ON THE CELTIC SEA – We drove up to Cherbourg yesterday, boarded a ferry, and are now cruising towards Ireland. The trip takes nearly an entire day, but the wifi works onboard… so we were able to stay in contact.
Harbor at Cherbourg
Aboard the Oscar Wilde
It can be a miserable crossing for someone who gets seasick easily. But the sky was sunny when we got on board, and the trip has been smooth. We have only a couple more hours to go; we are approaching the Irish coast already.
The ship is full of children – French teenagers who are going to Ireland. There must be at least a hundred of them. They are everywhere… and they are always in motion.
We sat in the bar this morning, drinking a cup of coffee while watching them go by. One way… then the other. In twos and threes. Some walking. Some running.
Where were they going? We are on a ship; there is nowhere to go. But they couldn’t sit still. Instead, they wandered up and down, round and round… talking, laughing.
We pitied their poor chaperones, who tried to keep them quiet and under control. Whoever invented school trips must have done so to torture them.
Below… we follow up on how the feds are bankrupting America… and why a stock market crash, a bear market in bonds, and a depression are now probably inevitable.
Second-Place Debt
The International Monetary Fund (IMF) now predicts that the U.S. government debt load will be worse than Italy’s by 2023. This will put America in second place, just behind Japan, in the race to go broke. It is expected to have a debt/GDP ratio of 117%.
This IMF forecast assumes that things will go well. That is, it assumes that there will be no shocks or unexpected developments. But we have already gone a long time without a recession – 109 months. The record is 119 months.
Most likely, a recession will begin… fairly soon. Then, all the estimates will be tossed aside and replaced with much worse numbers.
Instead of a $30 trillion debt in 2028, for example, the debt will explode to $40 trillion… or even to $56 trillion, as one of our Dear Readers forecasts.
But even as things now stand, extrapolating only budget projections and visible trends, the federal government is already programmed for bankruptcy. Yes, it can “print” money to cover its debts, but this is just bankruptcy masquerading as inflation.
That’s what happens when receipts habitually fail to meet outlays and debt rises faster than the economy that supports it.
Some will want to blame Donald J. Trump immediately. But let’s not rush to judgment. The disease was well advanced long before Mr. Trump appeared at the craps game with his MAGA cap.
The desire to balance the budget is described as a “conservative” attitude. But “conservativism” only makes sense in a world of scarcity. If you’re going to live forever anyway… why bother with an estate plan?
We try to save time because we know our time is limited. We try to save money because we know it doesn’t grow on trees. But since 1987, when Alan Greenspan rescued the stock market from a correction, the Fed has appeared to have an especially green thumb.
Even at today’s Fed Funds rate of 1.69%, the real rate of interest is less than zero. Because consumer prices are rising at about 2% per year. The Fed’s money is free (to member banks, of course).
Even at nominal yields, there is still some $7 trillion in bonds worldwide trading below zero. For nearly three decades, this new money has seemed to be unlimited.
Reality TV White House
Together, central banks have increased their holdings by $17 trillion over the last 10 years. That’s money that didn’t exist before.
This gush of liquidity did remarkable things to the economy. Chiefly, it shifted the focus from making things and earning money… to consuming things and speculating with credit.
The price of financial assets rose, while the price of the working man’s time stayed about the same. The resulting “wealth effect” made it seem benign.
But it was malignant. And it gave the feds the wrong idea – that deficits really don’t matter because there is an almost unlimited amount of money for them to borrow.
The illness was entering its terminal phase even before Donald J. Trump was elected. But his ascendance seemed to give some people hope.
He promised to “drain the swamp.” In an era of mealy mouthed, double-talking politicians, Mr. Trump sounded direct… almost honest. Maybe he had a cure!
The difference turned out to be mostly aesthetic. Instead of normal TV programming… we got Mr. Trump’s reality TV, in which things are staged to look as though they aren’t staged.
And instead of Deep State insiders calling the shots, we now have an administration that pretends to be fighting the elite, but is even more enthralled to the insiders than its predecessors, largely because it has no idea what else to do.
And instead of a budget deficit of $700 billion as scheduled by Obama-era programs, we now have an additional $300 billion, giving us a projected budget deficit of $1 trillion, under DJT’s leadership.
The Washington Post elaborates:
By 2022, the U.S. government is projected to spend almost as much money on interest payments for its massive debt as it will on the Pentagon, more than $600 billion every year.
The spiraling expense underscores a frightening reality in Washington: President Trump and Congress have not only massively expanded the U.S. government’s debt, they have broken free of multiple guardrails intended to keep budgets balanced, freeing future lawmakers to further expand the yawning gap between what the government takes in and what it spends.
Now, this borrowing binge appears impossible to reverse…
All the hoopla and razzmatazz about trade deals, Russian meddling, Syrian bombing, and porn stars may not amount to a hill of beans.
But $300 billion is a lot of money. That’s on top of the $700 billion already authorized. And it comes as the Fed tries to reverse course.
Instead of enabling the feds’ fantasies by buying their bonds, for the first time in 30 years, the Fed is selling bonds.
The combination of frauds and foolishness undoubtedly deserves an “extreme warning.” It may or may not be imminent. But it is surely inevitable.
Disaster to follow.
Regards,
Bill
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Category: Central Banks