Posted on 03/04/2021 6:00:26 AM PST by Kaslin
At our current rate of spending, the U.S. will be unable to confront major problems in the future because we’ve already stretched ourselves too thin.
America’s debt and deficits usually are spoken of in terms of economics, but they have huge implications for national security. To see why, start with the economics angle.
Famed investor Michael Burry — who foresaw the housing market bust and was played by Christian Bale in the hit film “The Big Short” — has just issued a warning. In a series of tweets, Burry said that the stock market could crash because of too much debt.
Burry also fears inflation could become uncontrollable, based on a sharp year-over-year increase in data that tracks retail sales and money supply, coupled with unprecedented federal budget deficits and bond-buying by the Federal Reserve, known as quantitative easing. Indeed, retail sales are up year-over-year due to unprecedented stimulus from Washington.
Burry’s warnings might seem conflicting to some. How could there be both a higher risk of deflationary bust and out-of-control prices? The answer is that the further we go in the land of debt and deficits — which doesn’t just exist for the government, as corporations also have high debt levels relative to GDP — the greater the risk of macroeconomic shocks that cause untold pain for normal Americans.
Debt is unstable, and acts as a deflationary force in times of crisis. Think of it this way: all else equal, if you run up the credit card, that reduces your ability to spend in the future. If corporations or households take on too much debt, this drags on future demand.
Many point out that the U.S. government can’t go bankrupt because it can print money to repay the debt, but risks remain. Right now, the United States isn’t at risk of hyperinflation. Much of the “printed” money due to quantitative easing sits in banks’ excess reserve accounts at the Federal Reserve. This money doesn’t hit the real economy, which is part of the problem, because it arguably pushes up asset prices and increases inequality without ever hitting Main Street.
But Burry has a point. Once the money printing starts directly financing government deficits, inflation could get uncomfortable. We don’t have that now, but it isn’t hard to look ahead and imagine a scenario where politicians are unwilling to cut spending or raise taxes, and they cajole the Fed into directly supporting their outsized spending habits.
This situation threatens U.S. national security. Right now, the U.S. national debt to GDP is about 100 percent, reaching World War II levels but without the world war. Some might claim coronavirus is like a war, but it isn’t remotely comparable to World War II (which killed 75 million people) and our debt situation was on this trajectory well before the coronavirus hit. One risk is that the United States will be unable to confront major problems in the future because we’ve already stretched ourselves too thin.
If Treasury yields continue to rise over the longer term, an unsustainable U.S. budget situation becomes downright scary. Estimates say that by the end of the decade, we’ll be spending more to pay interest on our national debt than on our defense budget.
Yet these estimates assume 10-year Treasury yields remain relatively low, and don’t budge substantially above 3 percent. If the government starts paying more for the cost of debt, those interest costs could skyrocket. Also, as we are witnessing in real-time (outside of Congressional Budget Office estimates), Treasury yields tend to move quickly. If inflation takes off, it wouldn’t be unsurprising to have a 10-year Treasury yield at well above 3 percent.
At that point, Americans will have to make hard and painful choices. A dysfunctional Washington might not be able to dig out of this mess as it should, by raising taxes and cutting spending. This means Americans need to start thinking about how to get our fiscal house in order before a potential crisis hits.
Deficits will have to be trimmed, but not all deficits are created equal. Deficit spending that goes to households who need help in a downturn is different than deficit spending that goes toward endless wars. Washington politicians are quick to phrase wasteful spending in terms of small discretionary items or special interest tax giveaways, which are due for belt-tightening, but there are much larger examples of waste that few talk about.
War overseas has cost American taxpayers more than $5 trillion since 2001. We spend about $40 billion in Afghanistan every year, which excludes some of the longer-term costs of the war, and billions more protecting wealthy Germany and South Korea. The United States spends $50 billion on foreign aid every year, often as a subsidy for defense contractors, because the money is earmarked to allow the foreign countries to buy U.S. military wares.
This spending is of dubious value. A clear candidate for reform is the amount of money we spend overseas, which stems from our overstretched military position, especially in the Middle East. A simple solution is to start paring back this unnecessary military position and spending. Eventually, Americans may be asked to make sacrifices. Before then, Washington special interests and foreign policy adventurism must make sacrifices also.
Last time we did this (Quantitative Easing - QE) we gave it to the investors, who pumped up the market mightily. This is why we got a disconnect between the market and the actual economy.
This time, they are putting the money in the hands of the “little people” to spend at Wal Mart and the Harley Davidson store.
Expect massive price inflation this time.
This is why I think precious metals are a HUGE buying opportunity right now.
“Expect massive price inflation this time.”
Attempting to doubt the certainty of your prediction...............................................................................................................................................................................................................................................
FAILURE, FAILURE, FAILURE!@#$%^&*()
A famous philosopher once said “What difference, at this point, does it make?”. That is so very relevant now.
Next up: $10T spending bills. Make it $100T. Doesn’t matter what it’s for.
Point being, we’re in hock mostly (not completely) to the half dozen or so London Banker families that own the FED.
We’re never gonna pay that off. In fact, it was piled on in the beginning with this in mind, and now its so noticable to be absurd.
It’ll crash, we won’t as a country be paying a dime, and we’ll switch to a Gold/Silver/etc backed monetary system. Should never have left it.
Last Wednesday’s unprecedented incident of the FED going down was the beginning.
The National Debt just crossed over $28T in the last day or so, that’s a 129.73 % debt to gdp ratio, highest ever in US history. Per citizen is has risen $800 since Biden’s installment day to $84,837 for each and every one of us.
:)
It’s not a matter of “if”. It’s a matter of “when”. How long can they kick the can further down the road?
Ah, but is it price inflation or dollar devaluation?
Either way, YES, it’s only just starting.
When you add to all the normal stuff that can affect prices, add in the impact of a world war, or a pandemic lockdown destroying thousands of businesses and millions of jobs, and you are throwing in a wild card. Kinda like the great depression, though the resulting deflation was a “lack” of money.
I dunno. I need to check the batteries in my crystal ball anyway...
It’s OK. Biden has a plan to fix all of our problems by granting citizenship to tens of millions of largely unskilled and widely illiterate (in English) illegal aliens most of which are HUGELY dependent on government largess and pay virtually nothing in income and other taxes.
What could possibly go wrong?
What additionally worries me - if this isn’t enough - is the US isn’t in the predicament itself. Just about every western country is facing a debt crises to one degree or another.
What’s worse than a case of national runaway inflation? Global runaway inflation.
There’s a reason that (I think it was) Citibank said just last week that they could envision a future where crypto-currency become the default global currency.
It’s been the source of stock market growth (other than for the big boxes/Amazon consolidating market share) all year.
Nobody is ever going to be able to slap a bar of gold on the counter to pay for their groceries. First, that gold needs to be exchanged for whatever common currency is in vogue at the time.
On the subject of buying gold (or any other "precious" metal), think about why the holders of these metals are always so willing to let us have some of it in exchange for our "soon to be worthless" dollars. Are they just nice guys trying to help us out?
Precious metals are only worth something because we assign a value to it. Otherwise, it’s just another rock. Just like a dollar bill is really just a piece of printed paper (and it was that way even when backed by gold).
What’s your point?
On a side note, I don’t see much use for batteries in the future. ;)
Why do they compare the debt to gdp? Are they going to tax us at 100%? debt to tax revenue seems more appropriate as in the ability to pay it off.
Compared to tax revenue it is more like 700%. 28T v 4T.
Keep up adding pork to those bills. Keep throwing billions into foreign aid. Keep sending out covid checks. Keep stuffing gov officials’ wallets. Yeah, that’s the way to keep us in debt.
I wonder at some point if we’ll see a debt ceiling of $1 Quadrillion. That’s 1,000 trillion. I mean, is there any foreseeable end in sight to this mad money printing?
The dollar was destroyed long ago when I was still a young buck and I’m 76 now. What we are seeing are the final results. My wife and I are comfortable now, at the moment about the only problem we do NOT have is financial but that probably won’t last much longer. What it costs to rent a single wide trailer here in a supposedly low cost of living area and even, by some reports, a SPACE to park one, equals what was very adequate support for two or three families when I was a baby. This is the truth, ignore the official government propaganda concerning inflation. The SALES TAX on a lunch eaten at a fast food place here in SC exceeds the cost of said lunch plus tax fifty years ago, these are FACTS! Our current annual income which I call comfortable is, in nominal figures unadjusted for inflation, well over two thirds of the projected LIFETIME earnings of a high school graduate when I graduated in 1962.
One MONTH is almost equal to what I paid in 1972 for four and a half acres of beautiful riverfront property with a small cabin and a seven unit mobile home park with tenants. I did not want to be a landlord so I DOUBLED the rent for a space, the trailers were owned by the renters, from fifteen dollars a month to thirty and they all moved away within two months. Are my wife and I able to buy a mansion? No, we are not. We are able to live as comfortably as possible at our age and infirm condition. A person who had such an income at the end of WWII could have owned a large yacht with a mansion to come home to.
Official figures from the bureau of labor statistics say that $11.13 has the same value as $1.00 had in 1950. Anyone who believes that would believe that Joe Biden really did win the election fair and square. Don’t ask me for the true figure but in 1950 the top of the line NEW FORD WAS UNDER $1500. Yeah, not fifteen thousand but fifteen HUNDRED. In 1972 I bought very nice choice T-bone steaks at the EVERYDAY price of seventy nine CENTS per pound, that is 1972, not 1950.
I am seven months past the MAXIMUM life span that a doctor estimated for me in August of 2018 but I expect to see the day that our current comfortable income will either cease or be rendered worthless by the illegitimate scoundrels who have taken over this country by fraud.
“Ah, but is it price inflation or dollar devaluation?”
Essentially they are the same. The original meaning of inflation in economic terms is an increase in the money supply, rising prices being the symptom. Pumping air into a flat tire is inflation, the swelling of the tire and the resulting rise of the car are the results of inflation, not inflation itself. One famous economist said something about inflation being ALWAYS A MONETARY PHENOMENON. Prices of individual items react to supply and demand levels but an overall increase in living costs results from government action regarding the money supply. When I was a boy a paper dollar would buy a silver dollar at the bank, now it will only get you another paper dollar. That is really all you need to know.
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