wonder.

The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.

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

Rabobank: “We Live In A Pretty Crazy World Right Now”

July 13, 2020

Rabobank: “We Live In A Pretty Crazy World Right Now”

Crazy World

I think we can all agree that we live in a pretty crazy world right now: and that’s an appropriate title for the Daily today too, for reasons that will be explained shortly.

It’s a world where we are seeing staggering increases in public-sector deficits. We have already seen WW2 level spending in the UK, for just one example: and yet the British Chancellor is now planning to introduce 10 deregulated “free ports” across the country where UK taxes and tariffs will not apply at all. It’s obviously the inverse tactic of spending more money on left-behind places. Yet will somewhere like Luton hypothetically become the next mini-Hong Kong just because there are no regulations and no taxes to be paid there? We shall see: and those deficits will swell even further. Laffer would approve of course: and using the logic his fans always push for, by cutting taxation to zero, presumably tax revenue will now be infinity.

Equally, it’s a world where despite one in three Americans worrying about making rent, there appears reticence from the White House to push for a new major fiscal package. Is this all political timing, and huge stimulus looms in weeks? Or do the it-will-all-be-fine arguments from economic advisors like Stephen Moore and Larry Kudlow reflect the official line?

It’s a world where despite all this state largesse, or absence of state largesse, bond yields continue to move lower anyway: the US 5-year touching 0.25% last week (though at the giddy heights of 0.29% at time of writing) as it does not throw in the kitchen sink; the UK 5-year gilt is at -0.07% even though they ARE throwing in that ‘no-taxes-here’ sink.

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

The World Is Drowning In Debt

July 13, 2020

The World Is Drowning In Debt

According to the IMF, global fiscal support in response to the crisis will be more than 9 trillion US dollars, approximately 12% of world GDP. This premature, clearly rushed, probably excessive, and often misguided chain of so-called stimulus plans will distort public finances in a way in which we have not seen since World War II. The enormous increase in public spending and the fall in output will lead to a global government debt figure close to 105% of GDP.

If we add government and private debt, we are talking about 200 trillion US dollars of debt, a global increase of over 35% of GDP, well above the 20% seen after the 2008 crisis, and all in a single year.

This brutal increase in indebtedness is not going to prevent economies from falling rapidly. The main problem of this global stimulus chain is that it is entirely oriented to support bloated government spending, and artificially low bond yields. That is the reason why such a massive global monetary and fiscal response is not doing much to prevent the collapse in jobs, investment, and growth. Most businesses, small ones with no debt and no assets, are being wiped out.

Most of this new debt has been created to sustain a level of public spending that was designed for a cyclical boom, not a crisis and to help large companies that were already in trouble in 2018 and 2019, the so-called ‘zombie’ companies.

According to Bank Of International Settlements, the percentage of zombie companies – those that cannot cover their debt interest payments with operating profits – has exploded in the period of giant stimuli and negative real rates, and the figure will skyrocket again.

That is why all this new debt is not going to boost the recovery, it will likely prolong the recession.

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

Bankrupting America

April 8, 2020

Bankrupting America

Source: AP Photo/Alex Brandon

Two weeks ago, President Donald Trump signed the largest stimulus bill in U.S. history: more than $2 trillion.

For once, both Republicans and Democrats agreed. The Senate voted 96-0. The House didn’t even bother with a formal vote.

At the White House, a reporter asked the president, pointing out that the bill includes $25 million for the Kennedy Center, “Shouldn’t that money be going to masks?”

“The Kennedy Center has suffered greatly because nobody can go there,” Trump responded. “They do need some funding. And look — that was a Democrat request. That was not my request. But you got to give them something.”

“Something” they got. The bill includes $25 million for Congressional salaries, $50 million for an Institute of Museum and Library Services and lots of other wasteful things.

Only a few politicians were wary. Rep. Thomas Massie complained that he wasn’t even allowed to speak against the bill.

Rep. Alex Mooney asked: “How do you pay for it? Borrow it from China, borrow it from Russia? Are we going to print the money?”

Those are good questions.

Our national debt is already $24 trillion. Now it will jump, percentage-wise, to where Greece’s debt was shortly before unemployment there hit 27%.

Greece was bailed out by the European Union. But the United States can’t be bailed out by others.

How will we pay off our debt? That’s the topic of my new video.

There are really three options:

1. Raise taxes.

2. Print money.

3. Default.

Let’s consider each:

1. Raising taxes on rich people is popular. Even Michael Bloomberg wants “higher taxes on billionaires” like him.

But raising taxes on the rich often kills the wealth and jobs some rich people create. And it won’t solve our debt problem. Even if we took all the billionaires’ wealth — reducing their net worth to zero — it would cover only an eighth of our debt.

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

The Prophet

February 10, 2020

The Prophet

Oh how I miss George Carlin. Yes he was mainly known as a stand up comedian, but he was more than that, much more. He was a social critic, he challenged that status quo, he dared to go where society wasn’t prepared to go: Look at ourselves critically. He did it with biting humor, masterful oration and a directness digging into core truths that were not only uncomfortable at times, but needed to be heard and said.

His voice has fallen silent as he passed away a few years ago and I’m sorry to say: We don’t have anyone like George today. I didn’t agree with everything George said and I don’t need to, nor does anybody else, but his talent was to make us think and to view the world with a different perspective and yes he was a prophet.

He saw long ago where this was all heading. The political charades and manufactured dramas that are sold to the public as choice, the illusion of choice as the agendas have long been in play.

“What do they want?” he asked. “More for themselves and less for everybody else.”

He spoke of the owners of this country, the owners that control everything, the media, what to believe what to think, and the great business and lobbying interests that spend billions of dollars lobbying for ever more benefits for themselves.

And lobby they do:

And boy did they succeed. Under the mantle of populism and draining the swamp they got themselves the biggest tax cuts in corporate history, a historic killing:

Wall Street celebrated and celebrates to this day.

Wealth inequality skyrocketing for years and now trillion dollar deficits as far as the eye can see and debt through the roof:

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

Not Modern, Not About Money, and Not Really Much of a Theory

April 28, 2019

NOT MODERN, NOT ABOUT MONEY, AND NOT REALLY MUCH OF A THEORY

“Ignoring MMT’s rising popularity would be about as smart (and effective) as a dog barking at the waves in the ocean.”
–KEVIN MUIR, author of the avant garde financial newsletter, The Macro Tourist

“I believe that all good things taken to an extreme become self-destructive and that everything must evolve or die. This is now true for capitalism.”
–RAY DALIO, founder of hedge fund behemoth, Bridgewater Associates

______________________________________________________________________________________________________

INTRODUCTION

The final lap. It’s hard to believe that as recently as February, when I first brought up the concept of a new economic model that was poised to radically alter the world we’re living in, MMT was as obscure as an extra in an old Cecil B. DeMille bible film. Yet, a mere two months later, you have to try extremely hard to ignore Modern Monetary Theory and its swelling number of disciples.

Perhaps at this point, some of you who have read the three previous installments of our month-long series on MMT wish I’d never brought it your attention. You might even think it’s such a zany idea that it will never see the light of day. If so, you could be right—but I doubt it.

Prior issues of this series have made the point that ultra-low and, even, negative interest rates have led to a boom in asset prices at the expense of the real economy. This has created the most lop-sided income distortion since 1929.

Source: Grant Williams, TTMYGH (2/10/2019)

Even after 10 years of a long and sluggish expansion—which happily has driven unemployment down to 50-year lows–there is an unmistakable whiff of outrage in the air. The non-1% or, perhaps more accurately, the non-5%, are coming to believe they’ve been stiffed by the reality revealed in the above chart.

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

The Most Important Chart in Economics?

March 26, 2019

The Most Important Chart in Economics?

Earlier this month, the U.S. Federal Reserve quietly released the Financial Accounts of the United States. Like most government data, the 198-page report (known to insiders as the Z1) is almost impossible to understand.

However, to the economists and accountants who wade their way through the mess, the implications are clear.

America has been growing government, business and household debts faster than its economy for more than four decades. Despite the huge runup in asset prices during that time, the country is essentially bankrupt.

The impending disaster becomes even clearer when presented visually.

The above chart, compiled on the St-Louis Fed’s FRED site, strongly suggests that economists have been pushing a GDP expansion that has been fueled almost uniquely by debt.

The three stages of scam economics

The story of how the American government and the Federal Reserve—with the quiet backing of university academics—fueled this elaborate Ponzi scheme unfolded in three stages.

Tax and spend

The first signs emerged in the 1960s and early 1970s, when American companies, after an almost three-decade free ride, began to get competition in international markets from countries such as Japan and Germany, which had been bombed back to the stone ages during World War II.

By that time, the American public had gotten used to constantly-rising living standards. For politicians, asking voters to work harder or to curtail constant demands for “more” became increasingly more difficult.

Governments responded with what became known as “tax and spend” economic policies.

Taxing the hard-earned savings of workers and passing the cash to bureaucrats to spend instantly created “sugar highs,” due to the short-term effects of dumping extra cash into the economy.

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

Federal Borrowing Crosses the Rubicon

March 12, 2019

Federal Borrowing Crosses the Rubicon

A year ago, Republicans in control of Congress suspended the cap on federal borrowing. The limit was automatically re-imposed on March 1st. Politicians now have a few months to hammer out legislation to raise the cap as the Treasury employs “extraordinary measures” to fend off default.

The federal deficit is mushrooming once again. The 2017 tax cuts have taken a bite out of receipts at the IRS and economic growth has not met expectations.

This year’s borrowing to fill the gap between government tax revenue and expenditures may reach a trillion dollars for the first time since 2012.

If Washington politicians follow the usual script, we can expect Republicans to posture as fiscal conservatives and then relent either just before or just after a federal shutdown.

Democrats will chastise the GOP for playing politics with America’s sacred responsibility to pay its bills.

This drama has played out dozens of times over recent decades and is therefore likely to repeat once more this fall.

Perhaps it won’t, though. The Associated Press notes that there just aren’t many people in the Capitol who even pretend to care anymore when it comes to deficits.

The AP quoted former senator Judd Gregg from New Hampshire on Sunday: “The president doesn’t care. The leadership of the Democratic Party doesn’t care.” He should also have included Republican leadership, including Senate Majority Leader Mitch McConnell, who have reliably supported metastasizing federal debt.

Meanwhile, the socialist Left has touted so-called “Modern Monetary Theory” (MMT) as the mechanism to fund the economy-killing Green New Deal and any and all other government boondoggles. At its core, MMT advocates for perpetual money printing to fund government spending.

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

Tax Cuts Without Reducing Government Outlays Is Not Possible

March 11, 2019

TAX CUTS WITHOUT REDUCING GOVERNMENT OUTLAYS IS NOT POSSIBLE

According to many economic experts and commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, is going to place more money in consumer’s pockets thereby setting in motion an economic growth. This way of thinking is based on the popular view that a given dollar increase in consumer spending will lift the economy’s gross domestic product (GDP) by a multiple of the increase in consumer expenditure. An example will illustrate the magic of this multiplier.

Let us assume that on average individuals spend 90 cents and save 10 cents of each additional dollar they receive. If consumers raise their spending by $100 million this will boost retailers’ revenues by this amount. Retailers in turn will spend 90% of their new income, i.e. $90 million on various goods and services. The recipients of the $90 million will in turn spend 90% of $90 million i.e. $81 million and so on. At each stage in the spending chain, people spend 90% of the additional income they receive. This process eventually ends with the GDP rising by $1 billion i.e. (10*100million).

In short, all that is required is to give every individual more money to spend, and this in turn should set in motion increases in consumer expenditure, which in turn will trigger increases in the production of goods and services. Observe that within the framework of ‘the multiplier’ savings are actually bad news – since the more people save the smaller is the multiplier.

The magic of ‘the multiplier’ however, is just wishful thinking – a myth. Every activity in an economy has to be funded and therefore it is always in competition with other activities for scarce real savings. Hence, within all other things being equal if more is spent on consumption goods, then less is left for capital goods. An increase in retailers activity will be offset by the decline in the activity of capital goods producers.

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

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