Via John Rubino of DollarCollapse.com,
In every annual budget debate since the 1980s, one side figures out that the way to get what it wants – which is higher spending – is to frame the request in a particular, ingenious way: We have to borrow and spend way more now if we want to borrow and spend way less later. History has of course proven this argument to be idiotic, but because it moves the pain of living within our means into the indefinite future, it always manages to attract enough votes to win the day.
The following article, published today by a major news outlet, spells it out in one sentence, in the title no less:
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
Why federal debt may have to explode before it shrinks
(CBS) – On Tuesday night, President Donald Trump will address a joint session of Congress for the first time. For a country still suffering from bitter political divisions after a contentious election, it’s doubtful his speech will heal still-raw emotions. Especially since Mr. Trump has hinted that he’ll discuss his budget plan, including a big statement on infrastructure spending and sharp cuts to federal agencies.
No matter what you think of President Trump — whether you see him as a buffoon, a wannabe despot or the savior who’ll finally Make America Great Again — here’s one big reason you should have some sympathy for him: He faces the worst fiscal outlook of any recent president.
He has taken office with the national debt nearing $20 trillion and debt held by the public above $14 trillion. According to the Committee for a Responsible Federal Budget (CRFB), debt is at a higher levels as a share of the economy than for any incoming president since Harry Truman in 1945 (chart below). Yet unlike Truman, who was handed an economy demobilizing from the fight against the Japan and Nazi Germany, the national debt is expected to continue to rise during Trump’s presidency and beyond.
Moreover, federal spending on entitlements and interest payments represents a larger share of the budget than under any other president, leaving Mr. Trump with far less room on the “discretionary” side of the budget. Adding a sense of urgency to all of this, three federal trust funds — covering highways, Social Security Disability and Medicare Hospital Insurance — are headed for insolvency over the next eight years, with a fourth set for depletion in 2030 (Social Security Old-Age Trust).
That complicates the tax reform effort the president championed on the campaign trail and touted again recently, saying his tax plan would be something “phenomenal,” with details to come within weeks. What we already know: Mr. Trump and Republicans in Congress want a simplification of the tax code and a cut in overall tax rates for households and corporations.
A tax cut will surely worsen the deficit over the near term. Yet it could also be necessary for invigorating the economy and quickening the growth needed to fix the long-term fiscal outlook. However, the efficacy of a tax cut providing fiscal stimulus is a matter of intense debate, to put it lightly, with economists evenly split on the subject according to a recent survey.
For Mr. Trump, perhaps the only way out of this fiscal bind is by worsening it temporarily, mixing a well-designed tax reduction and reform plan with targeted spending cuts and entitlement reform. No easy task. But a survey of the literature, including this 2014 paper from the Brookings Institution, suggests benefits can result from simplifying the tax code, lowering rates, and cutting “unproductive” federal spending.
According to Deutsche Bank economist Joseph LaVorgna, although the current economic expansion has been feeble and is now in its eighth year, there “remains considerable room for cyclical gains in consumption.”
With the unemployment rate below 5 percent, LaVorgna doesn’t believe job growth alone can do the trick. But a combination of personal tax cuts and wage inflation — driven by corporate tax reforms like full expensing that encourages capital spending and labor productivity gains — could do it.
Notice how the analysis begins by acknowledging the problem of soaring debt in order to soften up fiscal conservatives for the big reveal: That even right-wing think tanks and major banks agree on the need to generate “wage inflation” and “cyclical gains in consumption” via much higher government borrowing.
Since growth is always seen as anemic by those who crave higher tax revenues, this is an ever-green argument that always seems to fit the times and so always ends up being enacted, not just in the US but pretty much everywhere.
Which explains how, 40 years in, we find ourselves here:
Global sovereign debt to hit new all-time high – S&P
(Reuters) – Worldwide sovereign debt is set to reach a new record high of $44 trillion this year despite a slight reduction in governments’ annual borrowings, an estimate from credit ratings agency S&P Global said on Friday.
The United States at $2.2 trillion and Japan at over $1.8 trillion, will again be the most prolific borrowers this year, accounting for 60 percent of the total, followed by China, Italy, and France. Britain’s post-Brexit double downgrade will mean the percentage of world debt now with a top grade ‘triple-A’ rating will fall to an all-time low of just 7 percent down from around 13 percent a year ago. S&P’s calculations also showed Japan faces by far the highest debt rollover ratio this year, reaching a sum equivalent to 66 percent or two thirds of the size its economy.
The solution? More borrowing, of course — with, as always, bipartisan support.
Dems: we need to “invest” in infrastructure and education
GOP: we need to “invest” in tax cuts
Trump (apparently): both
Shit’s about to get real.
Trees don’t grow to the sky. Period. The “economists” and Trump (hopefully HE realizes this and just does not say it) are just praying to the gods of hope.
Mathematically, this cannot go on. There are two ways this is going to end, and probably within his Presidency.
1. Massive inflation, leading to a lower and middle class depression. There is no other thing that can happen. Businesses right now are being squeezed within an inch of their life (unless they can get loans from Wall Street). The result is Zimbabwe.
2. A “black swan event”. There is so much debt in the system, held by marginal borrowers, that it cannot be helped. Currently, the SubPrime auto debt outstanding is around 480 Billion dollars. The housing bubble was around 650 Billion. The student loan debt (although not bankrupt-able) is at 1 trillion dollars. That very non-bankrupt-able “feature” of this debt is one of the reasons an accident is sure to happen. That can’t be defaulted, hence something else HAS to. And we don’t even need to cover healthcare, which is just waiting for its very own moment in the financial abyss.
All of this debt is ultimately supported by the middle and lower classes (working class) labor promise. However, we also have about 24% of the population not even working full time. Then there is the other 45% or so that is working full time, but cannot keep up with inflation by their paycheck. These “surfs” are being squeezed ever tighter as well. Not sustainable. At what point do the productive finally just throw in the towel, and decide they have had it? The country cannot survive on Warren Buffet, and a few hedge fund guys. I know that it is popular to blame “the rich” for everything, but you could strip every billionaire of their wealth, and still only sustain the countries finances for around 1 year (not including interest payments on existing debt). The solutions so far have been just to not have real accounting. Don’t mark anything to market. Well, that is like putting the rotting fish under the carpet. It covers the smell for a bit, but once the smell builds enough, it is over powering and you throw up. The fed is threatening to raise rates, make debt more expensive. Well that just guarantees a crack up somewhere, as that debt load just became more expensive.
I am on board with Trump, however I see a problem in that no matter how much he talks about this being fixed, I think that first there must be a crack up somewhere. Now, he can then use that as an opportunity to check the accesses, and then grow from there, or squander it. Either way though, things will not go on their present trajectory, because they simply can’t.
It is normal to double-down on any trend immediately before its sharp reversal. That Trump promotes vast borrow-and-spend is simply a reflection of the widespread desires of people to go on living far beyond their means.
I find it fascinating that this comes when bond prices are finally reflecting a change in trend toward lower prices, yet stocks are still in the “Wile-E-Coyote” phase of staying high, just after the cartoon reveals that he already ran off the cliff. He has that sign that says, “OH NO!” just before he falls vertically to a dusty splat on the desert floor.
To me, the $64 question isn’t WILL this happen, it is HOW will Trump’s administration fare as the Crash-And-Splat phase gets going?
Clearly, the democrats (and other American traitors) think Trump being in the White House when the SHTF means they get their guy or gal back in, but I think they’re wrong about that. If Trump’s Admin “fails,” what follows Trump will be drastically further to the RIGHT, not the LEFT.
That’s my guess, anyway.
In the 1960’s, whenever the Left wanted more Gibsmedats they burned a city. Extortion worked swimingly. This time around, I think if the Left (and its shock-troop chimps) burns cities, either the Right will say, “Let ’em burn” or the National Guard will be deployed and more than a few black-clad people wearing face masks will exit this Earthly existence far earlier than they expected.
I reiterate the following for argument purposes:
When Uncle Sam borrows, the following occurs:
1. He issues a bond, which the bondholder treats as wealth.
2. He spends the money on some faction (don’t care who.)
3. That spending percolates through the economy, so it appears that there was both an INCREASE in wealth AND increase in GDP-type economic activity, two dollars of “increase” for every dollar borrowed & spent.
4. The beneficiaries of that spending are rewarded, so more people are pulled into supplying whatever is being “bought.” This is true for military weapons, medical care and outright welfare spending (AKA the dole.) You thus get more people employed in weaponry, medical care and both the administration of welfare programs and you increase the benefit of BEING DEEMED POOR.
My point is that the real effects are twofold:
1. Economic activity is warped in favor of whatever borrowed funds are spent upon.
2. The bonds are “wealth” only insofar as people believe they will be honored in full. Rising interest rates indicate a creeping realization that there is so much debt now that this belief is no longer sustainable.
If worry begins to multiply in the bond market (a path I see as inevitable), a trend toward “wealth destruction” will be established. You can’t borrow money to prop up lender confidence. It doesn’t work that way.
All roads now lead to wealth destruction, credit contraction, eventually bond Armageddon, credit collapse and the inability of governments, even Uncle Sam, to borrow at anywhere near the level required to sustain conditions as we see them.
The last time this happened, at a much smaller degree, was 1930-32.
Our current situation makes that look like a pebble in the road.
This Fiat debt monetary system and it’s worthless paper currencies are /is our problem.The Federal reserve Bank and Fractional Reserve Banking system are its debt creation machinery.The IRS is its collection agency.The whole system is based on lies ,scams and fraud.This is what must be gotten rid of but I have my doubts.
The whole plan of the elites that run it is to destroy the Western world as we know it.Make most of white Ethnic Americans poverty stricken to the point of no resistance to their New World order. That’s the plan and it will probably work.
Who foisted all this on us (and our parents?)
No one. We (they) did it ourselves. The gravy train of the post-war years was ending in 1964 but instead of accepting that, people did the normal thing: they chose the delusion of funny money and debt to keep the party going.
This got seriously crazy because of a secular, NORMAL, cyclical bond bull market that began in 1981 and ran for 35 straight years.
Fiat money + rising prices for debt = The Mother of All Credit (Debt) bubbles.
35 years is a long, long time….more than long enough to embed unprecedented destruction into our future.
Who is more culpable:
1. The con artist who promises what prudent people know is impossible
or
2. The rube who nods and signs up for the Ponzi scheme?
The crime requires both. Our neighbors are the rubes. Our parents were the rubes. The reason I say we are ruled by demons is because only demons applied for the job. Any angels who applied to rule us were rejected out of hand because they promised to end the party and let the hangover begin.
This is why history is cyclical. People NEVER learn, not in the aggregate.
Who has the most to lose when this long, long, wild party ends?
Those who are rich.
One exception: Those who hold title, free and clear, to wealth that SURVIVES the coming purge, and who are either so politically connected or solvent that they can pay the inevitable property taxes on that wealth, THEY will be the Big Winners once this storm eventually passes.
I suggest that the membership in this august group is far from predictable today. I think if things get bad enough, we might see some former FED officials actually executed for treason (or jaywalking…the charge won’t be as important as the punishment.)
Who are the GUARANTEED losers? Those who mindlessly played by the rules, socked 20% of their nice, upper-middle-class income into their firm’s 401(k) and believe they will retire in 5 to 25 years with millions and millions of dollars on which to enjoy a Lifestyles-of-the-Rich-and-Famous retirement.
But given today’s stock market moon-shot, those who have “bought and held for the long term” are surely cleaning up.
The S&P 500 has now doubled in the last 5 years and has almost quadrupled since the low of 2009. The Nasdaq 100 has risen 500% since Jan 2009.
At this rate, the Nasdaq 100 will be passing the orbit of Mars by 2020, “Dow 36,000” will be both a book title from the 1990’s AND reality in 2018 and the Japanese will have perfected the Perpetual Motion Machine in the form of the Japanese government selling itself bonds to sustain spending an infinite amount of Yen FOREVER.
Agreed, however down drafts in the market take on average about 15 months to completely wipe out 60% of value. Bull markets generally take about 6 years. In other words, the elevator goes up slowly and drops like a rock. Those that are “cleaning up” right now can be broke in no time flat. Until they actually convert that paper wealth to tangible wealth, it is just a promise, not a guarantee.
Yes, I agree, but that doesn’t change the history. I’m poor(er) and others who trust this silly system are richer.
That’s reality today. I too think it will change, but I’d have told you the same thing in 1995. My timing truly sucks.
Actually, what I anticipate eventually is truly apocalyptic. Imagine if the people who do cash out of stocks discover their bank simply “bailed in” all those gains.
In the end, moving from a brokerage account to a bank account may not be good enough to avoid the tsunami of wealth destruction that seems to be inevitable.
But then, like I said, I’ve been wrong for 22 years and counting.