The United States owes a lot of money. For now, there is no debt ceiling – it has been suspended – but in 10 days that changes, and who knows what happens then.

For some context as to just how much money the US owes – and what the debt ceiling looks like – Demonocracy is back…

One Hundred Dollars

$100 – Most counterfeited money denomination in the world.
Keeps the world moving.

Ten Thousand Dollars

$10,000 – Enough for a great vacation or to buy a used car.
Approximately one year of work for the average human on earth.

One Million Dollars

$1,000,000 – Not as big of a pile as you thought, huh?
Still, this is 92 years of work for the average human on earth.

One Hundred Million Dollars

$100,000,000 – Plenty to go around for everyone.
Fits nicely on an ISO / Military standard sized pallet.

The couch is made from $46.7 million of crispy $100 bills.

$100 Million Dollars = 1 year of work for 3500 average Americans

Here are 2000 people standing shoulder to shoulder, looking for a job.
The Federal Reserve's mandate is to maintain price stability and low unemployment.
The Federal Reserve prints money based on the assumption that increasing money supply will boost jobs.

One Billion Dollars

$1,000,000,000 – You will need some help when robbing the bank.
Interesting fact: $1 million dollars weighs 10kg exactly.
You are looking at 10 tons of money on those pallets.

One Trillion Dollars

$1,000,000,000,000
The 2011 US federal deficit was $1.412 Trillion – 41% more than you see here.

If you spent $1 million a day since Jesus was born, you would have not spent $1 trillion by now…
but ~$700 billion- same amount the banks got during bailout.

One Trillion Dollars

Comparison of $1,000,000,000,000 dollars to a standard sized American Football field.

Say hello to the Boeing 747-400 transcontinental airliner that's hiding in the back. This was until recently the biggest passenger plane in the world.

You can see the White House with both wings to the right.

"My reading of history convinces me that most bad government results from too much government." – Thomas Jefferson

US Debt Ceiling – $20+ Trillion in 2017

Statue of Liberty seems rather worried as United States national debt is soon to pass 20% of the entire world's combined economy (GDP / Gross Domestic Product).

Here are some cool quotes from cool guys in the past saying the right things about the future and in a sense predicting today:

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.” – Thomas Jefferson

If the national debt would be laid in a single line of $1 bills, it would stretch from Earth, past Uranus.

122.1 Trillion Dollars

$122,100,000,000,000. – US unfunded liabilities by Dec 31, 2012. We have not upgraded the graphics for 2017 because it simply is pointless. The US government has no plan for fixing unfunded liabilites. This number is so far out there that it is uncomprehensible to most readers but a few mathematicians.

Above you can see the pillar of cold hard $100 bills that dwarfs the WTC & Empire State Building – both at one point world's tallest buildings. If you look carefully you can see the Statue of Liberty.

The 122.1 Trillion dollar super-skyscraper wall is the amount of money the U.S. Government knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program, Social Security, Military and civil servant pensions. It is the money USA knows it will not have to pay all its bills. If you live in USA this is also your personal credit card bill; you are responsible along with everyone else to pay this back. The citizens of USA created the U.S. Government to serve them, this is what the U.S. Government has done while serving The People. The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population.

Note: On the above 122.1T image the size of the bases of the money stacks are $10 billion, and 400 stories @ $4 trillion.

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." – Thomas Jefferson

 

"This is when you need to remember that when a nation's economy collapses, the wealth of the nation doesn't disappear, it only changes hands."

Government Waste: Missing Money Infographic does a great job showcasing the Trillions lost through miss-management.

Everyone needs to see this…

According to the International Monetary Fund, global debt has grown to a staggering grand total of 152 trillion dollars.  Other estimates put that figure closer to 200 trillion dollars, but for the purposes of this article let’s use the more conservative number.  If you take 152 trillion dollars and divide it by the seven billion people living on the planet, you get $21,714, which would be the share of that debt for every man, woman and child in the world if it was divided up equally.

So if you have a family of four, your family’s share of the global debt load would be $86,856.

Very few families could write a check for that amount today, and we also must remember that we live in some of the wealthiest areas on the globe.  Considering the fact that more than 3 billion people around the world live on two dollars a day or less, the truth is that about half the planet would not be capable of contributing toward the repayment of our 152 trillion dollar debt at all.  So they should probably be excluded from these calculations entirely, and that would mean that your family’s share of the debt would ultimately be far, far higher.

Of course global debt repayment will never actually be apportioned by family.  The reason why I am sharing this example is to show you that it is literally impossible for all of this debt to ever be repaid.

We are living during the greatest debt bubble in the history of the world, and our financial engineers have got to keep figuring out ways to keep it growing much faster than global GDP because if it ever stops growing it will burst and destroy the entire global financial system.

Bill Gross, one of the most highly respected financial minds on the entire planet, recently observed that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.

And he is precisely correct.  Everything might seem fine for a while, but one day we are going to hit the wrong bump at the wrong time and the whole thing is going to go KA-BOOM.

The financial crisis of 2008 represented an opportunity to learn from our mistakes, but instead we just papered over our errors and cranked up the global debt creation machine to levels never seen before.  Here is more from Bill Gross…

My lesson continued but the crux of it was that in 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster. In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises. But the credit creation has limits and the cost of credit (interest rates) must be carefully monitored so that borrowers (think subprime) can pay back the monthly servicing costs. If rates are too high (and credit as a % of GDP too high as well), then potential Lehman black swans can occur. On the other hand, if rates are too low (and credit as a % of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.

There is always a price to be paid for going into debt.  It mystifies me that so many Americans seem to not understand this very basic principle.

On an individual level, you could live like a Trump (at least for a while) by getting a whole bunch of credit cards and maxing all of them out.

But eventually a day of reckoning would come.

The same thing happens on a national level.  In recent years we have seen examples in Greece, Cyprus, Zimbabwe, Venezuela and various other European nations.

Here in the United States, more than 9 trillion dollars was added to the national debt during the Obama years.  If we had not taken more than 9 trillion dollars of consumption and brought it into the present, we would most assuredly be in the midst of an epic economic depression right now.

Instead of taking our pain in the short-term, we have sold future generations of Americans as debt slaves, and if they get the chance someday they will look back and curse us for what we have done to them.

Many believe that Donald Trump can make short-term economic conditions even better than Obama did, but how in the world is he going to do that?

Is he going to borrow another 9 trillion dollars?

A big test is coming up.  A while back, Barack Obama and the Republican Congress colluded to suspend the debt ceiling until March 15th, 2017, and this week we are going to hit that deadline.

The U.S. Treasury will be able to implement “emergency measures” for a while, but if the debt ceiling is not raised the U.S. government will not be able to borrow more money and will run out of cash very quickly.  The following comes from David Stockman…

The Treasury will likely be out of cash shortly after Memorial Day. That is, the White House will be in the mother of all debt ceiling battles before the Donald and his team even see it coming.

With just $66 billion on hand it is now going to run out of cash before even the bloody battle over Obamacare Lite now underway in the House has been completed. That means that there will not be even a glimmer of hope for the vaunted Trump tax cut stimulus and economic rebound on the horizon.

Trump is going to find it quite challenging to find the votes to raise the debt ceiling.  After everything that has happened, very few Democrats are willing to help Trump with anything, and many Republicans are absolutely against raising the debt ceiling without major spending cut concessions.

So we shall see what happens.

If the debt ceiling is not raised, it will almost certainly mean that a major political crisis and a severe economic downturn are imminent.

But if the debt ceiling is raised, it will mean that Donald Trump and the Republicans in Congress are willingly complicit in the destruction of this country’s long-term economic future.

When you go into debt there are consequences.

And when the greatest debt bubble in human history finally bursts, the consequences will be exceedingly severe.

The best that our leaders can do for now is to keep the bubble alive for as long as possible, because what comes after the bubble is gone will be absolutely unthinkable.

Authored by Shaun Bradley via TheAntiMedia.org,

As the vulture pundits in the mainstream media pick apart hollow political scandals, the essential bankruptcy of the federal government looms just ahead. The national debt is creeping toward 20 trillion dollars, and the United State’s largest problem is once again staring the world in the face.

Just before the government was slated to shut down in 2015 (as it did in 2013), Congress was able to pass a delay on the debt ceiling decision until March 15th of this year — Wednesday of this week. Recurring uncertainty caused by events like this has implications that extend far beyond our own borders. The amount of leverage in the current system has already forced foreign holders of U.S. debt to question the real value of America’s full faith and credit.

2016 was a record-setting year for the liquidation of foreign-held U.S. bonds, topping out at nearly $405 billion. The selling was led by China, America’s second-biggest creditor, which currently holds over $1 trillion of U.S. debt, almost 28% of the total held by foreign central banks. They weren’t alone, though, and even the U.S.’ number one lender, Japan, has rolled back their positions to protect themselves as the reality of U.S. insolvency comes into focus. A gradual change has been set in motion, and the global superpower status of the United States may be systematically eroded — not militarily, but economically.

If the government does shut down again, the Treasury Department reportedly has as little as $66 billion in reserves and just enough income from taxes to meet its essential obligations.

Entitlements like social security and Medicare will likely be unaffected, but if lawmakers can’t collaborate to pass some kind of resolution, the power to allocate additional federal spending will largely be turned over to President Trump. The initial hiring freeze on federal employees that was implemented shortly after his inauguration could be just a taste of what’s to come.

The president’s promised tax cuts, Obamacare “reform,” and increased military spending will only intensify the political rift in this country. Democratic leaders have already accused the Trump administration of colluding with Russia, so it’s likely they’ll refuse to compromise on the budget in an effort to further undermine the Republican agenda. The destructive results of a polarized two-party system are exposed whenever crucial decisions like this must be made. When the legislative branch fails in its duties, the odds of a dictatorial executive developing are always amplified. The coming budgetary stalemate also threatens to undermine the recent record highs seen in the stock market.

Although the financial markets have enjoyed massive gains since the election, many investors have been hypnotized into blindly embracing the illusion that ‘this time it’s different.’ Nearly a decade of emergency monetary policy by the Federal Reserve to lower interest rates, along with its injection of trillions of dollars into the economy, has numbed Wall Street to the harsh realities of history.

David Stockman, former budget director for the Reagan administration, spoke to Neil Cavuto on Fox Business about the imminent debt crisis threatening to blindside the U.S. economy:

“What I’m saying is, all the extra growth from dynamic accounting that you could get if you got all these tax cuts through, it will not happen, the math isn’t there, it’s impossible. There is going to be a debt crisis this summer that will cause a financial crash of unbelievable proportions….It’s going to go on for days and weeks if not months, because Congress is already nasty and partisan. I’m seeing reality, the robo-machines are simply trading sound bites and tweets and hourly sentiments, this is meaningless. This is the biggest suckers rally in history and there is going to be a huge surprise very soon.”

This plague of short-term thinking and desire for instant gratification has lulled America into an apathetic fog. People no longer act as though they have a stake in the future. They choose willful ignorance even as the most serious problems go unresolved. The $20 trillion balance on the national credit card is the most tangible example of how nearly a century of decadence can transform a society. This country once represented the world’s moral compass and a beacon of economic freedom, but those pillars have been abandoned to indulge in war profiteering and monetary fraud.

Delaying the inevitable has become an American pastime, along with avoiding responsibility for the consequences of our actions. The easy way out everyone appears to be looking for doesn’t exist, and the assumption that some enlightened person out there in a position of power has their best interests at heart is a fantasy.

Sure, 20 trillion is just a number, and the United States has a printing press, so technically, it can just create money to pay its bills. But that kind of short-sightedness is what has brought great civilizations to their knees in the past. Millennials can blame the baby boomers and the baby boomers can claim they didn’t know any better, but regardless, the situation is dire.

Despite the anticipation of reaching these debt levels, in all likelihood, the ceiling will eventually be raised and more reckless spending will follow. The spectacle put on by bureaucrats in Washington may be entertaining, but history will judge those who remain silent and pretend it isn’t their responsibility to intervene.

The time to think about who has been entrusted with your life savings and retirement is now. Most people wander through life never considering the unpleasant truths that might disturb their rose-colored view of the world. By acknowledging the reality of the situation, individuals can finally take the first steps towards securing peace of mind for themselves and their families. The United States federal government is not a benevolent caretaker, but a leech that will use its citizens as a host to keep itself alive.

As mainstream pundits and elected officials inevitably shift blame around like a twisted version of musical chairs, remember that self-reliance is the only solution. Those who become dependent on this crumbling house of cards are doomed to suffer the same fate as those seen waiting in lines for government handouts in places like Venezuela. Celebrate the $20 trillion dollar debt by breaking from the old system and exploring the new economy built on peer-to-peer networks, where individual skills are worth more than empty promises made by the State.

On Wednesday, the temporary suspension of the debt ceiling ended, and so now the federal government is not going to be able to go into any more debt until the debt ceiling is raised.  For the moment, the Trump administration can implement “emergency measures” to stay under the debt limit, but it won’t be too long before we get to a major crisis point because the federal government is quickly running out of cash.  Already, the U.S. Treasury has less cash on hand than Apple or Google, and that cash balance is going to keep on dropping until the debt ceiling is finally lifted.

You may remember that the debt ceiling became a major issue a couple of times during the Obama years.  Last time around, Barack Obama and the Republicans in Congress agreed to a horrendous deal which suspended the debt ceiling until several months after the 2016 election…

Since President Barack Obama signed the “Bipartisan Budget Act” on Nov. 2, 2015 there had been no legal limit on the amount of money the federal government could borrow until now. That law included a section entitled “Temporary Extension of Public Debt Limit.” It said that the law imposing a limit on the federal debt “shall not apply for the period beginning on the date of the enactment of this Act and ending on March 15, 2017.”

During the 16 and a half months between the signing of that deal and today, the U.S. national debt rose by a whopping $1,414,397,000,000.

But now the U.S. national debt will not be allowed to rise by another penny until the debt ceiling is raised or suspended once again.

The Trump administration is pushing hard to get the debt ceiling raised, and this is a complete reversal from how Donald Trump felt about the debt ceiling back in 2013.  The following comes from the L.A. Times…

Trump sided with hard-liners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.

Trump was actually right about the debt ceiling in 2013, and he is wrong now.

We simply cannot afford to keep adding trillions of dollars to the national debt.  What we are doing to future generations of Americans is beyond criminal, because we are literally destroying their future just so that we can enjoy an inflated standard of living that we do not deserve today.

Treasury Secretary Steven Mnuchin has already begun to implement “extraordinary measures” to keep us under the debt ceiling.  The first step that was taken was the suspension of the sale of SLGS securities…

“Today,” Mnuchin wrote, “Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities. SLGS are special-purpose Treasury securities issued to states and municipalities to assist them in conforming to certain tax rules. These securities count against the debt limit. The suspension of SLGS sales will commence on March 15, 2017, and continue until the debt limit is either raised or suspended. As in the past, it is likely Treasury will utilize additional extraordinary measures.”

The federal government will be able to keep going for a little while by implementing such “extraordinary measures”, but the Treasury cash balance is going to continue to dwindle and at some point a major squeeze is going to happen.

As things get tighter and tighter, the Trump administration will become increasingly desperate to get the debt ceiling raised.  As I wrote about yesterday, the key for Trump is going to be finding 218 votes in the House of Representatives that will be willing to go along with him.

You would think that since Republicans control the House that this should be easy, but the truth is that there are a lot of conservative Republicans that are not inclined to agree to a debt ceiling increase without substantial accompanying budget cuts.

The proposed budget that Trump released this week is getting a lot of criticism from the left for cuts to social programs, but the truth is that it actually doesn’t reduce the deficit at all…

President Trump’s “skinny” budget blueprint for 2018 features a proposed $54 billion increase in defense spending and an equal number of spending cuts from the smallest part of the federal budget.

That means his changes won’t add to next year’s projected $487 billion deficit. But they won’t reduce it, either.

And remember, that “$487 billion” figure is just for show.  During the Obama years the U.S. national debt increased by an average of well over a trillion dollars a year, and that is almost certainly going to continue for years to come as long as the debt ceiling is raised.

Republicans are supposed to be the party of fiscal responsibility.

So now is their big test.

If they raise the debt ceiling and continue adding more than a trillion dollars a year to the national debt, they will lose all credibility with conservative voters on fiscal issues.

But if they try to force the federal government to start living within its means that is going to severely harm the economy in the short-term.

Donald Trump is going to have to try to figure out a way to navigate this crisis.  He has already promised that he will not touch Social Security and Medicare, and those are the two biggest drivers of our budget deficits.  In fact, it is being projected that entitlement spending and interest on the debt will eat up every single penny that the federal government takes in within 20 years.

So if Trump won’t touch the big entitlement programs, where will he possibly find enough cuts to satisfy the fiscal conservatives in Congress?

Without them, Trump does not have enough votes to raise the debt ceiling.

In addition, many of the conservatives in Congress absolutely hate the new Republican health care plan, and they hope to use this debt ceiling crisis as leverage to change the bill.

If Trump can’t work out something with conservatives, perhaps he could turn to the Democrats.  But most Democrats are extremely resistant to work with him on anything after all that has been said and done, and so for Trump to get a deal with them he would have to make extreme concessions.

This represents the biggest political test for the Trump presidency so far, and if we get down the road a couple of months and nothing gets done, this debt ceiling crisis could spark the kind of financial crisis that I describe in my novel entitled “The Beginning Of The End“.

Barack Obama pushed things right to the brink a couple of times, but he was savvy enough politically to never let things go over the edge.

Now it is Trump’s turn, and somehow he has got to find a way to get the debt ceiling raised without making extremely deep compromises that would gut the rest of his agenda.

And he had better get to work on this quickly, because time is running out and the clock is ticking…

Authored by MN Gordon via Acting-Man.com,

Onward vs. Upward

Something both unwanted and unexpected has tormented western economies in the 21st century.  Gross domestic product (GDP) has moderated onward while government debt has spiked upward.  Orthodox economists continue to be flummoxed by what has transpired.

What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity.  Although the fat lady has so far only cleared her throat (if quite audibly, in 2008) and hasn’t really sung yet, it is already clear that calling this system careening toward a catastrophic failure.

Here is the United States, since the turn of the new millennium (starting January 1, 2001) real GDP has increased from roughly $10.5 trillion to $18.6 trillion, or 77 percent.  Over this same time government debt has spiked nearly 250 percent from about $5.7 trillion to $19.9 trillion.  Obviously, some sort of reckoning’s in order to bring the books back into balance.

Throughout this extended episode of economic and financial discontinuity, the government’s solution to jump-starting the economy has been to borrow money and spend it.  Thus far, these efforts have succeeded in digging a massive hole that the economy will somehow have to climb out of.  We’re doubtful such a feat will ever be attained.

In short, additions of government debt over this time have been at a diminishing return.  Specifically, at the start of the new millennium the debt to GDP ratio was about 54 percent.  Today, it’s well over 100 percent.

US GDP and US federal debt, indexed (1984 = 100). Mises noted back in the late 1940s already that “it is obvious that sooner or later all these debts will be liquidated in some way or other, but certainly not by payment of interest and principal according to the terms of the contract.”  If it was obvious then, it is glaringly obvious today. Greece and Cyprus demonstrated what happens when modern socialist welfare states have no independent access to a printing press and are thus unable to extend and pretend in the traditional Keynesian way. The Potemkin village disintegrates on the spot at the first whiff of suspicion. All the nations that have postponed the reckoning by printing money and the flight forward mechanism of amassing even more debt have simply made the eventual denouement more profound – click to enlarge.

The idea that the government could spend borrowed money to grow the economy out of debt has become patently ridiculous.  Nonetheless, government economists continue to advocate these policies because, academically, they have no other alternatives.  At the same time, politics may now conspire to push the U.S. government into debt default.

Arrested Development

This week the Obama administration’s debt ceiling suspension expired, and a debt ceiling of $20.1 trillion was triggered.  This reestablished debt ceiling is just a horse’s hair above the U.S. government’s current debt level.  Furthermore, getting the debt ceiling lifted will likely require an epic Congressional battle, including elaborate displays of Kabuki theater.

There’s a possibility a new debt ceiling agreement won’t be reached before the Treasury’s money runs out sometime in late-summer or early-fall.  This would put the U.S. government in a position of not being able to pay its debts.  At a minimum, even if some Congressional deal’s worked out at the 11th hour, the full faith and credit of the U.S. government will be tarnished.

Best case, a timely debt ceiling resolution will cut into President Trump’s plans to boost the economy by borrowing money and spending it on infrastructure and defense.  This will also cut into his plans to reduce taxes.  A stumble in either of these areas could prompt a long overdue stock market panic.

The debt ceiling could become a real problem this time, as the treasury has massively drawn down the cash balance it amassed by issuing humongous amounts of debt to US money market funds in 2016. In the final quarter of 2016, i.e., the dying days of the Obama administration, the federal deficit exploded by a stunning 208 billion dollars – click to enlarge.

The fact is, perpetual economic growth is required to sustain life as we know it in today’s debt-driven economic social order.  Any slight blip, such as 2008, massively disrupts the lives of hundreds of millions of people.  What’s more, economic growth must be at a level where the plebs believe they’re adequately reaping the fruits of their labors.

What that rate of economic growth happens to be is uncertain.  But so far the U.S. economy of the 21st century has failed to attain it.  What is known is that an economy that expands at 3 percent annually, will double the average living standard every 24 years.  In contrast, an economy that expands at an annual rate of 2 percent, will take 36 years to double the average living standard.

The average annual rate of real GDP growth of the U.S. economy in the 21st century has been at a 1.78 percent state of arrested development.  The average annual rate of real GDP growth of the U.S. economy for the 16 preceding years was 3.43 percent – nearly double.  Alas, it has been 12 years since the U.S. economy’s eked out a single year of 3 percent GDP growth.

In spite of statistical distortions reaching fresh heights of absurdity year after year (their goal is generally to make “inflation” look smaller and GDP larger than they really are), economic output as measured by GDP is seemingly on a permanent downward trajectory. Many European countries look even worse. For instance, France had strong growth for more than two decades after WW2, but it collapsed thereafter. Today, government spending in France accounts for 58% of GDP and the country’s microscopic growth rates have become downright embarrassing. But don’t worry, Europe’s political elites and bureaucrats continue to prosper! – click to enlarge.

The Long Run Economics of Debt Based Stimulus

“In the long run, we are all dead,” said 20th Century economist, John Maynard Keynes.  This, in a nut shell, was Keynes’ rationale for why governments should borrow from the future to fund economic growth today.  Why wait for recessions to do the work of equilibrating the economy when a little counter-cyclical stimulus can push growth onward and upward?

J.M. Keynes is certainly dead, but we are still alive and can rightly be referred to as his victims. Keynes is often depicted reading a book, but evidently he must have read the wrong book. And all those who assert that he “didn’t really mean it this way or that way”  should perhaps take the time to read what he wrote. Keynes really was a Keynesian!

Of course, attempting to spend a nation to prosperity using borrowed money is not without consequences.  In the short run, an illusion of wealth can be erected.  In the long run, that illusion slips into decay and disrepair.

Over the past week we’ve been roaming the streets of Mexico City, visiting family and conducting  field research on your behalf.  In particular, we’ve been investigating the chronic effects of what happens when a government spends too much borrowed money, and then attempts to lighten its debt burden by inflating its currency. 

What follows a brief summation of our findings.

On surface, what happens is what you’d expect.  The currency gets utterly destroyed.  This has the effect of blowing the price of just about everything – especially imports – through the roof.  But it’s what happens after which is less obvious.  For the ill-effects of a debased currency express themselves in asymmetric ways.

On a Saturday afternoon walk through the historic city center along Avenida Francisco I. Madero between El Zócalo and the Palacio de Bellas Artes we were greeted with the appearance of consumer prosperity.  Bustling crowds of shoppers made their way through the chic fashion stores that are interspersed between historic 17th and 18th century colonial mansions and buildings.  Modern skyscrapers were in the distance.

Similarly, during a Friday night visit to El Moro, the famous churro and chocolate restaurant that has been in operation since 1935, we encountered a line extending out the door and down the street.  Customers were dressed to impress.  There was hardly a hint of economic hardship about the place.

The original El Moro outlet in Mexico City.

But venture outside the most inner streets of the city’s center and the conditions quickly deteriorate.  An endless sea of multilevel residential dwellings mixed with commercial and industrial properties in varying degrees of decay extend for miles and miles across the high altitude Valley of Mexico.  It appears that, perhaps 50 or 60 years ago, these structures were clean and well-kept.  However, that was before crumbled concrete and exposed rebar became the norm for these vast residential dwellings.

Contrary to what Keynes posited, counter-cyclical debt based stimulus didn’t produce the nirvana of rising long run living standards.  Rather it produced the disparity of stagnating GDP and rapidly rising government debt.  Later it produced the hell of declining living standards over the long run.

The truth is, in the long run we’re not all dead.  Actually, some of us are still here, living with the consequences of shortsighted economic policies.

Residents of Mexico know this all too well.  In the United States, the scope and magnitude of debt has been able to support an illusion of prosperity.  Still, as far as we can tell, many residents are experiencing the transformation of small pockets of slums into vast expansive ghettos.

Storing up a small hoard of gold and silver bullion may’ve never been more critical than the present, in the off chance the inevitable dollar debasement comes sooner rather than later.  So, too, one would be well advised to develop a side hustle now.  From our observation, everyone in Mexico City was working… though many didn’t have jobs.

On Monday we traveled north of the city limits to the ruins of the ancient pre-Aztec city of Teotihuacán.  There we climbed up the Pyramid of the Sun and into the open areas of the Pyramid of the Feathered Serpent.  We walked the Avenue of the Dead toward the Pyramid of the Moon.

Teotihuacán – view from the pyramid of the moon. Aztec priests once ripped out the hearts of sacrificial victims to appease their gods (among those in need of appeasing were Huiztilopochtli, the god of war and the sun, Tlaloc the rain god and not to forget, good old Xipe, a.k.a. “Our Lord, the Flayed One”, god of sacrificial pain and suffering. And you should see their mama… (wait for it). The Aztecs had a god for everything, so there was a lot of sacrificing to do.

At its peak, around 450 AD, Teotihuacán was the largest city in the pre-Columbian Americas, with a population estimated at 150,000.  Yet by the 6th century the population began to decline and the city ceased to exist sometime in the 7th or 8th century.  No one quite knows what happened.

Well, here she is… Coatlicue, the primordial earth goddess, mother of the gods, the sun, the moon and the stars. Judging from her teeth, this multi-tasker was a carnivore.

One theory is that the city’s decline coincided with an extended drought.  Another is that there was an internal uprising.  Maybe a 99 percent situation developed. We kicked a few rocks.  We put our ears to the ground.  We looked.  We listened.

The spirits didn’t answer.  They didn’t have to.  We’d already seen and heard enough.

Authored by MN Gordon via Acting-Man.com,

Style Over Substance

“May you live in interesting times,” says the ancient Chinese curse.  No doubt about it, we live in interesting times.  Hardly a day goes by that we’re not aghast and astounded by a series of grotesque caricatures of the world as at devolves towards vulgarity. Just this week, for instance, U.S. Representative Maxine Waters tweeted, “Get ready for impeachment.”

Well, Maxine Waters is obviously right – impeaching the president is an urgent task of the utmost importance. As everybody knows, he is best friends with Vladimir Putin, the shirtless barbarian who rules the Evil Russian Empire (they were seen drinking kompromat together in Moscow, a vile Russian liquor that reportedly tastes a bit like urine. Senator McCain has the details on that story). And as Maxine Waters has just disclosed, Putin’s armies are recently advancing into Korea! We cannot let this stand, or he’ll invade Kekistan next (note that he already controls Limpopo and Gabon). Who knows where it will end?

We assume this was directed at President Trump.  But what Waters meant by this was sufficiently vague.  There was no guidance as to how President Trump should be getting ready.

Should he pack his bags?  Should he double knot his shoelaces?  Should he say a prayer? Naturally, the specifics don’t matter in the darnedest.  Rather, these days, it’s style over substance in just about everything.  This is why Waters – a committed moron – rises to the top of class in the lost republic of the early 21st century.

At the same time, the individual has been displaced by the almighty aggregate.  Economists pencil out the unemployment rate, with certain omissions, as if it represents something meaningful.  Then lunkheads like Waters repeat it as if it’s the gospel truth.

Somehow, through all of this, our representatives are oblivious to what’s really going on; that the U.S. government is just months away from a possible default.

The Dutch Experience

Last week, via our friends at Zero Hedge, we came across as article by Simon Black of Sovereign Man titled, The U.S. Government Now Has Less Cash Than Google.  Inside, Black details the invention of the government bond in 1517 Amsterdam and the long term ramifications for the Dutch government.  Here we turn to Black for edification:

“It caught on slowly.  But eventually government bonds became an extremely popular asset class.  Secondary markets developed where people who owned bonds could sell them to other investors.  Even simple coffee shops turned into financial exchanges where investors and traders would buy and sell bonds.  In time, the government realized that its creditworthiness was paramount, and the Dutch developed a reputation as being a rock-solid bet.

 

“This practice caught on across the world.  International markets developed.  English investors bought French bonds.  French investors bought Dutch bonds.  Dutch investors bought American bonds.  (By 1803, Dutch investors owned a full 25 percent of U.S. federal debt.  By comparison, the Chinese own about 5.5 percent of U.S. debt today.)

 

“Throughout it all, debt levels kept rising.  The Dutch government used government bonds to live beyond its means, borrowing money to fund everything imaginable– wars, infrastructure, and ballooning deficits.  But people kept buying the bonds, convinced that the Dutch government will never default.

 

“Everyone was brainwashed; the mere suggestion that the Dutch government would default was tantamount to blasphemy.  It didn’t matter that the debt level was so high that by the early 1800s the Dutch government was spending 68 percent of tax revenue just to service the debt.

 

“Well, in 1814 the impossible happened: the Dutch government defaulted.  And the effects were devastating.

 

“In their excellent book The First Modern Economy, financial historians Jan De Vries and Ad Van der Woude estimate that the Dutch government default wiped out between 1/3 and 1/2 of the country’s wealth.

 

“That, of course, is just one example.  History is full of events that people thought were impossible.  And yet they happened.  Looking back, they always seem so obvious.”

Amsterdamsche Wisselbank, a.k.a. the Bank of Amsterdam. The bank’s history is deeply intertwined with the Dutch march toward default in 1814. When the bank was originally founded, it was rightly considered the soundest bank in Europe – it was 100% reserved and for a long time its notes were indeed “as good as gold” and were accepted in payment all over Europe. Holland’s downfall was closely tied to the decision to abuse the bank’s hard-won reputation by surreptitiously forcing it to adopt fractional reserve banking in order the fund the government (in particular, in order to fund its wars).

March to Default

Like the Dutch several hundred years ago, everyone believes it’s impossible for the U.S. government to default on its debt obligations.  U.S. Treasuries are considered the safest investment in the world.

Nonetheless, a series of events are coming down the turnpike in such rapid succession that Washington will be incapable of dealing with them.  Before Congress can say knife, irreparable damage will be done to the government’s financial standing.

No doubt, the great story of our time, that few seem to appreciate, is the increasing likelihood the U.S. government will default on its debt before the year is over.  Of course, this isn’t a certainty.  But by simply connecting a dot or two, one can construct a highly plausible scenario where this happens.

The federal debtberg. As Ludwig von Mises noted: “The long-term public and semi-public credit is a foreign and disturbing element in the structure of a market society. Its establishment was a futile attempt to go beyond the limits of human action and to create an orbit of security and eternity removed from the transitoriness and instability of earthly affairs. What an arrogant presumption to borrow and to lend money for ever and ever, to make contracts for eternity, to stipulate for all times to come!” – click to enlarge.

Presently, the national debt is over $19.8 trillion.  The $20.1 trillion debt ceiling will be reached in the second quarter.  After that, Treasury Secretary Steven Mnuchin will be forced to take extraordinary measures to avoid a default.

However, Mnuchin can only rob Peter to pay Paul for so long.  By summer’s end, Congress will have to increase the borrowing limit or suffer a default. Most likely Congress will wait until the 11th hour to take action.  They have in the past.  But this time, given its complete dysfunction, Congress may not get it done.

Yesterday, the Obamacare repeal and replace vote was pulled.  Regardless of the outcome, this highlights why Congress will be unable to raise the debt ceiling.  There’s just plain too much animosity to get it done.

Ultimately, the quickest way to reduce the size of government is to cut off its funding.  Here at the Economic Prism, where we believe in smaller government and greater individual autonomy, a U.S. government default sooner rather than later is more preferable.

Still, the march to default is a stoic trudge.  For the looming chaos to financial markets, the economy, and everything else will be unconditionally ruthless.

If you thought that the Obamacare debacle was bad, just wait until you see what happens next.  The continuing resolution that is currently funding the government expires on April 28th, and if a new funding agreement is not reached prior to that time, there will be a government shutdown like we witnessed in 2013 starting on April 29th.  Unfortunately, as I will explain below, if a government shutdown happens it may go for a lot longer than just a couple of weeks this time around.

April 28th may sound like it is quite some time away, but because the congressional calendar has so many “holes” in it, there is actually not very much time for Congress to act.

If you can believe it, there are only 12 “legislative days” between now and April 28th, and if something is not done on one of those 12 days the government will shut down on April 29th.

Needless to say, a government shutdown would greatly rattle the financial markets.  Thanks to the Obamacare disaster, the Dow has now experienced its longest losing streak in six years, and another down day for the Dow on Tuesday would make it the longest losing streak since 1978.

With the Republicans in control of the White House, the Senate and the House of Representatives, you would think that a government shutdown would be unlikely.

Sadly, that is not the case.  In fact, political reporter Mike Allen says that a “top Republican” told him that a government shutdown on April 29th is “more likely than not”…

A top Republican with close ties to the White House tells me that after the GOP failure on healthcare, a government shutdown — looming when a continuing resolution runs out April 28 — is “more likely than not… Wall Street is not expecting a shutdown and the markets are unprepared.”

And Chris Krueger of Cowen Washington Research Group today will warn financial clients: “Hello April 29 government shutdown.”

That’s Day 100 of the Trump presidency, by the way.

During a government shutdown, essential government services continue to operate, but everything else ceases.  Huge numbers of government employees are temporarily furloughed, government parks are closed, and some government agencies pretty much quit functioning at all.  The last time this actually happened was in 2013…

The issue confronting Trump is similar to the one that President Obama and then-House Speaker John Boehner of Ohio faced in 2013: a block of conservative Republicans who are willing to vote ‘No’ instead of bowing to pressure from the White House, Wall Street, and even powerful establishment interest groups.

But unlike then, a single party holds all three major levers of power in government.

The government shut down for more than two weeks in 2013 after Tea Party members refused to backdown and tried to use the leverage of a shutdown to defund Obamcare.

So why would conservative members of Congress want to force a government shutdown in 2017?

Well, for one thing we continue to add more than a trillion dollars a year to the national debt.  During the Obama era, the U.S. national debt rose from 10.6 trillion dollars to just under 20 trillion dollars.

In a just society, the politicians that have been stealing trillions of dollars from future generations of Americans would be put in prison, but instead we have just come to accept that selling our children and our grandchildren into debt slavery is normal.

We have got to quit going into so much debt, and so someone needs to take a stand, and it is becoming clear that it won’t be President Trump.

Just a few weeks ago, Trump made his intentions crystal clear during a conversation with New York Times Magazine contributor Robert Draper…

When I spoke with Trump, I ventured that, based on available evidence, it seemed as though conservatives probably shouldn’t hold their breath for the next four years expecting entitlement reform. Trump’s reply was immediate. “I think you’re right,” he said. In fact, Trump seemed much less animated by the subject of budget cuts than the subject of spending increases. “We’re also going to prime the pump,” he said. “You know what I mean by ‘prime the pump’? In order to get this” — the economy — “going, and going big league, and having the jobs coming in and the taxes that will be cut very substantially and the regulations that’ll be going, we’re going to have to prime the pump to some extent. In other words: Spend money to make a lot more money in the future. And that’ll happen.” A clearer elucidation of Keynesian liberalism could not have been delivered by Obama.

In other words, Trump wants to take government spending to an even higher level than Obama did.

And Trump is certainly correct that this would help the economy in the short-term, but it would also be extremely destructive to the bright future that our children and our grandchildren were supposed to have.

In addition to addressing our exploding national debt, conservatives in Congress are going to want to tie defunding Planned Parenthood to any agree to continue funding the government…

• The current continuing resolution to fund the government expires on April 28.
• The conservative House Freedom Caucus — the group Trump blamed on Twitter this morning for killing his Obamacare replacement bill — will almost certainly make defunding the women’s health group and country’s biggest abortion provider a non-negotiable condition for it to support the government funding bill.
• That’s a big problem. There’s no way a bill that defunds Planned Parenthood gets 60 votes in the Senate.

This is the issue that could force a government shutdown to last for an extended period of time.

Today the Republicans control the White House, the Senate and the House of Representatives.  If Planned Parenthood is not going to be defunded now, it never will be.

If I was a member of the Freedom Caucus, I would make defunding Planned Parenthood my line in the sand.  These butchers systematically kill millions of American babies, they auction off the body parts to the highest bidders, and the federal government gives them approximately 500 million dollars a year to keep operating.

If President Trump and Paul Ryan choose to fight the Freedom Caucus over defunding Planned Parenthood, any agreement to fund the government will not have enough Republican votes in the House.  But any bill which defunds Planned Parenthood will get filibustered by Democrats in the Senate.

There is always the possibility that President Trump could turn his back on the conservatives in Congress and try to make a deal with the Democrats, but then he would have to get that deal passed by a Republican-controlled House and a Republican-controlled Senate.

To me, it is worth forcing a government shutdown in order to defund Planned Parenthood.

If Donald Trump decides that he wants to do a deal that includes continued funding for Planned Parenthood that is not okay.

Let me repeat – that is not okay.

If Donald Trump or any other Republican member of Congress agrees to a deal that includes continued funding for Planned Parenthood, that will mean that the blood of all the children that are murdered by Planned Parenthood from that day forward will be on their hands too.

Most people don’t realize this, but this is actually one of the most critical moments in American history.

If President Trump and the Republicans defund Planned Parenthood, that will be an exceptionally good thing for our country.

But if President Trump and the Republicans choose not to do this, there will be no more excuses left to offer, and I believe that the consequences for our nation will be far more severe than most people would dare to imagine.

In a just released report from the CBO looking at the long-term US budget outlook, the budget office forecasts that both government debt and deficits are expected to soar in the coming 30 years, with debt/GDP expected to hit 150% by 2047 if the current government spending picture remains unchanged.

The CBO's revision from the last, 2016 projection, shows a marked deterioration in both total debt and budget deficits, with the former increasing by 5% to 146%, while the latter rising by almost 1% from 8.8% of GDP to 9.6% by 2017.

According to the CBO, "at 77 percent of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would reach 150 percent of GDP in 2047."

In addition to the booming debts, the office expects the deficit to more than triple from the projected 2.9% of GDP in 2017 to 9.8% in 2047. The deficit at the end of fiscal year 2016 stood at $587 billion.

A comaprison of government spending and revenues in 2017 vs 2047 shows the following picture:

The CBO also mentions rising rates as another key reason for the increasing debt burden. The Federal Reserve has kept rates low since the financial crisis but is on track to gradually hike rates in the coming year.

On the growth side, the CBO expects 2% or less GDP growth over the next three decades, far below the number proposed by the Trump administration.

The budget office breaks down the primary causes of projected growth in US spending as follows: not surprisingly, it is all about unsustainable social security and health care program outlays.

The CBO's troubling conclusion:

Greater Chance of a Fiscal Crisis. A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing. That increase would reduce the market value of outstanding government securities, and investors could lose money. The resulting losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt might be large enough to cause some financial institutions to fail, creating a fiscal crisis. An additional result would be a higher cost for private-sector borrowing because uncertainty about the government’s responses could reduce confidence in the viability of private-sector enterprises.

 

It is impossible for anyone to accurately predict whether or when such a fiscal crisis might occur in the United States. In particular, the debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

 

The likelihood of such a crisis also depends on conditions in the economy. If investors expect continued growth, they are generally less concerned about the government’s debt burden. Conversely, substantial debt can reinforce more generalized concern about an economy. Thus, fiscal crises around the world often have begun during recessions and, in turn, have exacerbated them.

 

If a fiscal crisis occurred in the United States, policymakers would have only limited—and unattractive—options for responding. The government would need to undertake some combination of three approaches: restructure the debt (that is, seek to modify the contractual terms of existing obligations), use monetary policy to raise inflation above expectations, or adopt large and abrupt spending cuts or tax increases.

Then again, as the past 8 years have shown, only debt cures more debt, so expect nothing to change.

Also, we find it just a little confusing why the CBO never warned of an imminent "fiscal crisis" over the past 8 years when total US debt doubled, increasing by $10 trillion under the previous administration.

Authored by John Rubino via DollarCollapse.com,

The UK’s Telegraph just published an analysis of global debt that pretty much sums up the coming crisis. Here’s an excerpt with a couple of the more hair-raising charts:

Global debt explodes at ‘eye-watering’ pace to hit £170 trillion

Global debt has climbed at an “eye-watering” pace over the past decade, soaring to a fresh high of £170 trillion last year, according to the Institute of International Finance (IIF).

 

The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last 10 years to a record high of $215 trillion (£173 trillion) in 2016 – or the equivalent of 325pc of global gross domestic product (GDP).

 

It said emerging markets posed “a growing source of concern” to financial stability and the global economy as debt burdens in these countries climb at a rapid pace.

 

Growing vulnerabilities

 

The IIF data showed the increase was partly driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016, or 215pc of total emerging market GDP.

 

Debt has risen from $16 trillion in 2006 and $7.4 trillion in 1996.

 

The body, which represents the world’s top financial institutions, said a wave of maturing debt this year presented a “growing refinancing risk”.

 

It estimates that more than $1.1 trillion of emerging market bonds and loans will mature this year, with dollar-denominated debt accounting for a fifth of all redemptions.

 

 

The Bank of England’s Financial Policy Committee (FPC) said on Tuesday that credit in China continued to grow at a “rapid” pace.

 

Corporate credit in the world’s second largest economy has climbed to 166pc of nominal GDP.

 

The IMF at the end of last year warned of broader risks to the global economy.

 

While the global economy appears to be turning a corner, the Fund said there was a risk that low growth, high debt and weak banks could push the world in a dangerous direction.

 

It said the “sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery”.

 

Governments lead advanced economy debt rise

 

The increase in debt in advanced economies has been led by rising public sector debt, according to the IIF.

 

Outstanding government debt in the US and UK has more than doubled since 2006, data shows, while Japan and the eurozone have seen a 50pc increase.

These numbers are astounding. Emerging market debt was $7.4 trillion in 1996, and today it’s $55 trillion. US and UK government debt has doubled – from already historically-high levels — since 2006.

And there’s no end in sight. Japan just passed a record-high government budget, 35% of which will be borrowed. The US added $1.3 trillion to its federal debt in 2016 and is debating massive increases in defense and infrastructure spending. China’s corporate debt alone exceeds 170% of GDP.

Which leads to three inescapable conclusions:

1) Interest rates can never rise because rolling over this much debt at historically-normal rates would blow up the budgets of both the developed and developing worlds.

 

2) The only solution – if you can call it that – is massive currency devaluation to make these debts manageable.

 

3) Since the debt binge has apparently gone parabolic, the reckoning is fairly close at hand. 2018 might be one for the history books.

April 2017 could turn out to be one of the most important months in U.S. history that we have seen in a very long time.  On April 6th, Donald Trump attacked Syria on the 100th anniversary of the day that the U.S. officially entered World War I, and now at the end of this month we could be facing an unprecedented political crisis in Washington.  On Friday, members of Congress left town for their two week “Easter vacation”, and they won’t resume work until April 25th.  What this means is that Congress will have precisely four days when they get back to pass a bill to fund government operations or there will be a government shutdown starting on April 29th.

Up to this point, there has been very little urgency by either party to move a spending bill forward.  It is almost as if everyone is already resigned to the fact that a government shutdown will happen.  The Democrats will greatly benefit from a government shutdown because they can just blame the entire mess on the Republicans.  But for the GOP, this is essentially the equivalent of political malpractice.

To me, there is simply no way that Congress is going to be able to agree on a bill that funds the entire government in just four days.  And it turns out that this upcoming deadline comes exactly on the 100th day of Trump’s presidency…

The U.S. government is poised to shut down on Day 100 of Donald Trump’s presidency, unless Congress can pass a new spending bill or a continuing resolution before the current one expires on April 28.

Since Congress is currently on a two-week recess, there will be a sense of urgency to get a new bill passed once they reconvene on April 25. Leaders in both chambers would have four days to craft a new proposal that each side can agree on and get it on the president’s desk for Trump to sign.

If the Republicans control the White House, the Senate and the House of Representatives, why will it be so difficult to get an agreement on a spending bill?

Well, first of all, look at how difficult it was for the Republicans to agree on a bill to repeal and replace Obamacare.  At this point, it doesn’t look like that is going to happen at all.

More importantly, any bill to fund the government is going to require 60 votes in the Senate.  The “nuclear option” that the Republicans just used to push the Gorsuch Supreme Court nomination through is not available in this case under current Senate rules because a spending bill of this nature would not qualify.

So the Democrats have leverage, and they plan to use it to the maximum.  Senate Minority Leader Chuck Schumer is already promising to block any spending bill that includes funds for a border wall or that defunds Planned Parenthood…

The threat from Senate Minority Leader Chuck Schumer and other Democratic leaders sets up a climactic first showdown with the president, particularly with their inclusion of Trump’s signature border wall proposal.

“If Republicans insist on inserting poison pill riders such as defunding Planned Parenthood, building a border wall, or starting a deportation force, they will be shutting down the government and delivering a severe blow to our economy,” Schumer said in a statement.

Up until now, Trump hasn’t needed Democratic votes to stock his cabinet or advance the repeal of Obamacare, but a spending bill keeping the government open is subject to a 60-vote threshold in the Senate.

Do you understand what this means?

President Trump is going to be under an immense amount of pressure to end the government shutdown once it begins, but to do so will mean that he has to give up his goal of getting a border wall.

Do you think that Trump will just throw in the towel and forget about his beloved border wall after giving countless speeches promising one?

It is a game of chicken between Trump and the Democrats, and I don’t think that either side will give in easily.

Of even greater importance is the debate over the funding of Planned Parenthood.

There are members of the Freedom Caucus that will absolutely not vote for any spending bill that includes funding for Planned Parenthood.  But without the Freedom Caucus, there aren’t enough Republican votes to get a spending bill through the House of Representatives.

Alternatively, Senate Minority Leader Chuck Schumer is vowing that his party will block any funding bill that attempts to defund Planned Parenthood in the Senate.

If Planned Parenthood is not defunded now, it never will be defunded.  This is one of the most pivotal moments in recent U.S. political history, and the outcome is going to have extraordinary consequences for our nation.

For those that are optimistic that there will not be a government shutdown, do you actually expect me to believe that this battle over the funding of Planned Parenthood will somehow get resolved in just four days?

Give me a break.

And of course there are dozens of other major issues that have to be resolved as well.  For example, Senator McCain is promising note to vote for any bill unless it includes an enormous increase in military spending, while many Senate Democrats would be very much against such a move.

I don’t see any way that a government shutdown is going to be avoided at this point, and the longer it goes on the more financial markets are going to get rattled.

Meanwhile, we continue to get even more signs that a substantial slowdown has begun for the U.S. economy.  Last week, we learned that only 98,000 jobs were added in March, and that was only about half of what most analysts were expecting.

And since it takes approximately 150,000 jobs a month just to keep up with population growth, that means that we are losing ground.

At the same time, the Atlanta Fed’s GDPNow forecasting model is now projecting that U.S. GDP growth for the first quarter of 2017 will be just 0.6 percent on an annualized basis.

That is absolutely pathetic, and as I have said before, I wouldn’t be surprised at all if we actually end up with a negative number for the first quarter.

If we do indeed get a negative number for the first quarter and that is followed by another negative number for the second quarter, that will mean that a new recession has already started right now but we just haven’t gotten official confirmation yet.

And lots of other things are already happening which have not happened since the last recession.  For instance, this is the first time since the last financial crisis when there has been no growth for commercial and industrial lending for at least six months.

In addition, commercial bankruptcies spiked during the last recession, and now it is happening again…

Commercial bankruptcy filings, from corporations to sole proprietorships, spiked 28% in March from February, the largest month-to-month move in the data series of the American Bankruptcy Institute going back to 2012.

Of course consumer bankruptcies are rising at an alarming rate as well.  The following comes from Wolf Richter…

In December, bankruptcy filings rose 4.5% from a year earlier. In January they rose 5.4%. It was the first time consumer bankruptcies rose back-to-back since 2010. I called it “a red flag that’ll be highlighted only afterwards as a turning point.”

In March, consumer bankruptcy filings rose 4% year-over-year, to 77,900, the highest since March 2015, when 79,000 filings occurred, according to the American Bankruptcy Institute data.  The turning point has now been confirmed.

If you would like, I could keep talking about the bad economic news for a couple thousand more words.  U.S. credit card debt has just surpassed the one trillion dollar mark, a major crisis has arrived for the U.S. auto industry, thousands of retail stores are closing all over America, our pension funds are underfunded by trillions of dollars, and the U.S. national debt is now sitting at a grand total that is just shy of 20 trillion dollars.  The only reason that we have not crossed that 20 trillion dollar mark yet is because the debt ceiling deadline has already passed, and that is another thing that Congress needs to address very quickly if they want to avoid a major crisis.

Needless to say, the last thing that we need at this point is another war or two on top of everything else.

Unfortunately, a U.S. aircraft carrier strike group headed by the USS Carl Vinson is heading toward North Korea right at this moment, and Russia and Iran are promising to “respond with force” to any new U.S. attacks on Syria.  I will be writing quite a bit more about all of this on End Of The American Dream later today.

Those that were hoping for some sort of “reprieve” under Donald Trump can forget all about that now.  The pace of global events is really starting to accelerate, and the U.S. is already in a more precarious position than it was at any point in 2016.

The clouds have been building for a very long time, and now the storm is almost upon us.  I hope that you have been getting prepared, because a day of reckoning for the United States of America is closing in very rapidly.

Most Americans have seemingly convinced themselves that as a society we will never pay a great price for going into so much debt and that we will never pay a great price for the horrendous crimes against humanity that we are committing on a daily basis.  If you don’t understand what I am talking about, just keep reading the rest of this article.  Just as there are consequences for our actions individually, so there are also consequences for our actions as a society.  And although our national day of reckoning has been put off for quite some time, when it does finally arrive the pain is going to be absolutely unimaginable.

Just recently, I was astounded to learn that the total amount of credit card debt in the United States has crossed the trillion dollar mark.  It boggles my mind that so many Americans could be so foolish, because credit card debt is one of the worst forms of debt in existence, and financial experts all over the country have spent an extraordinary amount of time and energy trying to get this message across to people.

But even though people know that going into credit card debt is bad, they just keep on doing it anyway.  We have become a “buy now, pay later” society that gives very little consideration to long-term consequences.

On a national level, we are now nearly 20 trillion dollars in debt, and a historic showdown over government spending and debt threatens to absolutely paralyze the federal government at the end of this month.  At this point many believe that it will be virtually impossible for Congress to avoid a government shutdown on April 29th, and once it begins Donald Trump’s entire agenda will come to a complete and total crashing halt until the crisis is resolved.  The following comes from David Stockman…

In the meanwhile, everything else — health care reform, tax cuts, infrastructure — will become backed-up in an endless queue of legislative impossibilities. Accordingly, there will be no big tax cut in 2017 or even next year. For all practical purposes Uncle Sam is broke and his elected managers are paralyzed.

The Treasury will be out of cash and up against a hard stop debt limit of $19.8 trillion in a matter of months. But long before that there will be a taste of the Shutdown Syndrome on April 28 owing to the accumulating number of “poison pill” “riders” to the CR.

These include the virtual certainty of riders to the House bill to “defund” Planned Parenthood and sanctuary cities. Other extraneous amendments will also possibly include funds demanded by the White House to start the Mexican Wall, enhance deportations and fund some of Trump’s $54 billion defense increase.

I am so glad that Stockman mentioned Planned Parenthood, because the decision whether or not to continue funding Planned Parenthood is going to be one of the central issues of this upcoming crisis.

Currently, the U.S. government gives Planned Parenthood roughly $500,000,000 a year.  By law, none of that money is supposed to be used to provide abortions, but everyone knows what the real deal is.

Some Planned Parenthood clinics do provide other services, but at the end of the day Planned Parenthood’s core business is abortion.  In fact, since Roe v. Wade was decided in 1973 they have killed far more babies than anyone else in the United States by a very wide margin.

And for decades, the U.S. government has been the number one source of funding for Planned Parenthood.  In fact, there are questions as to whether or not Planned Parenthood would be able to continue as a viable business without money from the federal government.

Over the years, when members of Congress have voted to shower Planned Parenthood with hundreds of millions of dollars a year, they have not done it in the heat of the moment.  Rather, their votes have been the result of cold, calculated decision-making processes.

In other words, the members of Congress that have been voting to keep funding Planned Parenthood year after year have the blood of millions of dead children on their hands, and there is very little difference between them and Facebook killer Steve Stephens.

When Stephens broadcast the cold-hearted murder of a 74-year-old man on Facebook on Sunday, he instantly became a worldwide celebrity.  And even though most people in the country have now seen his face, he continues to somehow elude authorities.

What Stephens has done is absolutely horrific, and when he is finally caught he will pay greatly for his crimes.

Just like Stephens, America is on the run today.  We keep thinking that we will never have to pay a price for the tens of millions of children that we have killed, and our government continues to fund the slaughtering of the innocents that goes on every single day in this nation.

But now Congress is going to be given one more chance to make the right decision.

The Republicans have control of the White House, the Senate and the House of Representatives.  They have the power to defund Planned Parenthood, but it is going to take a tremendous amount of resolve.

That is because under the current rules it is going to take 60 votes to get a spending agreement through the Senate, and so the Republicans will need at least 8 Democratic votes to get any bill to Trump’s desk.

Sadly, the Democrats are pledging to stretch out a government shutdown indefinitely if Republicans try to defund Planned Parenthood.

So what will the Republicans do?  Well, they could change the rules in the Senate to require only a simple majority vote on spending bills, and that would essentially be the “thermonuclear option”.

Or they could give in, but if they do that it would likely mean that Planned Parenthood will never be defunded, because the Republicans will never have a better opportunity than they do right now.

And I have a feeling that is what is going to happen.  I have a feeling that the Republicans are going to give in at some point and agree to keep giving Planned Parenthood half a billion dollars a year.

If that is indeed what happens, both the Democrats and the Republicans that help pass such a bill will be cold-blooded killers just like Facebook killer Steve Stephens, only those Democrats and those Republicans will have far more blood on their hands than Stephens does.

Most people do not realize this, but without a doubt this is one of the most critical moments in modern American history.  And if the funding of Planned Parenthood continues, I have a feeling that is going to mean that our national day of reckoning is much closer than most people would dare to imagine.

If we do not stop what we are doing, someday our crimes will catch up to us, and the debt that we will owe at that point will be far beyond what we can bear to pay.

Is Donald Trump going to unconditionally surrender to the Democrats and completely give up his dream of building a border wall in order to avoid a government shutdown on his 100th day in office?  As I have warned before, the Democrats are perfectly willing to force a government shutdown if the Trump administration and the Republicans in Congress do not let them win all of the key battles in this funding bill fight.  It is being reported that the Trump administration wants 3 billion dollars for extra border security and for construction of a border wall, and the Democrats are insisting that they will keep any bill that includes money for a border wall from ever getting through Congress.  And of course the Democrats are also taking a very hard line on funding for Planned Parenthood, federal support for key Obamacare provisions, and resistance to increased defense spending.  If the Trump administration and enough establishment Republicans in Congress cave in to the outrageous demands of the Democrats, a government shutdown will be avoided.  If not, a government shutdown will begin on April 29th (Trump’s 100th day in office), and it could easily turn out to be the longest government shutdown in the history of the United States.

If Trump gives up on his border wall now, it is quite likely that he will never get it.

Emboldened by this success, the Democrats will simply threaten to block any new bill that contains funding for a border wall in the future.  At some point Trump is going to have to stand up for himself if he ever wants to see his number one campaign promise become a reality, and the longer he waits the less leverage he is going to have.

At this moment, the Trump administration appears to be taking a tough stance on border wall funding, and they have even offered a deal to the Democrats that would trade continued Obamacare payments to insurers for money for a border wall…

Mick Mulvaney, President Trump’s budget chief, said the wall is the administration’s “top priority” for the talks, adding they would support key ObamaCare payments to insurers if Democrats backed the border wall money.

“We’d offer them $1 of CSR payments for $1 of wall payments. Right now that’s the offer that we’ve given to our Democratic colleagues,” Mulvaney said during a Bloomberg Live interview, referring to the ObamaCare payments known as cost-sharing reduction (CSR).

In that same interview, Mulvaney added that “you cannot expect a president who just won [an] election to give up very easily on his highest priority.”

And I certainly agree with Mulvaney.  The border wall was the number one issue that Trump campaigned on, and if he unconditionally surrenders to the Democrats on this issue without much of a fight, it will essentially be the neutering of his entire presidency.

The Democrats seem to know what is at stake, and they are digging in for war.  At this point they are completely united in their stance that there will not be a single penny for a border wall.  The following comes from CNS News…

Sen. Dick Durbin, an Illinois Democrat, told CNN’s “State of the Union” on Sunday that President Trump should not expect Congress to give him any money to fund his “outlandish” border wall.

Trump has requested $1.4 billion to get the wall started in the current fiscal year, which runs through September, but Durbin on Sunday called it a political stunt and a poison pill:

“I hope the president will back off,” Durbin said.

So will either side back down by Friday?

I don’t think so, and that means that a government shutdown is coming.

Of course there is talk that Congress could pass a one week or two week extension to give negotiations more time, but that would just delay the inevitable.

And it isn’t just the border wall that is a sticking point.  Other issues such as funding for Planned Parenthood and increased spending for national defense could potentially derail any deal.  The following comes from Business Insider…

Thomas Block, a Washington policy analyst at Fundstrat, described the problem in a note to clients on Monday:

“In the House, there is a group consisting of Tea Party and Freedom Caucus Republicans who believe that almost any spending bill is too large for them to support. Therefore, Speaker Ryan is likely going to need some Democratic support to get a bill passed. The problem is that no Democrats will support a bill that contains the president’s stated priorities.

“Furthermore, many Republicans want to use the spending bill to stop all funding for Planned Parenthood, a clear poison pill as far as most Democrats are concerned.”

In order for the public to have three days to examine any bill before a vote happens, a spending bill is going to have to be unveiled in the House by Wednesday at the latest in order to meet the deadline.

Is that going to happen?

I doubt it, but it is always possible.

But even if a bill gets through the House, that doesn’t mean that the Senate will be on board with it, and unless that bill contains funding for a border wall Trump may not sign it.

So what specifically would happen during a government shutdown?  The following is a good summary from Zero Hedge…

1. Details of which government functions stop are determined by the Office of Management and Budget.
2. If it looks like a shutdown will occur, White House budget office works with federal agencies to determine which federal functions and employees are “essential” or “excepted.” The White House has latitude in how broadly it defines “excepted.”
3. Agencies and services considered non-essential close. Federal workers will be furloughed without pay. The Federal Government employs over 4-million individuals, so this can be hundreds of thousands of workers affected. Congress may decide after the shutdown to pay them for the time off. Financial disruption is one concern.
4. “Emergency personnel” continue to be employed, including the active duty military, federal law enforcement agents, doctors and nurses working in federal hospitals, and air traffic controllers. For the Department of Defense, at least half of the civilian workforce, and the full-time, dual-status military technicians in the US National Guard and traditional Guardsmen (those on Title 32 status) are furloughed without pay. Members of Congress continue to be paid, because their pay cannot be altered except by direct law.

Congress is only going to be back in session for two weeks before another extended 10 day vacation begins on May 5th.

That means that the clock is ticking, and at this point a deal does not seem close.

Personally, I am fully convinced that the Democrats are more than willing to allow a government shutdown to happen, because they believe that it will damage the Republicans far more than it will damage them.

So they are not going to move from their demands, and that means that either Trump is going to have to give up his dream of a border wall or there will be a government shutdown on his 100th day in office.

Why do things never seem to change no matter who we send to Washington?  It seems like for decades many of us have been trying to change the direction of this country by engaging in the political process.  But no matter how hard we try, the downward spiral of our nation just continues to accelerate.  Just look at this latest spending deal.  Even though the American people gave the Republicans control of the White House, the Senate and the House of Representatives, this deal very closely resembles “an Obama administration-era budget”.  It increases spending even though we have already been adding more than a trillion dollars a year to the national debt, it specifically forbids the building of a border wall, it fully funds Planned Parenthood, and there are dozens of other concessions to the Democrats in it.  As I previously warned, these “negotiations” were a political rout of epic proportions.

Perhaps many of us were being highly unrealistic when we expected that Donald Trump could change things.  Because fixing America is going to take a lot more than getting the right number of “red” or “blue” politicians to Washington.  Rather, the truth is that the real problem lies in our hearts, and the corrupt politicians that currently represent us are simply a reflection of who we have become as a nation.

The generations of people that founded this nation and established it as the greatest republic that the world had ever seen had far different values than most Americans do today.

So until there is a dramatic shift in how most of us see the world, it is quite likely that not much in Washington will change.

Throughout the campaign, Donald Trump spoke boldly about “draining the swamp”, but this spending deal very much reflects the swamp’s priorities.  The Washington Post has published a list of eight ways that “Trump got rolled in his first budget negotiation”, and in this case the Post is quite correct…

1. There are explicit restrictions to block the border wall.

2. Non-defense domestic spending will go up, despite the Trump team’s insistence he wouldn’t let that happen.

3. Barack Obama’s cancer moonshot is generously funded.

4. Trump fought to cut the Environmental Protection Agency by a third. The final deal trims its budget by just 1 percent, with no staff cuts.

5. He didn’t defund Planned Parenthood.

6. The president got less than half as much for the military as he said was necessary.

7. Democrats say they forced Republicans to withdraw more than 160 riders.

8. To keep negotiations moving, the White House already agreed last week to continue paying Obamacare subsidies.

In essence, the Democrats got virtually everything that they wanted, and the Republicans got next to nothing.

Trump and the Republicans are promising that they will fight harder “next time”, but we have already heard that empty promise from Republicans year after year going all the way back to 2011.

Among many other conservative pundits, author Daniel Horowitz is absolutely blasting these “weak-kneed Republicans”…

Now, with control of all three branches and a president who sold himself in the primaries as the antithesis of weak-kneed Republicans who don’t know the first thing about tough negotiations, we are in the exact same position. Last night, President Trump signaled that, after not even fighting on refugee resettlement and Planned Parenthood, he would cave on the final budget issue – the funding of the border fence. But fear not, he’ll resume his demand … the next time!

This degree of capitulation, with control of all three branches, is impressing even me … and I had low expectations of this president and this party. They have managed to get run over by a parked car. It’s truly breathtaking to contrast the performance of Democrats in the spring of 2009 with what Republicans have done today with all three branches. At this time in 2009, Democrats passed the bailouts, the stimulus, the first round of financial regulations, an equal pay bill, SCHIP expansion, and laid the groundwork for other, bigger proposals, such as cap and trade and Obamacare. Then they got everything they wanted in the March 2009 omnibus bill, and a number of GOP senators voted for it. We, on the other hand, are left with nothing.

And even the mainstream media is admitting that the Democrats made out like bandits in this deal.

Just check out the following quotes…

• “Overall, the compromise resembles more of an Obama administration-era budget than a Trump one,” Bloomberg reports.
• The Associated Press calls it “a lowest-common-denominator measure that won’t look too much different than the deal that could have been struck on Obama’s watch last year.”
• Reuters: “While Republicans control the House, Senate and White House, Democrats scored … significant victories in the deal.”
• The Los Angeles Times describes the agreement as “something of an embarrassment to the White House”: “Trump engineered the fiscal standoff shortly after he was elected, insisting late last year that Congress should fund the government for only a few months so he could put his stamp on federal spending as the new president.”

If Trump can’t get his priorities funded now, do you think that the Democrats will somehow become more agreeable after he has spent a year or two in the White House?

Of course not.

If there ever was going to be a border wall, it was going to happen now.

If Planned Parenthood was ever going to be defunded, it was going to happen now.  From this moment forward, the blood of every child that Planned Parenthood kills will be on the hands of every Republican that voted for this bill or that signed this bill.

The next “big battle” is going to be over a bill to repeal and replace Obamacare, but the truth is that “Trumpcare” is going to end up looking very much like Obamacare.

Instead of repealing it, the Republicans are trying to “fix” Obamacare, and that is kind of like going to the dump and trying to “fix” a big, steaming pile of garbage.

But like I explained earlier, we should not expect things to move in a positive direction in Washington D.C. until the values of those representing us change.

At this point, there are only a few dozen members of the House and a handful of members of the Senate that even give lip service to the values of our founders.

And until our values change, we are not going to send representatives to Washington that share the values of our founders.

Sadly, most Americans know very little about the history of early America.  I would encourage everyone to look into why our founders came to this country in the first place, what they believed was most important in life, and how they viewed the world.

If we ever want to “make America great again”, we need to return to those values.  Otherwise, we are just blowing a lot of hot air.

With debt ceilings, spending plans, and tax reforms focusing all eyes on Washington, we thought it notable that for the first time in US history, the cost of interest on US government debt has risen above half a trillion dollars…

Source: @NorthmanTrader

One wonders, given the grandiose spending plans, if we will ever get back below half a trillion dollars?

We recommend viewing the full-size version of today’s infographic by clicking here.

Everyone knows that the U.S. Federal Government has roughly $20 trillion of debt. A question we often get, however, is who exactly owns all these treasuries? And if it’s held abroad by countries like China, what portion do they hold?

Today’s infographic comes from TitleMax, and it looks at who owns U.S. debt internationally, as well as the debt from other countries that is held by the U.S.

WHO HOLDS U.S. DEBT?

Federal government debt in the United States can be broadly placed in two categories: “Debt held by the public” and “Intragovernmental debt”. The former category includes securities held by individual investors, corporations, local and state governments, the Federal Reserve, and foreign governments.

Meanwhile, intragovernmental debt includes securities held in accounts administered by other federal authorities. This category, for example, would include treasuries owed to the Social Security Trust Fund.

Here’s the tallies of these two categories as of December 2016:

DEBT HELD BY THE PUBLIC

“Debt held by the public” is the most interesting of these, and it can be further broken down:

*Note: Data for Fed is for marketable securities only. All data in this table from September 2016.

About 43% of all debt held by the public is actually owned by foreign governments, corporations, and individuals.

U.S. DEBT HELD INTERNATIONALLY

Here’s how that breaks down by country:

By Chris at www.CapitalistExploits.at

What in God’s name is happening?

It’s not a high.

It’s a record high.

Sweet mother of Mary…

As we can see from the above chart courtesy of the FT, emerging markets sold a record amount of government debt in the first quarter of this year.

More from the FT here:

“Data from Dealogic, a research firm, show that sovereign bond sales from emerging markets rose to $69.6bn in the first three months of the year, an increase of 48 per cent from a year ago and a record amount for a single quarter. Corporate bond sales by companies in developing countries also surged, rising 135 per cent year on year in the first quarter to $105bn, according to Bloomberg data.”

It’s understandable. Investors have been richly rewarded for so so long by investing in bankrupt countries. Giving up is so very hard to do.

According to Bank of America Merrill Lynch, emerging-market debt funds have collected new money for 10 straight weeks. And while that’s been taking place, U.S. stock funds had $14.5 billion of outflows in just one week – the most in well over a year.

Out of equities and into bonds, which really proves just how screwed up the markets have become.

Context is … Everything

“A bull market in the US Dollar is underway and its magnitude and duration are likely to catch everyone by surprise. I believe it isn’t out of the question for the USD Index to advance by at least 50% within the next 5 years. If this forecast proves correct, there will be profound ramifications for the global economy and many financial markets, particularly emerging markets.”

Lucky, I guess.

The fact is this wasn’t guess work.

Global dollar liquidity was contracting sharply, and human nature being what it is investors were extrapolating linear outcomes in a non-linear world.

In market speak implied volatility was the lowest since Adam bit into the apple. Wonderful stuff.

The reason for pointing this out is because all that dollar debt sitting outside of the land of apple pie quite quickly becomes a serious liability when the dollar begins to move against you and your investments are in something other than dollars.

The good old carry trade works spectacularly when the borrowed currency stays flat or indeed depreciates and not so spectacularly when it doesn’t.

Let’s return for a minute to the rapid accumulation of emerging markets debt, currently growing exponentially. It’s worth pointing out that this is all taking place while dollar liquidity is contracting and the charts are looking increasingly bullish for the Dollar Index.

I’m not sure what lands up setting of the next leg in the dollar bull market but emerging markets bond holders stand to get torched as they’re sitting on a fault line which when it shakes measures 9.4 on the Richter scale.

Clearly, you know where I stand on this issue but I’m curious what my readers think.

Question

Cast your vote here and also see what others think is going on

– Chris

“Every bubble consists of a trend that can be observed in the real world and a misconception relating to that trend.” — George Soros

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Authored by Charles Hugh-Smith via OfTwoMinds blog,

"Governments cannot reduce their debt or deficits and central banks cannot taper. Equally, they cannot perpetually borrow exponentially more. This one last bubble cannot end (but it must)."

I often refer to debt serfdom, the servitude debt enforces on borrowers. The mechanism of this servitude is interest, and today I turn to two knowledgeable correspondents for explanations of the consequences of interest.

Correspondent D.L.J. explains how debt/interest is the underlying engine of rising income/wealth disparity:

Here is a table of the growth rate of the GDP.

 

If we use $16T as the approximate GDP and a growth rate of, say, 3.5%, the total of goods and services would increase one year to the next by about $500B.

 

Meanwhile, referencing the Grandfather national debt chart with the USDebtClock data, the annual interest bill is $3 trillion ($2.7 trillion year-to-date).

 

In other words, those receiving interest are getting 5-6 times more than the increase in gross economic activity.

 

Using your oft-referenced Pareto Principle, about 80% of the population are net payers of interest while the other 20% are net receivers of interest.

 

Also, keep in mind that one does not have to have an outstanding loan to be a net payer of interest. As I attempted to earlier convey, whenever one buys a product that any part of its production was involving the cost of interest, the final product price included that interest cost. The purchase of that product had the interest cost paid by the purchaser.

 

Again using the Pareto concept, of the 20% who receive net interest, it can be further divided 80/20 to imply that 4% receive most (64%?) of the interest. This very fact can explain why/how the system (as it stands) produces a widening between the haves and the so-called 'have nots'.

In other words, the wealthy own interest-yielding assets and the rest of us owe interest on debt.

Longtime correspondent Harun I. explains that the serfdom imposed by debt and interest is not merely financial servitude–it is political serfdom as well:

As both of us have stated, you can create all of the money you want, however, production of real things cannot be accomplished with a keystroke.

 

Then there is the issue of liberty. Each Federal Reserve Note is a liability of the Fed and gives the bearer the right but not the obligation to purchase — whatever the Fed deems appropriate. How much one can purchase keeps changing base on a theory-driven experiment that has never worked. Since the Fed is nothing more than an agent of the Central State, the ability to control what the wages of its workers will purchase, is a dangerous power for any government.

 

If a Federal Reserve Note is a liability of the central bank, then what is the asset? The only possible answer is the nations productivity. So, in essence, an agent of the government, the central bank, most of which are privately owned (ownership is cloaked in secrecy) owns the entire productive output of free and democratic nation-states.

 

People who speak of liberty and democracy in such a system only delude themselves.

 

Then there is the solution, default. That only resolves the books, the liability of human needs remain. Bankruptcy does not resolve the residue of social misery and suffering left behind for the masses who became dependent on lofty promises (debt). These promises (debts) were based on theories that have reappeared throughout human history under different guises but have never worked.

 

More debt will not resolve debt. The individual’s liberty is nonexistent if he does not own his labor. A people should consider carefully the viability (arithmetical consequences) of borrowing, at interest, to consume their own production. The asset of our labor cannot simultaneously be a liability we owe to ourselves at interest.

Thank you, D.L.J. and Harun. Is there an alternative to the present system of debt serfdom and rising inequality? Yes, there is, one I describe in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All. But is an alternative system possible? Not in our Financialized, Neofeudal-Neocolonial Rentier Economy; but this doesn't mean the status quo is permanent. As Harun noted in another email, "Governments cannot reduce their debt or deficits and central banks cannot taper. Equally, they cannot perpetually borrow exponentially more. This one last bubble cannot end (but it must)."

Correspondent J.F. recently submitted a helpful way of conceptualizing $1 trillion: One million seconds ago was eleven days ago. One billion seconds ago was 1982. One trillion seconds ago was 30,000 BC.

Here is federal debt, topping $20 trillion and soaring to the moon:

What we're really discussing is what will replace the current system after it self-destructs.

Margaret Thatcher once said that the problem with socialism “is that eventually you run out of other people’s money”.  As you will see below, the combined enrollment in America’s four largest safety net programs has reached a staggering 236 million.  Of course that doesn’t mean that 236 million people are getting benefits from the government each month because there is overlap between the various programs.  For example, many Americans that are on Medicaid are also on food stamps, and many Americans that are on Medicare are also on Social Security.  But even accounting for that, most experts estimate that the number of Americans that are dependent on the federal government month after month is well over 100 million.  And now that so many people are addicted to government handouts, can we ever return to a culture of independence and self-sufficiency?

On Wednesday, CNN ran an editorial by Bernie Sanders in which he called President Trump’s proposed budget “immoral” because it would cut funding for government aid programs.

But is it moral to steal more than a hundred million dollars from future generations of Americans every single hour of every single day to pay for these programs?

Of course the answer to that question is quite obvious.

There will always be some Americans that are unable to take care of themselves, and we should want to help them.

But as millions upon millions of Americans continue to jump on to the safety net, eventually we are going to get to the point where it is going to break.

As I mentioned above, the combined enrollment in the four largest safety net programs has reached a new all-time record high…

–More than 74 million Americans are on Medicaid and CHIP (Children’s Health Insurance Program).

–More than  58 million Americans are on Medicare.

–More than 60 million Americans are on Social Security.

–Approximately 44 million Americans are on food stamps.  And even though we are supposedly in an “economic recovery”, this number is still dramatically higher than the 26 million Americans that were on food stamps prior to the last financial crisis.

When you add the figures for those four programs together, you get a grand total of 236 million, and that doesn’t even count any of the other federal programs which are helping people.

Once again, there is overlap in enrollment between these various programs, but even accounting for that most experts believe that well over a third of the country is currently receiving benefits from the government each month.

How far down this road do we have to go before people start calling it “socialism”?

As I was writing this, I was reminded of one of Benjamin Franklin’s most famous quotes…

“When the people find that they can vote themselves money that will herald the end of the republic.”

In our country today, many politicians have discovered that one of the best ways to win elections is to promise the voters as much free stuff as possible.  This is one of the primary reasons why Bernie Sanders did so well.  Young people loved his socialist policies, and he received more votes from Millennials in the primaries and caucuses than Donald Trump and Hillary Clinton combined.

As older generations of Americans continue to die off, the Millennials will just become even more powerful politically.  And considering the fact that they are far more liberal than other generations, that is a very alarming prospect…

In the minds of 80 percent of baby boomers and 91 percent of elderly Americans, communism was a major problem in years past and remains a significant concern today. But millennials, aged 16 to 20 years, see it differently. Only 55 percent of the younger generation take issue with communism, 45 percent say they would vote for a socialist and 21 percent say they’d vote for a communist.

And millennials made all that clear during the Democratic presidential primary, when many of them cast their vote for Vermont Sen. Bernie Sanders, a self-avowed socialist. In fact, the report credits the New England lawmaker with a “bounce” that led to less than half of millennials — 42 percent — having a favorable view of capitalism.

At this point, the Republic that our founders established is barely recognizable, and if it is going to be saved we need a conservative revolution as soon as possible.

A good place to begin would be to dramatically reduce the size and scope of the federal government, and there are some promising signs in the budget that President Trump has proposed.  He wants to completely eliminate 66 federal programs, and liberals are screaming bloody murder over this.

Of course Trump’s budget is “dead on arrival” in Congress because many among his own party do not support him.  Most Republicans campaign as conservatives but govern like Democrats, and it is high time that we held them accountable for that.  In 2018 we are going get Trump a whole bunch of friends in Congress, and a lot of those establishment Republicans that have been betraying conservatives for years are going to have to find a new line of work.

We simply cannot afford to keep sending the same cast of characters back to Washington time after time.  Just look at the debacle that the effort to repeal Obamacare has become.  According to Senate Majority Leader Mitch McConnell, getting any sort of bill through the Senate is going to be extremely challenging…

Referring to behind-the-scenes work among Senate Republicans on a healthcare bill, McConnell said, “I don’t know how we get to 50 (votes) at the moment. But that’s the goal.”

Under a scenario of gathering the votes needed for passage in the 100-seat chamber, Republican Vice President Mike Pence would be called upon to cast any potential tie-breaking Senate vote.

McConnell opened the interview by saying, “There’s not a whole lot of news to be made on healthcare.” He declined to provide any timetable for producing even a draft bill to show to rank-and-file Republican senators and gauge their support.

And yet somehow when Obama was in office the Republicans in the House and the Senate were able to easily pass a bill to repeal Obamacare and get it to Obama’s desk.

Why can’t they get that exact same bill to Trump’s desk?

We definitely need to “drain the swamp” in D.C., and we can start with Congress.

But the alliance between big money and big government is going to be hard to defeat, and so if we want our country back we are going to have to fight harder than we have ever fought before.

Authored by Dambisa Moyo, published op-ed by The FT,

Virtually every class of US debt — sovereign, corporate, unsecured household/personal, auto loans and student debt — is at record highs. Americans now owe $1tn in credit card debt, and a roughly equivalent amount of student loans and auto­loans which, like the subprime mortgage quality that set off the 2008 financial crisis, are of largely low credit quality (and therefore high risk).

US companies have added $7.8tn of debt since 2010 and their ability to cover interest payments is at its weakest since 2008, according to an April International Monetary Fund report. With total public and private debt obligations estimated at 350 per cent of gross domestic product, the US Congressional Budget Office has recently described the path of US debt (and deficits) as almost doubling over the next 30 years.

But this is not just a US phenomenon. Globally, the picture is similarly precarious, with debt stubbornly high in Europe, rising in Asia and surging across broader emerging markets. A decade on from the beginning of the financial crisis, the world has the makings of a fresh debt crisis.

In November last year, unsecured household debt in the UK passed pre­financial crisis highs in 2008. In the UK, debt excluding student loans crept up to £192bn, the highest figure since December 2008, and it continues to rise this year. Meanwhile, in the eurozone, debt­to­GDP ratios in Greece, Italy, Portugal and Belgium remain over 100 per cent. As of March there were more than $10tn negative yielding bonds in Europe and Japan.

There is also the perennial risk and market concern that debt levels in China will at some point bubble to the top of the country’s economic woes in a very damaging way. Among the most risky are non­performing loans of stateowned enterprises, and mismarked and therefore not properly accounted for debt obligations in the over­heated real estate market.

More broadly, emerging market borrowing is surging. Sales of EM corporate dollar­denominated notes have climbed to about $160bn this year, more than double offerings at this point in 2016 and the fastest annual start on record, according to data compiled by Bloomberg going back to 1999. The total stock of foreign currency EM debt stands at more than $15tn.

The threat of a looming crisis is not solely down to the absolute volume of debts. At least three things make the situation especially precarious.

First, debt — particularly dollar denominated — is becoming more expensive as market expectations are pricing at least three rate hikes by the US Fed this year, and a relatively strong dollar is putting pressure on borrowers to service foreign currency obligations. The recent downgrades of South Africa to junk status follow a year in which credit rating agencies cut EM borrowers’ grades in record numbers. Moody’s downgraded 24 sovereigns (including Brazil, Nigeria and Saudi Arabia) in the first half of 2016, adding to concerns as to whether borrowers will be able to service their obligations.

 

Second, the ability to repay debt is under strain in countries whose revenues stem disproportionately from commodities, whose prices have suffered. Furthermore, nations exposed to significant Chinese trade and investment face fiscal stress as China itself has a relatively soft economic outlook.

 

Finally, the prevailing mixed global economic growth picture — underscored by the forecasts in the recent IMF World Economic Outlook — prompts questions as to how (and indeed whether) outstanding debts will be paid or brought under control.

It is possible that US corporate debt repayment could be boosted by president Donald Trump’s plans attract $2.6tn in corporate cash residing offshore back into the US. Barring any stipulations on its use, the prospect of a significantly low repatriation tax of just 10 per cent (compared with the 35 per cent current corporate tax rate) could help put a meaningful dent in outstanding corporate debt obligations.

Meanwhile, with crippling student debt now a political issue, there is scope for a resolution that could see significant writedowns and debt forgiveness with vast amounts potentially subsumed on to the government balance sheet.

But neither of these would help debt repayment outside the US. Of a shortlist of prescriptions to escape unsustainable debt — from outright default and austere fiscal policy to bailouts — only growth itself can lift countries out of high indebtedness in a non­disruptive way. Without it, we have the makings of a debt crisis that would reverberate around the world.

Authored by James Rickard svia The Daily Reckoning blog,

China is in the greatest financial bubble in history. Yet, calling China a bubble does not do justice to the situation. This story has been touched on periodically over the last year.

China has multiple bubbles, and they’re all getting ready to burst. If you make the right moves now, you could be well positioned even as Chinese credit and currency crash and burn.

The first and most obvious bubble is credit. The combined Chinese government and corporate debt-to-equity ratio is over 300-to-1 after hidden liabilities, such as provincial guarantees and shadow banking system liabilities, are taken into account.

Paying off that debt requires growth, but the growth itself is fueled by more debt. China is now at the point where enormous new debt is required to achieve only modest new growth. This is clearly non-sustainable.

The next bubble is in investment instruments called Wealth Management Products, or WMPs. You may remember hearing about in the Daily Reckoning and also covered in Bloomberg’s article China Is Playing a $9 Trillion Game of Chicken With Savers.

Picture this. You’re a middle-class Chinese saver and you walk into a bank. They offer you two investment options. The first is a bank deposit that pays about 2%. The other is a WMP that pays about 7%. Which do you choose?

In the past ten years, bank customers have chosen almost $12 trillion of WMPs. That might be fine if WMPs were like high-quality corporate or municipal bonds. They’re not. They’re more like the biggest Ponzi scheme in history.

Here’s how they work. Proceeds from sales of WMPs are loaned to speculative real estate developers and unprofitable state owned enterprises (SOEs) at attractive yields in the form of notes.

So, WMPs resemble collateralized debt obligations, CDOs, the same product that sank Lehman Brothers in the panic of 2008.

The problem is that the borrowers behind the WMPs can’t pay their debts. They’re relying on further bubbles in real estate or easy credit from the government to meet their interest obligations.

What happens when a WMP matures? Usually the bank customer is encouraged to rollover the investment into a new WMP. What happens if the customer wants her money back? The bank sells a new WMP to another customer, then uses those sales proceeds to redeem the first customer. The new customer now steps into the shoes of the first customer with the same pile of bad debt. That’s where the Ponzi dynamic comes in.

Simply put, most of the debts backing up the WMPs cannot be repaid, which means it’s just a matter of time before the WMP market goes into a full meltdown and triggers a banking panic.

Finally, there is an infrastructure bubble. As explained in more detail below, China has kept its growth engine humming mostly with investment instead of aggregate demand from consumers.

Investment is fine if it is directed at long-term growth projects that produce a positive expected return and help the broader economy grow as well. But, that’s not what China has done.

About half of China’s investment in the past ten years has been wasted on “ghost cities,” white elephant transportation facilities, and prestige projects that look good superficially, but that don’t produce enough revenue or efficiencies to pay for themselves.

Much of this investment was financed with debt. If the project itself is not revenue producing then the associated debt cannot be repaid, and will go into default.

The toxic combination of government debt, corporate debt, WMPs, and unrealistic growth expectations have set up China for the greatest market crash in history. But, not yet. As analysis will continue to prove, political forces will put off a day of reckoning until early 2018.

The Middle-Income Trap

Most of the debt statistics noted above are well known. Analysts are relaxed about it. They acknowledge that debt levels are high, but point to the fact that China has the second largest economy in the world, and is by far the fastest growing major economy in the world.

Even though growth rates have fallen from 10% to 6.5% in recent years, that 6.5% growth is still enviable compared to 2% growth in the U.S., and less than 1% growth in Europe. China’s debt burdens are manageable as long as the growth is there to support the debt.

This rosy scenario ignores two harsh realities. The first is known as the “middle-income trap.” The second is a death spiral of rising debt and rising interest rates that choke off growth just when it is needed most.

When I studied development economics in graduate school in the 1970s, it was widely believed that the most difficult part of moving countries from poverty to wealth was the initial stage. Societies seemed stuck in a permanent rut of primitive agrarian culture and simple resource extraction.

What was needed was a “takeoff” that would move citizens to cities, improve productivity on the land (the “green revolution”), and employ newly urbanized workers with foreign direct investment, foreign aid, and national savings. From there the expectation was that growth would be self-sustaining and economies would grow rich over time — just as Japan and Germany had achieved high-income status from the ruins of World War II.

It turned out that the first part of this model was true, but the second part was not.

In broad terms, the IMF and OECD define a “low-income” country as one with per capital income of less than $5,000 per year. A “middle-income” country lies between $5,000 and $20,000 annual per capita income. Above $20,000 per year of per capita income is generally considered “high income.”

Obviously such measures are somewhat arbitrary. Also, because they are averages they mask a lot of relevant information about income distribution. In the case of China, per capita income is about $8,000 per year, but extreme income inequality means that the median income if far less.

These figures also do not take into account government benefits and social safety nets than can produce a decent quality of life even at lower income levels. China has no robust social safety net (one reason the personal savings rate is so high). This means the $8,000 per year income figure overstates the income security of Chinese workers compared to some other countries.

Even adjusting for income inequality and no social safety net, the Chinese per capital income figure puts it solidly in the middle-income ranks. By way of contrast, India today is stuck in poverty at $1,600 per year. In the high-income ranks, Switzerland’s per capital income is $81,000, almost 50% greater than the United States.

In 1960, per capita GDP for China was $90 in constant dollars. The Chinese Miracle is that per capita income has risen 10,000% in less than 60 years, with most of that coming in the past 35 years since the death of Mao Zedong.

All of this is consistent with the 1960s takeoff theory I studied in the 1970s. The problem is that this growth is not self-sustaining. It turns out that the path from poverty to middle-income is straightforward, but the path from middle-income to high-income is far more difficult.

Moving from poverty to middle-income is just a matter of mobilizing factor inputs of labor and capital. The labor comes from hundreds of millions of citizens moving from subsistence level farms to cities and taking manufacturing jobs. Finance capital comes from export-related savings and foreign direct investment.

The result is an explosion of income through simple assembly-type manufacturing and cheap exports. This process is helped by a cheap currency, which China manipulated from 1995 to 2008.

Moving from middle income to high-income is a different challenge. It cannot be done with more of the same urbanization and manufacturing. It requires high-value added products that come from education, technological innovation, and entrepreneurship.

Germany and Japan managed this after World War II because they had huge reservoirs of human capital in the form of an educated workforce despite the destruction of physical capital.

Since then, only three major countries (other than oil exporters) have moved from middle-income to high income. Those three are Taiwan ($22,000), South Korea ($27,500), and Singapore ($53,000). (Macau and Bahamas also made the leap, but those are special cases based on tourism and gambling that cannot be applied to major industrializing economies).

China is not alone in the middle-income trap. It is stuck there with Malaysia ($9,300), Mexico ($8,500), Turkey ($11,000), and several others.

All of these countries have grown through some combination of assembly-type manufacturing, tourism, energy exports, and commodity exports. None has generated the kind of self-sustaining technological innovation seen in Taiwan, South Korea, and Singapore.

The prospects for China to break out of the middle-income trap are poor. China’s theft of intellectual property and weak rule of law make it an unattractive venue for technology development. Its Communist Party dictatorship also does not allow the free exchange of ideas, social media connections, and entrepreneurship needed to generate high-value added processes.

At the same time, China’s advantages in assembly-type manufacturing are being siphoned away by low-income countries such as Vietnam ($2,100), Philippines ($3,000), Indonesia ($3,600), and others in Central and South America.

Of course, the greatest threat to Chinese output in the manufacturing sector in India. There, one billion people are ready to make the same transition from farm to city that China made in the 1980s and 1990s.

In short, Chinese growth is in severe jeopardy. Its manufacturing base is being taken over by competitors and its high-tech future has yet to emerge, and may never emerge in time to avert a debt crisis.

The Chinese Miracle is no miracle at all, it’s just simple development economics. China is now out of time and out of good options.