China confident of achieving key 2019 economic targets, vice premier says

March 24, 2019

BEIJING (Reuters) – China’s economy may face a more challenging environment this year but the government is nevertheless confident of achieving its key 2019 targets, Vice Premier Han Zheng said on Sunday.

Han, speaking at the China Development Forum, reiterated that China will further deepen market-oriented reforms and open up its economy. He also said China’s imports of goods are expected to exceed $12 trillion in the next five years.

China targets economic growth of between 6 percent and 6.5 percent for the year, compared with 6.6 percent growth last year.

(Reporting by Kevin Yao; writing by Beijing Monitoring Desk; Editing by Sam Holmes)

China confident of achieving key 2019 economic targets, vice premier says

March 24, 2019

BEIJING (Reuters) – China’s economy may face a more challenging environment this year but the government is nevertheless confident of achieving its key 2019 targets, Vice Premier Han Zheng said on Sunday.

Han, speaking at the China Development Forum, reiterated that China will further deepen market-oriented reforms and open up its economy. He also said China’s imports of goods are expected to exceed $12 trillion in the next five years.

China targets economic growth of between 6 percent and 6.5 percent for the year, compared with 6.6 percent growth last year.

(Reporting by Kevin Yao; writing by Beijing Monitoring Desk; Editing by Sam Holmes)

The Coming Crisis the Fed Can’t Fix: Credit Exhaustion

Having fixed the liquidity crisis of 2008-09 and kept a perversely unequal “recovery” staggering forward for a decade, central banks now believe there is no crisis they can’t defeat: Liquidity crisis? Flood the global financial system with liquidity. Interest rates above zero? Create trillions out of thin air and use the “free money” to buy bonds. Mortgage and housing markets shaky? Create another trillion and use it buy up mortgages.

And so on. Every economic-financial crisis can be fixed by creating trillions of out thin air, except the one we’re entering–the exhaustion of credit. Central banks, like generals, always prepare to fight the last war and believe their preparation insures their victory.

China’s central bank created over $1 trillion in January alone to flood China’s faltering credit system with new credit-currency. Pouring new trillions into the financial system has always restarted the credit system, triggering renewed borrowing and lending that then powered yet another cycle of heedless consumption and mal-investment–oops, I meant development.

The elixir of new central bank money isn’t working as intended, and this failure is now eroding trust in the central bank’s fixes. Central banks can issue new credit to the private sector and it can can buy bonds, empty flats and mortgages, but no central bank can force over-indebted borrowers to borrow more or force wary lenders to lend to uncreditworthy borrowers.

Let’s be honest: the entire global “recovery” since 2009 has been fueled by soaring debt. The output of more debt is declining, that is, every additional dollar of debt is no longer generating much in the way of positive returns. As with any stimulant, increasing the stimulant leads to diminishing returns.

Then there’s the issue of debt saturation and debt exhaustion: those who are creditworthy no longer want to borrow more and those who are not creditworthy cannot borrow more, unless lenders want to eat the losses of default a few months after they issue the new loan.

The evidence is plain enough: defaults of student loans and auto loans are already at monumental levels, and the recession hasn’t even started. Zero-percent financing for vehicles is a thing of the past, and those borrowers with average credit ratings are paying 6% or more for a new vehicle loan.

Coupled with the ever-higher prices of vehicles, this is leading to auto loans of $600 and $700 a month and lenders extending the duration of the loans from 5 to 7 years. Just how badly do households need a new vehicle at these rates and prices?

As for housing–unless the buyer just sold a house in a bubblicious market and has hundreds of thousands of dollars in cash, housing is out of reach of the bottom 95% in many markets. This raises the other dynamic of credit exhaustion: the whole exercise of buying a home or dumping more money in stocks is ultimately based on greater fools arising who will pay substantially more that the buyer paid today.

Greater fools generally depend on credit to finance their purchase, and so the erosion of creditworthy borrowers means the pool of greater fools willing and able to pay $1.2 million for the old bungalow someone paid $1 million for today is drying up fast.

Only a fool buys an asset that is poised to lose value as the pool of future buyers dries up. No wonder insiders are selling stocks like no tomorrow, and housing markets have become decidedly sluggish: the pool of qualified borrowers who are willing to bet on another decade of central-bank goosed “growth at any cost” is shrinking rapidly.

The next crisis won’t be one of liquidity that central banks can fix by emitting additional trillions; it’s a crisis that’s impervious to central bank manipulation.The credibility of central banks is already evaporating like spilled water in July-baked Death Valley.

Central banks cannot magically make uncreditworthy borrowers creditworthy or magically force those who have forsworn adding more debt to borrow more at high rates of interest, and as a result they are powerless to stop the tide of credit from ebbing.

Thus will end the central banks’ bombastic hubris and the public’s faith in central banks’ godlike powers, the “global growth” story, the China story, and all the other fairy tales that have passed as policies for the past decade rather than what they really were: politically expedient cover for the greatest expansion of inequality in modern history.

 

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

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SOCIALIST BACKFIRE: New York City On Verge Of Going Bankrupt For First Time In FOUR DECADES

After decades of adopting and implementing socialist policies, New York City is on the verge of going bankrupt for the first time in nearly 40 years.

According to Breitbart, financial experts are predicting — and warning — that there are signs that the city is headed for a financial disaster.

The experts argue that many individuals and businesses leaving the city for lower tax areas coupled with city government spending being at an all-time high is also having a major effect on the Big Apple.

Making matters even worse, the last time New York City almost filed for bankruptcy was in 1975, when former President Gerald Ford was in office and would not give the city a bailout package to settle its massive debt.

Here’s more from the Breitbart report:

“The city is running a deficit and could be in a real difficult spot if we had a recession, or a further flight of individuals because of tax reform,” economist Milton Ezrati told the New York Post. “New York is already in a difficult financial spot, but it would be in an impossible situation if we had any kind of setback.”

The city’s budget deficit has reached an all-time high over the past year. New York City’s long-term liabilities— including pensions, bonded debt, and retirement benefits for city government employees— reached a record-high $257.3 billion, according to an October 2018 Citizens Budget Commission report.

Even though the city’s budget deficit has reached record highs, Mayor Bill de Blasio has shown no signs of curbing the city’s spending.

In fact, de Blasio is adding $3 billion in spending to the current $89.2 billion budget, and spending money at a rate that is three times the rate of inflation, according to the Post.

It also appears that de Blasio will not get help from fellow Democrat Gov. Andrew Cuomo, who is trying to address a $2.3 billion state budget deficit by using auditors to bill wealthy residents fleeing the state for lower-tax regions.

Cuomo’s preliminary budget proposed $600 million in cuts to money allocated to New York City.

URGENT POLL: Does Trump have your vote in 2020?

For starters, the Big Apple has been behind Rep. Alexandria Ocasio-Cortez’s socialist “Green New Deal,” which studies reveal could bankrupt the entire nation.

One study revealed that the price tag for socialist measure comes out to $7 trillion, with another finding that it could actually cost nearly $50 trillion, which would be roughly seven times more than the original study.

The same goes for the “Medicare for All,” another socialist idea that NYC has been behind.

A study from the Mercatus Center at George Mason University found that the “Medicare for all” plan would increase government health care spending by $32.6 trillion over 10 years.

While getting “free” Medicare and health benefits sounds appealing, notable socialists fail to mention how taxpayers will be stuck footing the $32.6 trillion bill over 10 years.

A second study from Vox.com revealed that the “Medicare for All” plan would cost the United States a jaw-dropping $218 trillion over the next 30 years.

All of those socialist policies and agendas sure are expensive, and it could be pushing New York City into a total collapse.

Strain On The Economy: Millennials Have $1 Trillion In Debt, And Most Don’t Own Homes

Millennials are the most deeply indebted generation that has ever walked the face of the earth.  Most don’t even own a home, yet they suffer under the weight of $1 trillion debt load.

According to an op-ed by Market Watch, this is not a good thing and doesn’t bode well for the millennial generation or the overall economy.  The debt will be a problem, and millennials will pay so much for student loans that consumption and investment will be crowded out.  While the $1 trillion number is large and not unnoticeable, the issue is what makes up all of this millennial debt. It’s mostly student loans, and a staggeringly high amount of these loans are in delinquency.

Society has done the millennial generation a great disservice by insisting they go into debt tens or even hundreds of thousands of dollars to get jobs that can be done with no college degree.  The op-ed published in Market Watch states:

On a societal level, imagine what happens if the economy takes a wrong turn and these student loans — which are already 10% delinquent — go to 40% delinquent?

Revolution.

Not to get all “Book of Revelation” on you, but debt has historically led to war and inflation and autocracy.

Once you know that, you develop a healthy respect for debt and the destruction it can cause. -Market Watch

If you are in debt, in most cases it’s your fault. But in the case of millennials, they made decisions to take out student loans when they were too young to make these decisions. What’s so sad and telling is that parents of these debt riddled millennials have never taught their kids about money and never suggested working and saving as a means to pay for a college education.  They’ve never said they should not buy for something they cannot afford pay for.  Yet so many take out a loan before they have even earned a dollar of income. And the parents, in many cases, have set a poor example by being in so much credit card debt and taking out massive car loans.

It has become the American way, to buy things and hope you can afford the payment. And student loan debt, because it’s so easy to get, has crowded out other kinds of debt.  It’s also “government debt” and not going be wiped away when filing for bankruptcy.  Student loans will follow you around until they are paid off – in full.  And that’s something that should also be looked into.  The problem is millennials have been promised easy money, and it is easier than working for that money.

Even if a recession doesn’t happen, the absolute best-case scenario is that people will just limp along with the crushing weight debt, crowding out consumption and investment. People live in poverty, retire in poverty, and die in poverty. And it can be attributed to the massive amounts of debt they’ve taken on.

There’s a difference between poor and broke. It would be nice if millennials now taught their children the power of debt, and how it can enslave a person. Hopefully, the next generation won’t make as many mistakes.

Read Market Watch’s op-ed here.

 

Europe Is So Weak It Can’t Even Handle 0% Interest Rates

Authored by Simon Black via SovereignMan.com,

Europe’s leading economic policy makers have officially thrown in the towel.

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Last week, the European Central Bank admitted economic conditions are so dire that it already has to reverse its monetary policy.

I’ll get back to that in a minute…

Following the Great Financial Crisis in 2008, central banks printed trillions of dollars and pushed interest rates to their lowest levels in human history. Low interest rates (and lots of new money sloshing around the system) mean people should go out and buy things that would otherwise be out of reach… new houses, new cars, businesses, etc.

And, in theory, all of that activity creates jobs and helps the economy grow… in theory.

Ten years into this monetary experiment, central banks did create growth…

US Gross Domestic Product (GDP) was about $15 trillion in 2008. Current GDP is about $22 trillion. That’s $7 trillion of economic growth.

Impressive… until you figure the cost of that growth.

Over the same period, the US national debt increased from $10 trillion to $22 trillion.

So, it took $12 trillion of debt to create $7 trillion of economic growth.  

The marginal utility of all of this new debt is decreasing (remember this point for later). And it’s the same story all over the world.

The US economy is so dependent on cheap money, it can’t even handle 2% interest rates (the Fed hiked rates from 2.25% to 2.5% last December and stocks fell 20%).

But Europe is even worse. Europe has negative interest rates. And the European economy is so weak (it grew 0.2% in Q4), it can’t even handle ZERO percent interest rates.

Last week the ECB announced it would keep interest rates negative. And it’s starting its third round of cheap loans to banks (who, in turn, are supposed to lend to businesses and households).

The bank also cut its growth forecast from 1.7% (already pretty bad) to 1.1%.

The euro zone is the third-largest economy in the world. And, ten years after the GFC, it can’t keep the machine running unless interest rates are negative and it continues to dole out cheap cash to banks. This is a pretty big deal. And it’s the clearest sign yet of what’s to come… there’s trouble ahead.

Remember, the marginal utility of the money being printed by central banks around the world is plummeting. Each dollar they print produces less and less economic activity.

For example, the US only added 20,000 jobs in February (a far cry from the expected 181,000 jobs).

But they persist…

The ECB is all in on negative interest rates and easing. Canada recently warned its economy was weaker than realized. The US halted its rate hikes and may reverse course. Interest rates are negative in Japan and standing pat.

There are currently $9.7 trillion of negative-yielding bonds in the world (up 21% from October 2018 through January). I’d bet we’ll soon see the total number of negative-yielding bonds in the world surpass the 2016 high of $12 trillion.

When you’re in a world with trillions of dollars of negative-yielding debt, nothing really makes sense.

Interest rates are the price of money. And when that price is negative… what does that say about the world?

One of the best things to do in this economic environment is to own real assets, whether it’s shares of a thriving business, precious metals or other commodities.

For gold, you can buy either gold bullion or collectibles. And our friend, Van Simmons, says $20 gold pieces are one of the best deals in the market today. Collectible coins usually trade a big premium to the spot price of gold. But you can buy these coins for about the same price (even though the premium over spot has been as high as $1,700).

So you get exposure to gold and all of that potential upside. We wrote about it in Notes last year.

But exposure to other commodities, like copper, uranium, silver, etc. also makes sense.

I’m recording a podcast today with one of the best resource investors out there. I’ll send it out this week, but he’ll share some of his favorite ways to invest in the beaten-down resource market.

We’re about to see a world with a whole lot more negative-yielding debt. You should position yourself accordingly.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

Senior Republican, eyeing Trump budget, worries about U.S. debt

March 13, 2019

By Susan Cornwell

WASHINGTON (Reuters) – A senior Senate Republican gave a lukewarm welcome to U.S. President Donald Trump’s 2020 budget plan, complaining on Wednesday that growing debt was taking the country in “an ominous direction.”

Senate Budget Committee Chairman Mike Enzi opened a hearing on the Republican president’s proposal with a broad attack on what he said was the growing, misguided view that U.S. debt and deficits do not matter.

“We’re in a credit-card Congress,” Enzi said, noting the United States would soon face annual government deficits of over $1 trillion. “We are clearly headed in an ominous direction.”

Trump’s plan is highly unlikely to become law in the face of opposition from Democrats, who control the House of Representatives.

Democrats at the hearing focused on Trump’s proposed cuts to social programs, making clear they would continue to emphasize them in the 2020 presidential election campaign.

The budget proposal “practices the Robin Hood principle in reverse,” said Senator Bernie Sanders, budget panel member and 2020 Democratic presidential candidate. “It takes from the poor and working families and gives to the very wealthy.”

In his $4.7 trillion budget unveiled on Monday, Trump called for overhauling social programs that help poor and elderly Americans, while boosting military spending and funding a U.S.-Mexico border wall.

The Trump administration has said the plan represents an attempt to be fiscally responsible at a time of trillion-dollar budget deficits.

Tax cuts were a priority for the Trump White House and congressional Republicans in recent years, rather than deficit reduction. The U.S. deficit is expected to run to $900 billion in 2019 and the national debt has ballooned to $22 trillion.

Enzi blamed both Republicans and Democrats for the trend toward trillion-dollar deficits. The Republican lawmaker cited a report from the Congressional Budget Office that the public debt is expected to reach 78 percent of gross domestic product this year.

Russell Vought, acting White House budget director, defended Trump’s plan, saying the president was requesting more spending cuts than any previous administration.

House Democrats are working on their own budget proposal that would be a blueprint for setting spending levels.

The party is divided over costly ideas like a “Medicare for All” universal healthcare proposal and the “Green New Deal” to eliminate U.S. greenhouse gas emissions within a decade.

(Reporting by Susan Cornwell; Editing by Peter Cooney)

There Is Now A Negative-Fee ETF

Submitted by Philip Grant of Grant’s Almost Daily, courtesy of Grant’s Interest Rate Observer

Patent pending

A new chapter in financial innovation.  From Barron’s yesterday:

Salt Financial, an exchange-traded fund shop with less than two years under its belt, filed on Tuesday to launch an ETF that will actually pay investors for investing in it, at least at the start. The negative-fee ETF is finally here, making online lender Social Financial or SoFi’s zero-fee ETFs old news. 

Like SoFi’s zero-fee ETFs, Salt’s ETF will effectively zero out the cost and then some via what is called a management fee waiver. Salt’s investment advisor has pledged to add 0.05% [five basis points] of assets to the ETF, but only on the first $100 million in assets or until April 30, 2020. Once the ETF crosses that level or hits that date, it will charge its true fee of 29 basis points.

Negative-fee investment products may be the hot new thing, but a more familiar, if equally confounding, phenomenon persists: Lenders paying borrowers for taking their money.  After falling below $6 trillion last year, the Bloomberg Barclays Global Aggregate Negative Yielding Debt Index has seen its market capitalization jump back above $9 trillion.  On the authority of Sidney Homer and Richard Sylla, negative interest rates had not been seen in substantial size during 3,000 years of financial history prior to this cycle. 

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Market cap of the Bloomberg Barclays Global Aggregate Negative Yielding Debt Index.

Arc of the covenant

An analysis from S&P’s LCD unit yesterday calculated that the trailing 12-month default rate for leveraged loans has fallen to just 0.93%, down from 1.62% in February and from a long-term average of 3.1%. The sharp sequential decline is the result of iHeartMedia, Inc., which defaulted last March, being removed from the trailing 12-month calculation.  

The low default rate provides another enticement to lend and borrow.  LCD reports that institutional loans outstanding in the U.S. now total a record $1.17 trillion, up from $1 trillion last May. Across the U.S. and Europe, total term loans outstanding have doubled in the last 10 years to $2.65 trillion, according to the Bank for International Settlements.

That breakneck growth pace is making regulators nervous. Last Thursday, the Financial Times reported that the Financial Stability Board is investigating components of the leveraged loan market, particularly the practice of bundling loans into collateralized loan obligations (according to LCD, CLOs now account for 50% to 60% of U.S. leveraged loans).  On Feb. 28, Bloomberg reported that Japan’s Financial Services Agency has been questioning local lenders about their CLO concentration, particularly Norinchukin Bank, which itself holds a nearly $62 billion CLO portfolio (roughly 9% of global supply) and bought one-third of all U.S. and European issuance in the fourth quarter (Almost Daily Grant’s, Feb. 21).

A Sept. 7 cautionary Grant’s CLO analysis, noting that the securities are divided into tranches based on risk profile and recovery potential, called attention to the acute cyclical risks that reside in the lower-rated and higher-yielding tranches:

It’s not quite true that a CLO is only as good as its loans. What is true is that a portion of a CLO is only as good as its loans, that portion being the junior one, equity and mezzanine debt. Deterioration in the quality of late-boom debt puts those segments at risk. 

Late-boom conditions are on full display. Yesterday brought word that Moody’s covenant quality indicator reached a record-worst in February, eclipsing the prior nadir set in August 2015.  The deterioration is comprehensive, as the agency notes that “weak covenant packages are clearing the market in all rating categories.” 

Meanwhile, high profile deals continue to push the envelope. Yesterday, Bloomberg reported that a $10 billion loan and bond syndication financing Brookfield Asset Management, Inc. and Caisse de dépôt et placement du Québec’s leveraged buyout of Johnson Controls International plc is attracting strong bidding interest, “even after Xtract Research categorized its covenants, terms that protect investors, as some of the weakest and ‘most aggressive’ the firm’s analysts have seen.”  Yield indications are now below initial guidance, even though some investors “had balked in particular at terms related to how easily the company can pay itself dividends.” 

How Not to Go to War

By David Swanson, Director, World BEYOND War

If you saw a book in Barnes and Noble called “How Not to Go to War,” wouldn’t you assume it was a guide to the proper equipment every good warrior should have when they head off to do a little killing, or perhaps something like this U.S. news article on “How Not to Go to War Against ISIS” which is all about what law you should pretend authorizes a violation of the UN Charter and the Kellogg-Briand Pact?

In fact, the new book, How Not to Go to War by Vijay Mehta, comes to us from Britain where the author is a leading peace activist, and it is actually a set of recommendations for how to not go to war at all ever. While many books spend their larger first section on a problem and a shorter concluding part on solutions, the first two-thirds of Mehta’s book is about solutions, the last third about the problem of war. If this confuses you, or if you’re unaware that war is a problem, you can always read the book in reverse order. Even if you are aware of war as a problem, you still may benefit from Mehta’s description of how technology, including artificial intelligence, is creating horrific new possibilities for wars worse than we’ve seen or even imagined.

Then I recommend that the reader jump to Chapter Five, toward the end of the book’s first part, because it presents a solution for how we might think and speak better about economics and government spending, a solution that simultaneously illuminates what is wrong with our current way of thinking.

Imagine there’s a billionaire who “earns” a lot of money each year and spends a lot. Now, imagine that this billionaire hires a super-expert accountant who figures out a way to add to the positive side of the ledger whatever amount the billionaire spends on fences and alarm systems and guard dogs and bullet-proof SUVs and private guards with tasers and handguns. This billionaire brings in $100 million and spends $150 million, but $25 million is on “security” expenses, so that moves over to the income side of things. Not he’s bringing in $125 million and spending $125 million. Make sense?

Of course, it doesn’t make sense! You can’t get paid $100 million, spend $100 million on guns, and now have $200 million. You haven’t doubled your money; you’re broke, buddy. But this is exactly how an economist calculates a nation’s gross (and I mean gross) domestic product (GDP). Mehta proposes a change, namely that weapons-making, war industries, not be counted in GDP.

This would reduce the U.S. GDP from some $19 trillion to $17 trillion, and help visitors from Europe understand why the place looks so much poorer than the high priests of economics tell us it is. It might even help politicians from Washington D.C. understand why voters they believe to be doing so well are so amazingly angry and outraged.

While military spending actually reduces jobs and economic benefit in comparison with not taxing money in the first place or with spending it in other ways, military spending equals economic “growth” on paper because it’s added into GDP. So, you get to be poor while living in a “rich” country, something that the U.S. government has figured out how to get a lot of people to put up with and even take pride in.

Chapters 1-4 address ways to develop systems of promoting and maintaining peace, exactly what we’re trying to do at World BEYOND War. One of Mehta’s focuses is on creating governmental departments of peace. I’ve always favored this and always thought it would fall far short, that a government would have to turn toward peace in its entirety, not just in one department. Currently, the U.S. military and the CIA sometimes, as in Syria, have troops they’ve armed and trained fighting each other. If a U.S. Department of Peace were sending people into Venezuela right now to help avoid war, they’d be up against the U.S. agencies that are trying to start a war. The U.S. Institute of Peace doesn’t oppose, and sometimes supports, the wars engaged in by the government of which it is part.

For the same reason, I have always been dubious about the idea espoused by Mehta of transforming militaries into institutions that do useful nonviolent things. There is a long history of the U.S. military pretending to act for humanitarian reasons. But anything we can do to develop peace departments within governments, or peace centers outside of them, I’m in favor of.

Mehta believes there is major funding out there in the pockets of wealthy individuals and organizations ready to invest it in peace groups. He believes some compromises to get it are worth making. This is no doubt true, but the devil is in the details. Is the compromise an avoidance of blaming the world’s biggest war makers, a focusing on poor countries as the supposed sources of war. Is economic aid to places at war going to do as much good as might be done by advocating peace in the distant imperial capitals engaged in the wars?

“Serious violence is generally perpetrated by young males.” Thus opens chapter 4. But is it true? Isn’t it actually perpetrated by old politicians who manage to get younger people, mostly male, to obey them? Surely it’s at the very least the combination of these two. But establishing peace centers that educate young people about peace and provide them options other than war is certainly to be desired.

So is developing the understanding that it really is possible to not go to war ever again.

New Numbers Confirm That The Global Economy And The U.S. Economy Are The Weakest They Have Been Since The Last Recession

Even mainstream economists are admitting that economic activity is slowing down.  And at this point that fact would be very difficult to deny, because the numbers are very clear.  We haven’t faced anything like this in a decade, and many are deeply concerned about what is coming next.  Will it be just another recession, or will it be an even greater crisis than we faced in 2008?  According to Bloomberg Economics, the global economy experienced a “sharp loss of speed” over the course of 2008 and global economic conditions are now “the weakest since the global financial crisis”…

The global economy’s sharp loss of speed through 2018 has left the pace of expansion the weakest since the global financial crisis a decade ago, according to Bloomberg Economics.

Its new GDP tracker puts world growth at 2.1 percent on a quarter-on-quarter annualized basis, down from about 4 percent in the middle of last year. While there’s a chance that the economy may find a foothold and arrest the slowdown, “the risk is that downward momentum will be self-sustaining,” say economists Dan Hanson and Tom Orlik.

This is definitely the worst condition that the global economy has been in since I started The Economic Collapse Blog, and I am personally very alarmed about where things are heading.  The tremendous economic optimism of early 2018 has given way to a tremendous wave of pessimism, and the speed at which the economic environment is changing has stunned a lot of the experts.

In fact, Bloomberg economists Dan Hanson and Tom Orlik openly admit that they are “surprised” by how quickly the global economy has shifted…

“The cyclical upswing that took hold of the global economy in mid-2017 was never going to last. Even so, the extent of the slowdown since late last year has surprised many economists, including us.

Of course the U.S. has not been immune from the changes.  The U.S. economy is rapidly slowing down as well, and this is something that I have been heavily documenting on my website.

And now we have just received more confirmation that the economy is decelerating.  The Atlanta Fed has just updated their GDPNow model yet again, and with this new revision they are now projecting that the U.S. economy will grow at a rate of just 0.2 percent during the first quarter of 2019…

Moments ago we got another confirmation of this, when following the latest retail sales report which saw a dramatic cut to December retail sales even as January surprised modestly to the upside, the Atlanta Fed slashed its Q1 GDP nowcast, and after rebounding modestly from 0.3% to 0.5% a week ago, it has once again slumped, and is now at the lowest recorded level, and just 0.2% away from economic contraction.

This is how the AtlantaFed justified its latest Q1 GDP cut, which as of March 11 was just 0.2 percent, down from 0.5 percent on March 8: “After this morning’s retail sales report from the U.S. Census Bureau, the nowcast of first-quarter real personal consumption expenditures growth declined from 1.5 percent to 1.0 percent.”

In other words, we are just a razor thin margin away from entering an economic contraction.

Last week, we learned that U.S. job cut announcements were up 117 percent in February when compared to last year.  All of the economic momentum is in a negative direction right now, and it is going to be exceedingly difficult to avert a recession at this point.

And of course a lot of analysts believe that what is coming will be a whole lot worse than just a recession.  The greatest debt bubble in the entire history of our planet is in the process of bursting, and the consequences are going to be absolutely horrific.  I really like how financial expert Egon von Greyerz recently made this point

People must understand that the world has never faced risk of this magnitude. We are now in the final seconds of the global mega bubble, the likes of which the world has never seen before. What will happen next will be worse than the fall of the Roman Empire, much worse than the South Sea and Mississippi Bubbles, and will create a disaster that will dwarf the Great Depression of the 1930s.

The problem is simple to define and is all based around debts and liabilities. At the beginning of this century, global debt was $80 trillion. When the Great Financial Crisis started in 2006, global debt had gone up by 56% to $125 trillion. Today it is $250 trillion.

There is no way that a 250 trillion dollar bubble is going to burst in an orderly fashion.  Essentially, we are looking at the sort of apocalyptic financial scenario that I have been warning about for a long time, and most people have no idea that it is coming.

And if people only listened to the financial authorities, it would be easy to get the impression that everything is going to be just fine.

For example, Fed Chair Jay Powell just told 60 Minutes that the outlook for the U.S. economy “is a favorable one”.  The following comes from Fox Business

Jay Powell, the head of the Federal Reserve, says he does not see a recession hitting the U.S. economy anytime soon.

“The outlook for our economy, in my view, is a favorable one,” Powell said Sunday in an interview with CBS’s Scott Pelley for “60 Minutes.”

If you are tempted to believe Powell, let me remind you of what former Fed Chair Ben Bernanke told Congress in early 2008

“The U.S. economy remains extraordinarily resilient,” the U.S. central bank chief said in answering questions after testifying before the House of Representatives Budget Committee.

Bernanke added that growth will be worse this year. “We currently see the economy as continuing to grow, but growing at a relatively slow pace, particularly in the first half of this year,” he said.

Of course we all remember what happened next.  The U.S. economy plunged into the worst economic downturn since the Great Depression of the 1930s, and we are still dealing with the aftermath of that crisis to this day.

Nobody is going to ring a bell when the next recession starts.  It is just going to happen, and just like last time, most Americans are going to be blindsided by it.

About the author: Michael Snyder is a nationally-syndicated writer, media personality and political activist. He is the author of four books including Get Prepared Now, The Beginning Of The End and Living A Life That Really Matters. His articles are originally published on The Economic Collapse Blog, End Of The American Dream and The Most Important News. From there, his articles are republished on dozens of other prominent websites. If you would like to republish his articles, please feel free to do so. The more people that see this information the better, and we need to wake more people up while there is still time.

The post New Numbers Confirm That The Global Economy And The U.S. Economy Are The Weakest They Have Been Since The Last Recession appeared first on The Economic Collapse.

The $64 Trillion Question: With Foreigners Stepping Aside, Who Will Buy U.S Treasuries?

During its latest, quarterly meeting, the Treasury Borrowing Advisory Committee (aka the TBAC, which many years ago we dubbed the Supercommittee That Really Runs America, an assessment which 8 years later Bloomberg now generally agrees with), released minutes of its Jan. 29 meeting held at the Hay-Adams Hotel in conjunction with the U.S. government’s quarterly refunding announcement.

While there were many topics of discussion (discussed previously here), the TBAC highlighted two key areas of concern: i) the soaring US budget deficit, and specifically the possibility of significant financing gap over next 10 years amounting to over $12 trillion and the potential need for more domestic investor participation if foreign reserve growth slows; and tied to that ii) the worry that since “foreign investors already hold significant dollar debt“, and have been paring back substantially on their Treasury purchases in recent years, the US will have to increasingly rely on domestic savings to fund its future budget deficits.

Of particular note, the TBAC said, tongue in cheek, that while the “USD is still the dominant reserve currency“, reserve managers have been very gradually increasing allocation to other currencies, and that the USD share of FX reserves has steadily come down from 72% in 2000 to 62% now. It also pointed out that other countries with significant debt issuance needs (as a share of GDP) depend far more on domestic savings. As a result, “the Treasury should plan to meet financing needs more domestically than in the recent past.”

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Which brings up a key question: who is buying US Treasurys, and who will be buying US Treasurys for the foreseeable future.

To address just this question, on Friday Deutsche Bank’s team of economists and credit strategists led by Peter Hooper, Brett Ryan and Torsten Slok among other, published a presentation titled “Who is buying Treasuries, Mortgages, Credit and Munis” which seeks to address just the concern framed by the TBAC, and which will soon emerge as the most critical one for the US Treasury market (the biggest in the world), especially if public support for MMT (i.e. helicopter money to finance unlimited political promises) gains social traction.

Below we excerpt some of the key charts from the presentation starting with the most obvious: foreign appetite for IG, HY and loans is rolling over.

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This is a growing problem just as the share of Treasuries as a share of total US debt outstanding is at an all time high…

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… and the total stock of US fixed income is now an all time high of $41 trillion…

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… of which the total stock of Treasuries is now the highest on record and rising, with corporate debt (both financial and non-financial) and MBS debt in 2nd and 3rd spot.

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Don’t expect this dramatic increase in Treasuries to slow down any time soon. In fact, the explosion in US Treasury supply, much of which was needed to fund Trump’s tax cuts and the Fed balance sheet rundown (which may be ending as soon as September) will crowd out investment in equities and corporate debt, both IG and HY.

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Yet despite – or rather permitting this surge in debt, is the fact that long-rate volatility has tumbled below pre-taper tantrum levels despite rising uncertainty about the US and global slowdown, Brexit and the ongoing trade war. In fact, as we discussed recently, Treasury volatility recently dropped to an all time low.

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Which brings us to arguably the key chart which highlights the TBAC’s main concern: whereas the US budget used be financed by foreigners, it is now financed almost entirely by domestic investors, as some of the largest US creditors such as China are quietly exiting stage left.

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Meanwhile, as foreigners refuse to buy up any more US paper, in addition to the Fed rolloff, the relative share of Treasuries held by the Fed is declining, mainly due to the exploding Treasury supply.

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And with the Fed selling alongside foreign investors, domestic sources of funds such as real money, banks and households (which is a plug in the Fed’s Flow of Funds report), have no choice but to buy Treasuries.

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To be sure, there is one other persistent buyer – at least until the Fed returns with QE4 some time in the next 12 months – banks, which have been bidding up Treasuries and mortgages to the tune of $800 billion, as these serve as high quality liquid assets for regulatory purposes, and thus are effectively forced upon banks to buy.

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And of course, there are the primary dealers, who after having taken down their net holdings almost to zero several years ago, have seen their total exposure surge, and as recently as 1 month ago hit an all time high, perhaps because they had no choice as foreign buyers would chronically step back during key auctions.

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Here an interesting tangent: while US government debt is held mostly between domestic non-bank holders and foreign entities, who owns the rest of the world’s debt? Here is the visual answer courtesy of Deutsche Bank.

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With that in mind, here is a look at what the biggest US foreign creditor, China, has been doing in recent years. What is notable is that after declining by $1 trillion from its all time high in 2014, China’s foreign reserves have stabilized around $3 trillion for the past three years.

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Despite that, Chinese gross buying of US assets has been declining in the past 4 years.

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And while Chinese Treasury holdings have been declining according to TIC data, the Fed’s own account of custody holdings held at the central bank by foreign central banks has been increasing recently.

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Yet while China may be sending conflicting signals, one thing is clear: foreign central banks have been dumping US Treasuries, selling on a 12 month rolling basis for the past 4 years, even as the private foreign sector has been buying.

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Next, looking at the Treasury issuance market reveals that while foreign participation for 10 and 30Y auctions have been relatively stable…

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… the bid to cover ratios for both 2 and 10Y auctions have been declining steadily for the past 7 years.

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Yet sending a somewhat conflicting message, the Indirect – or foreign central bank – bid for 2s and 10s has gone largely nowhere in recent years.

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The message gets even more confusing when looking at the distribution of takedowns between Dealers, Indirects and Direct bidders, as the Indirect trend is clearly increasing.

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Here another tangent: why is the question of who is buying (and will buy) US Treasuries so important? Because, simply said, it is the largest fixed income market in the world (and why the Euro will have a very tough time if it ever hopes to become the reserve currency).

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So once again going back to “who is buying Treasurys”, one notable observation is that various buyers have different motivations and price sensitivies, which is why the blanket response that if you just push yields high enough and the buyers will come, is dangerously inadequate.

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And while mutual funds and households have clearly increased their holdings of Treasuries in the past decade…

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… there has been a sharp drop in foreign appetite for US treasuries.

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It’s not just coupon paper, but Bills as well:

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And with foreigners, and especially China trimming their purchases, if not outright treasury holdings, DB notes that a global rebalancing will be needed, one in which China will need far more domestic consumption (funded by outside capital), while the US will need less imports (alas the US just reported a record high trade deficit). Needless to say, this process will take many, many years and it won’t come without some notable market volatility.

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So with that in mind, what is the outlook? First, it is worth noting that if one relies on GDP as an indicator of treasury fair value, then the 10Y is indeed fairly valued right about now.

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The question is whether these low rates will be sufficient to elicit continued demand for US paper in the future, especially since the total amount of US Treasuries held by the public has exploded more than three fold in just the past decade.

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Meanwhile, treasury issuance is coming back as an ever greater share of total fixed income issuance.

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And there it is: a long-form answer to a simple question – who is buying US Treasuries, even if the far more important answer of whether they will keep on buying these Treasuries, has yet to be answered.

So while there are no definitive answer to the very concerning questions brought up by the TBAC, keep a close eye on future TBAC presentations and especially any future reference by this all-important committee made up of the most important banks and hedge funds in the US…

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… which appears to be increasingly concerned not only about how the US will fund its exploding debt deficits but also about the reserve currency status of the US Dollar.

US Budget Deficit Soars 77% As Federal Interest Expense Hits Record High

Another month, another frightening jump in the US budget deficit.

According to the latest Treasury data, the US budget surplus in January – traditionally one of the few surplus months of the year due to tax receipts vs refunds timing – was only $9 billion, badly missing the $25 billion surplus expected, and far below the $49 billion surplus recorded last January; it was the smallest January gain since 2015.

As a result, the budget deficit for the first four months of the fiscal year, widened to $310 billion, a whopping 77% higher than the $175.7 billion reported for the same period last year, largely the result of the revenue hit from Trump’s tax cuts and the increase in government spending. The deficit was the result of a 2% drop in fiscal YTD receipts to $1.1 trillion, while spending jumped 9% to $1.4 trillion.

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The jump in the deficit was despite the bump in customs duties, which almost doubled to about $24.5 billion this fiscal year from $12.6 billion a year ago, reflecting the Trump administration’s tariffs on Chinese imports.

What was more concerning perhaps is that rolling 12 month receipts declined 1.5% Y/Y, after posting a 0.4% drop last month which marked the first decline since March 2017. Worse, the absolute drop in tax receipts, which declined for both corporations and individuals, was the biggest since the financial crisis; and, as shown in the chart below, every time that receipts have posted an annual decline, a recession either followed shortly or had already arrived.

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Unfortunately, since receipts are set to decline even more in the coming months, the overall budget deficit is set to widen further in the coming years as the Republican tax cut package and increased spending for defense and other priorities boost government outlays. Some policy makers and economists are flagging concern about the growing debt burden, saying it risks America’s credit quality among borrowers, while other economists see more room to run.

According to the CBO, the budget deficit in fiscal 2019 will widen to $897 billion, up by $118 billion from a year earlier; any economic recession will result in a far greater number.

Finally, and perhaps most concerning, is that for the first four months of this fiscal year, interest payments on the U.S. national debt hit $192 billion, $17 billion, or 10% more than in the same four-month period last year and the most interest ever paid in the first third of the fiscal year. As Reuters’ Jeoff Hall points out, annualizing the $192BN interest expense means that the interest on U.S. public debt is on track to reach a record $575 billion this fiscal year, more than the entire budget deficit in FY 2014 ($483 BN) or FY 2015 ($439 BN), and equates to 2.7% of estimated GDP, the highest percentage since 2011.

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And since total debt, which recently surpassed $22 trillion is only set to keep rising – once the latest pesky debt ceiling issue is resolved in a few months – expect interest on the debt to keep rising, especially if the Fed reverts to its tightening trajectory, and hit $1 trillion per year in a few years, making it one of the biggest spending categories, and on pace to surpass total US defense spending (roughly $950BN per year) in dollar terms in just a few years.

 

The Magic Money Tree

by Chris Marcus, Miles Franklin: Our Current Financial Circumstances: The U.S. is $22 trillion in debt and burdened with $100 – $200 trillion more in unfunded liabilities. Just to pay the interest the U.S. must borrow. Debt is rapidly rising and cannot be paid unless “they” default or hyper-inflate the dollar. Chairman Jerome Powell stated, […]

The post The Magic Money Tree appeared first on SGT Report.

Alexandria Ocasio-Cortez’s Own Mother Moved Out Of New York Because The Taxes Were Too High

Alexandria Ocasio-Cortez continues to come up with new ways to bankrupt America, but meanwhile we have now learned that her mother actually moved out of New York because the taxes were too high.  When AOC’s father Sergio died, things got very tough financially for the family, and at one point Blanca Ocasio-Cortez was unable to pay the mortgage on the family home for an entire year.  But ultimately she was able to come to an agreement with the bank, and she ended up moving to Florida where taxes and the cost of living are much lower

‘I was cleaning houses in the morning and working as a secretary at a hospital in the afternoon. I was working from 6am until 11pm. And I prayed and prayed, and things worked out. After the children graduated from college, I figured it was time for me to move to Florida.’

Blanca said it was a no-brainer, adding: ‘I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here.’

And of course it greatly helps that there is no state income tax in Florida, while New York has the highest tax burden in the entire country by a wide margin.

Things are particularly oppressive in New York City.  On top of federal taxes, state taxes, exceedingly high property taxes and a whole bunch of other taxes, the city itself also imposes an income tax on those residing there.

By the time it is all said and done, some New Yorkers end up handing over close to 50 percent of their incomes to various government entities once all forms of taxation are taken into consideration.

This is the socialist environment that has given us Alexandria Ocasio-Cortez.

And it isn’t as if the money is being used well.  In fact, it has just been revealed that Mayor Bill de Blasio’s wife was handed $900,000,000 for a mental health program, and nobody seems to know what happened to the money

New York City Mayor Bill de Blasio’s wife, Chirlane McCray, was given $900 million to start a mental health initiative focusing on helping the homeless in the city. Four years later, no one seems to know what that money was actually used for, according to the New York Post.

The City Council discovered this shocking amount of potential waste during a meeting Wednesday. And while it sounds good to spend heavily on a mental health initiative, it appears that nobody has noticed any real benefits from that investment.

Perhaps NYC would have been better off spending that money bolstering their police.

So far in 2019, the murder rate in the city is up 37 percent compared to last year.

New York City is a total mess, and now AOC wants to make the entire nation just like it.

But AOC is far more ambitious than your typical tax and spend liberal.  She wants to take government spending to crazy new levels that nobody has ever seen before.

For example, one new study has determined that AOC’s “Green New Deal” would cost U.S. taxpayers approximately 93 trillion dollars.  The following comes from Fox News

The sweeping “Green New Deal” proposed by Rep. Alexandria Ocasio-Cortez, D-N.Y., could cost as much as $93 trillion, or approximately $600,000 per household, according to a new study co-authored by the former director of the nonpartisan Congressional Budget Office.

The sobering and staggering cost estimate came as Democratic presidential hopeful Kamala Harris pointedly declined in an interview broadcast Sunday to put a price tag on the Green New Deal and “Medicare-for-all,” saying “it’s not about a cost,” but rather return on investment. The Green New Deal’s botched rollout included the release of an official document by Ocasio-Cortez’s office that promised economic security even for those “unwilling to work,” and called for the elimination of “farting cows” and air travel.

To put that number in perspective, U.S. GDP is about 19 trillion dollars a year, and the U.S. national debt is sitting at just over 22 trillion dollars right now.

It is easy to attack AOC, because she is the perfect member of Congress for the “idiocracy” that America has become.

She literally doesn’t know what she is talking about on just about any issue that you could possibly name, but the people of her district decided to send her to Washington anyway.  And the frightening thing is that there are quite a few other new members of Congress that are even worse than her.

But as bad as AOC is, I have to give her credit for one thing.

At least she is willing to stand up and fight for what she believes.

If you regularly follow my work, you already know that I can’t stand the “seat fillers” in Washington that are interested in little more than protecting their political careers at all costs.  They never make any waves, they never fight for anything important, and they spend most of their time raising money for the next campaign.

Because if you do stick your neck out in Washington, very powerful people will likely bring the hammer down on you, and that is something that AOC is finding out right now

Two political action committees founded by Rep. Alexandria Ocasio-Cortez’s top aide funneled over $1 million in political donations into two of his own private companies, according to a complaint filed with the Federal Election Commission on Monday.

The cash transfers from the PACs — overseen by Saikat Chakrabarti, the freshman socialist Democrat’s chief of staff — run counter to her pledges to increase transparency and reduce the influence of “dark money” in politics.

Chakrabarti’s companies appear to have been set up for the sole purpose of obscuring how the political donations were used.

Of course the truth is that just about every member of Congress is deeply corrupt and should be kicked out of office.

But until the American people wake up and decide to take their government back, this is what we are stuck with, and that is a very depressing reality.

Get Prepared NowAbout the author: Michael Snyder is a nationally-syndicated writer, media personality and political activist. He is the author of four books including Get Prepared Now, The Beginning Of The End and Living A Life That Really Matters. His articles are originally published on The Economic Collapse Blog, End Of The American Dream and The Most Important News. From there, his articles are republished on dozens of other prominent websites. If you would like to republish his articles, please feel free to do so. The more people that see this information the better, and we need to wake more people up while there is still time.

The post Alexandria Ocasio-Cortez’s Own Mother Moved Out Of New York Because The Taxes Were Too High appeared first on The Economic Collapse.

Trump Had His Own Wealth Tax in 1999—But the Math Was Wrong

 

Before Elizabeth Warren’s wealth tax, there was Donald Trump’s wealth tax.

It was 1999, and he was trying to get the Reform Party to run him as their presidential candidate for the 2000 campaign.

Although Trump conducted a media blitz to get the wealth tax idea on the front pages, nobody could figure how it worked, why he proposed it or whose idea it was. It might have originated with Trump, or maybe it originated with longtime Trump campaign adviser Roger Stone, says Dave Shiflett, who co-authored a book with Trump

The math just didn’t add up: Trump was off by trillions of dollars.

By the time he actually ran in 2016, he had re-purposed himself as a market-driven conservative to win the Republican nomination, and ultimately, the White House. The billionaire candidate said in 2016 that he tried to pay as little tax as possible, and since then has generally compared Democrats’ tax-the-rich plans to the socialist regime of Nicolas Maduro in Venezuela.

Shiflett, who co-wrote Trump’s 2000 book “The America We Deserve,” thinks Stone probably came up with the idea, but mostly finds it amusing that anyone takes the proposal that appeared in the book seriously.

Read More: Democrats Embrace Tax-the-Rich Label After Years of Ducking It

In 1999, Trump ran a brief campaign for the nomination of the Reform Party. He was attempting to emulate the success of Jesse Ventura, a former professional wrestler who had won election as governor of Minnesota on the Reform ticket. Yet people close to the Reform Party’s founder, Ross Perot, thought a Trump candidacy was a bad idea. (Pat Buchanan, the conservative columnist, became the party’s nominee in the 2000 election.)

Donald Trump speaks at news conference in a Miami hotel. Tru

Donald Trump in 1999 during his campaign for the nomination of the Reform Party.

Photographer: Harry Hamburg/NY Daily News Archive via Getty Images

In November 1999, seeking to make a splash, Trump rolled out his wealth-tax plan in a series of interviews. The idea, according to Trump, was to take a chunk of the wealth of the richest Americans, use it to pay off the national debt, and then use the savings to shore up Social Security, implement a middle-class tax cut and eliminate the estate tax.

Warren, a Massachusetts senator running for the 2020 Democratic nomination, has proposed a wealth tax on those with a net worth of more than $50 million, the top 0.1 percent of Americans. She says the tax would raise $2.75 trillion over 10 years.

Pat Choate, Perot’s running mate in 1996, said Trump’s goal of paying off the national debt was in line with the politics of the time. Perot himself had run in part on the idea of fiscal responsibility. But in 1999, using a wealth tax to pay off the debt seemed to address a problem that was already fading.

Earlier: Warren’s Tax Proposal Aims at Assets of Wealthiest Americans

The U.S. was turning a surplus at the time, leading Federal Reserve Chairman Alan Greenspan to warn Congress of negative consequences should liquidity in the Treasury bond market dry up.

Compounding the confusion: Trump’s figures didn’t add up. He proposed a 14.25 percent tax on the net worth of Americans who had wealth of more than $10 million, excluding their primary homes. He said the plan would raise $5.7 trillion.

Trump said at the time that “economists I’ve consulted” estimated American wealth at $50 trillion, with $40 trillion of that being controlled by the top 1 percent.

In reality, he was off by $10 trillion in the total amount of U.S. wealth, and by double-digit percentage points on how much of the country’s population controls that wealth.

According to the Federal Reserve and economists who have estimated wealth concentration, U.S. households had a total net worth of about $40 trillion, and the top 1 percent controlled less than half of that.

Rather than tax households with more than $10 million in assets, excluding primary homes, to raise $5.7 trillion, Congress would have had to implement a 14.25 percent tax on the net worth of all Americans, including their primary homes, to raise the kind of money Trump promised, said Mark Zandi, now an economist with Moody’s Analytics. And that’s assuming no one found a way to cheat the system by undervaluing assets or moving them abroad.

Trump apparently wasn’t deeply involved in crunching the numbers.

Read More: How Ocasio-Cortez And Liberal Women Are Changing Their Party

When he announced his wealth tax proposal, Shiflett was helping to write the book that would outline the policies he’d support as president. Shiflett said he had one, long interview with Stone and Trump where they tried to come up with some ideas.

While he doesn’t remember who came up with the wealth-tax proposal, Shiflett said Stone drove most of the policy proposals. Trump had strong opinions on terrorism, on North Korea and strongly supported a single-payer health care system, but tax issues were an afterthought, Shiflett said.

“He did make a big thing about the tax that it would cost him a lot of money,” Shiflett said, adding,“It wasn’t going to cost him a lot of money because it wasn’t going to happen.”

Shiflett said after Trump won the White House in 2016, a Dutch television crew showed up at his home with the book and took its contents seriously, a position Shiflett thought was funny.

“There was no air of seriousness involved here,” Shiflett said. “It’s not like we were writing a book for the ages that people will always refer to when the great president is being considered for his place in history or something like that.” Shiflett added that Stone seemed mostly into the humor of Trump running for president.

Stone did not respond to a voice message and email seeking comment. A federal judge on Feb. 21 ordered him not to speak publicly about a criminal case against him. The White House did not immediately respond to a request for comment.

Once the proposal became news, it struck Douglas Holtz-Eakin, then chairman of Syracuse University’s economics department, as especially bizarre because of the favorable situation with the U.S. budget and the debt.

Holtz-Eakin, now the president of the right-leaning American Action Forum, said the Trump plan was the kind of thing he’d use in class as an example of bad policy.

If “the last time I accumulated a lot of wealth, they took 14.25 percent of it, am I really going to do that again?” Holtz-Eakin said.

In 2003, Holtz-Eakin took the helm of the Congressional Budget Office, just as the surpluses were turning into huge deficits.

Trump Had His Own Wealth Tax in 1999—But the Math Was Wrong

 

Before Elizabeth Warren’s wealth tax, there was Donald Trump’s wealth tax.

It was 1999, and he was trying to get the Reform Party to run him as their presidential candidate for the 2000 campaign.

Although Trump conducted a media blitz to get the wealth tax idea on the front pages, nobody could figure how it worked, why he proposed it or whose idea it was. It might have originated with Trump, or maybe it originated with longtime Trump campaign adviser Roger Stone, says Dave Shiflett, who co-authored a book with Trump

The math just didn’t add up: Trump was off by trillions of dollars.

By the time he actually ran in 2016, he had re-purposed himself as a market-driven conservative to win the Republican nomination, and ultimately, the White House. The billionaire candidate said in 2016 that he tried to pay as little tax as possible, and since then has generally compared Democrats’ tax-the-rich plans to the socialist regime of Nicolas Maduro in Venezuela.

Shiflett, who co-wrote Trump’s 2000 book “The America We Deserve,” thinks Stone probably came up with the idea, but mostly finds it amusing that anyone takes the proposal that appeared in the book seriously.

Read More: Democrats Embrace Tax-the-Rich Label After Years of Ducking It

In 1999, Trump ran a brief campaign for the nomination of the Reform Party. He was attempting to emulate the success of Jesse Ventura, a former professional wrestler who had won election as governor of Minnesota on the Reform ticket. Yet people close to the Reform Party’s founder, Ross Perot, thought a Trump candidacy was a bad idea. (Pat Buchanan, the conservative columnist, became the party’s nominee in the 2000 election.)

Donald Trump speaks at news conference in a Miami hotel. Tru

Donald Trump in 1999 during his campaign for the nomination of the Reform Party.

Photographer: Harry Hamburg/NY Daily News Archive via Getty Images

In November 1999, seeking to make a splash, Trump rolled out his wealth-tax plan in a series of interviews. The idea, according to Trump, was to take a chunk of the wealth of the richest Americans, use it to pay off the national debt, and then use the savings to shore up Social Security, implement a middle-class tax cut and eliminate the estate tax.

Warren, a Massachusetts senator running for the 2020 Democratic nomination, has proposed a wealth tax on those with a net worth of more than $50 million, the top 0.1 percent of Americans. She says the tax would raise $2.75 trillion over 10 years.

Pat Choate, Perot’s running mate in 1996, said Trump’s goal of paying off the national debt was in line with the politics of the time. Perot himself had run in part on the idea of fiscal responsibility. But in 1999, using a wealth tax to pay off the debt seemed to address a problem that was already fading.

Earlier: Warren’s Tax Proposal Aims at Assets of Wealthiest Americans

The U.S. was turning a surplus at the time, leading Federal Reserve Chairman Alan Greenspan to warn Congress of negative consequences should liquidity in the Treasury bond market dry up.

Compounding the confusion: Trump’s figures didn’t add up. He proposed a 14.25 percent tax on the net worth of Americans who had wealth of more than $10 million, excluding their primary homes. He said the plan would raise $5.7 trillion.

Trump said at the time that “economists I’ve consulted” estimated American wealth at $50 trillion, with $40 trillion of that being controlled by the top 1 percent.

In reality, he was off by $10 trillion in the total amount of U.S. wealth, and by double-digit percentage points on how much of the country’s population controls that wealth.

According to the Federal Reserve and economists who have estimated wealth concentration, U.S. households had a total net worth of about $40 trillion, and the top 1 percent controlled less than half of that.

Rather than tax households with more than $10 million in assets, excluding primary homes, to raise $5.7 trillion, Congress would have had to implement a 14.25 percent tax on the net worth of all Americans, including their primary homes, to raise the kind of money Trump promised, said Mark Zandi, now an economist with Moody’s Analytics. And that’s assuming no one found a way to cheat the system by undervaluing assets or moving them abroad.

Trump apparently wasn’t deeply involved in crunching the numbers.

Read More: How Ocasio-Cortez And Liberal Women Are Changing Their Party

When he announced his wealth tax proposal, Shiflett was helping to write the book that would outline the policies he’d support as president. Shiflett said he had one, long interview with Stone and Trump where they tried to come up with some ideas.

While he doesn’t remember who came up with the wealth-tax proposal, Shiflett said Stone drove most of the policy proposals. Trump had strong opinions on terrorism, on North Korea and strongly supported a single-payer health care system, but tax issues were an afterthought, Shiflett said.

“He did make a big thing about the tax that it would cost him a lot of money,” Shiflett said, adding,“It wasn’t going to cost him a lot of money because it wasn’t going to happen.”

Shiflett said after Trump won the White House in 2016, a Dutch television crew showed up at his home with the book and took its contents seriously, a position Shiflett thought was funny.

“There was no air of seriousness involved here,” Shiflett said. “It’s not like we were writing a book for the ages that people will always refer to when the great president is being considered for his place in history or something like that.” Shiflett added that Stone seemed mostly into the humor of Trump running for president.

Stone did not respond to a voice message and email seeking comment. A federal judge on Feb. 21 ordered him not to speak publicly about a criminal case against him. The White House did not immediately respond to a request for comment.

Once the proposal became news, it struck Douglas Holtz-Eakin, then chairman of Syracuse University’s economics department, as especially bizarre because of the favorable situation with the U.S. budget and the debt.

Holtz-Eakin, now the president of the right-leaning American Action Forum, said the Trump plan was the kind of thing he’d use in class as an example of bad policy.

If “the last time I accumulated a lot of wealth, they took 14.25 percent of it, am I really going to do that again?” Holtz-Eakin said.

In 2003, Holtz-Eakin took the helm of the Congressional Budget Office, just as the surpluses were turning into huge deficits.

Discover the Links Between the Four Elite Families of California that Have Run It into the Ground

California has been controlled by the Brown, Newsom, Pelosi and Getty families for over 80 years, making insider deals and boosting each other into political offices. The families helped create the social and economic disaster of the state that carries $2 trillion in debt.

Now that Housing Bubble #2 Is Bursting…How Low Will It Go?

There are two generalities that can be applied to all asset bubbles:

1. Bubbles inflate for longer and reach higher levels than most pre-bubble analysts expected

2. All bubbles burst, despite mantra-like claims that “this time it’s different”

The bubble burst tends to follow a symmetrical reversal of very similar time durations and magnitudes as the initial rise. If the bubble took four years to inflate and rose by X, the retrace tends to take about the same length of time and tends to retrace much or all of X.

If we look at the chart of the Case-Shiller Housing Index below, this symmetry is visible in Housing Bubble #1 which skyrocketed from 2003-2007 and burst from 2008-2012.

Housing Bubble #1 wasn’t allowed to fully retrace the bubble, as the Federal Reserve lowered interest rates to near-zero in 2009 and bought $1+ trillion in sketchy mortgage-backed securities (MBS), essentially turning America’s mortgage market into a branch of the central bank and federal agency guarantors of mortgages (Fannie and Freddie, VA, FHA).

These unprecedented measures stopped the bubble decline by instantly making millions of people who previously could not qualify for a privately originated mortgage qualified buyers. This vast expansion of the pool of buyers (expanded by a flood of buyers from China and other hot-money locales) drove sales and prices higher for six years (2012-2018).

As noted on the chart below, this suggests the bubble burst will likely run from 2019-2025, give or take a few quarters.

The question is: what’s the likely magnitude of the decline? Scenario 1 (blue line) is a symmetrical repeat of Housing Bubble #2: a retrace of the majority of the bubble’s rise but not 100%, which reverses off this somewhat higher base to start Housing Bubble #3.

Since the mainstream consensus denies the possibility that Housing Bubble #2 even exists (perish the thought that real estate prices could ever–gasp–drop), they most certainly deny the possibility that prices could retrace much of the gains since 2012.

More realistic analysts would probably agree that if the current slowdown (never say recession, it might cost you your job) gathers momentum, some decline in housing prices is possible. They would likely agree with Scenario 1 that any such decline would be modest and would simply set the stage for an even grander housing bubble #3.

But there is a good case for Scenario 2, in which price plummets below the 2012 lows and keeps on going, ultimately retracing the entire housing bubble gains from 2003.

Why is Scenario 2 not just possible but likely? There are no more “saves” in the Fed’s locker. Dropping interest rates to zero and buying another trillion in MBS won’t have the same positive effects they had in 2009-2018. Those policies have run their course.

Among independent analysts, Chris Hamilton is a must-read for his integration of demographics and economics. Please read (via Zero Hedge) Demographics, Debt, & Debasement: A Picture Of American Insolvency if you want to understand why near-zero interest rates and buying mortgage-backed securities isn’t going to spark Housing Bubble #3.

Millennials are burdened with $1 trillion in student loans and most don’t earn enough to afford a home at today’s nosebleed prices. When the Fed drops the Fed Funds Rate to zero, it doesn’t follow that mortgage rates drop to zero. They drop a bit, but not enough to transform an unaffordable house into an affordable one.

Buying up $1 trillion in sketchy mortgages worked in 2009 because it bailed out everyone who was at risk of absorbing huge losses as a percentage of those mortgages defaulted. The problem now isn’t one of liquidity or iffy mortgages: it’s the generation that would like to buy homes finds they don’t earn enough, and their incomes are not secure enough, to gamble everything on an overpriced house that chains them to a local economy they might want to leave if opportunities arise elsewhere.

In other words, the economy has changed, and the sacrifices required to buy a house in hot markets at today’s prices make no sense. The picture changes, of course, in areas where 2X or 3X a typical income will buy a house, and 1X a pretty good income will buy a house.

Unless the Fed is going to start buying millions of homes outright, prices are going to fall to what buyers can afford. As China’s debt bubble implodes, the Chinese buyers with cash (probably not even cash, just money borrowed in China’s vast unregulated Shadow Banking System) who have propped up dozens of markets from France to Vancouver will vanish, leaving only the unwealthy as buyers.

The only question of any real interest is how low prices will drop by 2025.We’re so accustomed to being surprised on the upside that we’ve forgotten we can surprised on the downside as well. 

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Green New Deal Could Cost $93 Trillion, Group Says

The so-called Green New Deal may tally between $51 trillion and $93 trillion over 10-years, concludes American Action Forum, which is run by Douglas Holtz-Eakin, who directed the non-partisan CBO from from 2003 to 2005. That includes between $8.3 trillion and $12.3 trillion to meet the plan’s call to eliminate carbon emissions from the power and transportation sectors and between $42.8 trillion and $80.6 trillion for its economic agenda including providing jobs and health care for all.

China says meets debt control target as it ramps up economic support

February 25, 2019

By Yawen Chen and Se Young Lee

BEIJING (Reuters) – China has met its target for reducing debt levels but will keep cracking down on riskier types of financing to contain risks to its financial system, the banking and insurance regulator said on Monday, urging banks to step up lending to smaller companies.

Concern about China’s debt is rising again as Beijing ramps up support for a slowing economy. New bank loans hit a record in January despite increasing bad loans and record defaults in 2018.

Though top officials have repeatedly pledged not to resort to another massive spending spree like that during the global financial crisis, analysts say it is vital for policymakers to revive weak credit growth to avoid a sharper slowdown.

“After two years of work, various financial disorders have been effectively curbed,” Wang Zhaoxing, vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), told a news conference.

“This breaks overseas predictions that the ‘barbaric’ growth of shadow banking and the financial overheating of real estate might lead to systemic financial risks and crises in China.”

China has never revealed a specific target for its multi-year risk containment campaign and does not release comprehensive statistics on debt loads.

But documents provided by the regulator said the leverage level in the economy stabilized in 2018, meeting the target, after growing by an average of more than 10 percent a year.

“Our leverage level is basically stable. This is a marvelous achievement,” said Zhou Liang, another CBIRC vice chairman.

Authorities have tried since a 2015 downturn to curb riskier types of financing and a build-up in debt which international monitors like the International Monetary Fund say could trigger a banking crisis in the world’s second-largest economy.

However, the regulatory pressure drove up borrowing costs last year and made it harder for small firms to secure funding, dragging on business activity and prompting policymakers to shift their focus back to growth boosting measures.

Analysts worry that any halt to the financial risk campaign may also delay much-needed structural reforms, such as allowing market forces to dictate a more efficient use of capital.

Corporate bond defaults hit a record last year, while banks’ non-performing loan ratio hit a 10-year high, but authorities have kept pressure on largely state-owned, banks to keep lending to cash-strapped companies facing “temporary” difficulties.

The last round of China’s leverage crackdown is over for now, said Hao Zhou, senior emerging markets economist at Commerzbank, adding that the cycle of policy tightening and loosening normally shifts every two to three years.

“Although China is loosening now, it’s possible that the loosening will end as soon as economic growth gathers momentum,” he said.

END DISCRIMINATION

The regulator said in a statement on Monday that it had ordered all of the country’s banks to sharply increase financial support for private companies, with big state-owned banks told to increase loans to smaller firms by more than 30 percent.

The private sector accounts for over half of China’s economic growth and most of its new jobs, but firms have been facing higher borrowing costs and a tougher time obtaining financing as they carry higher credit risks than state firms.

The regulator said banks will now be prohibited from discriminatory practices when approving loans for private firms.

To crack down on “rampant and blind” expansion of financial institutions, the CBIRC has targeted practices ranging from less regulated interbank activities to the shadow banking sector, which has been a major funding source for private companies.

It has also pressed banks to speed up disposal of bad loans and encouraged companies to convert debt into equity to free up capital for new lending.

The scale of high-risk assets shrank by about 12 trillion yuan ($1.79 trillion) in the previous two years, while lenders disposed of 3.48 trillion yuan in non-performing loans, the regulator said.

More than 2 trillion yuan worth of debt-for-equity swap deals have been signed by lenders, it added, though details of many of those arrangements have been murky.

It has also banned consumer loans from being used illicitly to speculate on property to avoid fueling real estate bubbles.

The CBIRC said shadow banking risks have now been contained, which will allow policymakers to better balance the need for stable economic growth this year while continuing to reduce financial risks.

The IMF estimated in 2017 that China’s total non-financial sector debt would rise to almost 300 percent of its gross domestic product (GDP) by 2022, up from 242 percent in 2016.

But hidden borrowing by Chinese local governments could be as high as 40 trillion yuan — amounting to “a debt iceberg with titanic credit risks”, S&P Global Ratings said in a report late last year.

When including off-balance sheet local government debt, China’s ratio of government debt to gross domestic product (GDP) could have reached an “alarming” level of 60 percent in 2017, according to S&P.

(Reporting By Yawen Chen and Se Young Lee in BEIJING, Writing by Shu Zhang in SINGAPORE; Editing by Kim Coghill)

Demographics, Debt, & Debasement: A Picture Of American Insolvency

Authored by Chris Hamilton via Econimica blog,

Census Bureau, Treasury, EIA Detail American Insolvency

Since 2007, US births and net immigration have consistently and unexpectedly fallen sharply.  Over the same span, US federal debt and unfunded liabilities have soared while federal tax receipts, as a percentage of the federal debt and unfunded liabilities, continue declining.  Total US energy consumption also peaked in ’07 and continues declining in contradiction to those soaring asset valuations.

Simply put, this article details an American insolvency and the ongoing attempt to print and inflate away this reality.  America has shown it isn’t afraid of (mis)using this digital printing press via collusion among the Federal Reserve, Treasury, and the Federal Government to disguise the simple truth that America is bankrupt and incapable of meeting its present and future obligations absent unlimited and unending monetization.

Demographic Development and Population Growth

According to the latest 2017 Census projection, the Census expects a near halving of population growth…or 50 million fewer Americans than it expected just 8 years earlier.  But critically, nearly all the projected declines are among the under 45 year old population while the 65+ year old population growth is still on track to swell.

Given the record low birth rates in 2017 and 2018, which came in 700 thousand annually below the ’08 Census projections, plus diminishing immigration, netting at least a half million annually below ’08 Census projections, the 2020 Census is likely to significantly further downgrade the potential for US population growth.  The impact for US economic growth, unfunded liabilities, and outgrowing personal, corporate, and federal debt is devastating.

What Happened?

From the mid 1990’s to 2007, a surge in immigration (both legal and illegal) and a rise in births resulted in significantly larger child bearing population and broad assumptions that America could outgrow its unfunded liabilities and debt issues.  It was assumed, given the predominately Latin American and Catholic source of the population growth, that immigration and births would continue to surge and the American population (and demand with it) could extend the American success story indefinitely.  But then in ’08, everything went off the tracks and has only continued to derail since, quashing hopes for avoiding an American crisis.

The Census details this story in their ongoing population projections.  The chart below shows the Census ’00, ’08, ’14, and ’17 US population projections.  In ’00, the Census projected the total US population in 2050 would be 404 million persons.  However, by ’08, the projection swelled to 439 million, an astounding increase of 35 million?!?  However, after the ’08/’09 financial crisis and the subsequent 2010 Census, the projections were radically reduced.  By 2014, the projection was reduced a further 6 million and as of the most recent 2017 projection, the population by 2050 was reduced by a further 9 million…to 389 million or 50 million fewer than just 9 years ago?!?  And the green line in the chart is my best guestimate for the next Census projection…such has been the decline in births and immigration.  That is a projected reduction of at least 50 million and more likely in excess of 60 million in just over a decade.

The chart below is the ’08 projection versus the ’17 projection.  This reduction is a 43% decline in the anticipated US population growth over the next 30 years…that will undoubtedly only be further reduced.

But which age segments were reduced should send shivers down Americans spines when considering economic growth, unfunded liabilities, and debt service/repayment.  Growth among the 0-17 year old population has been slashed by 84%, the 15 to 44 year old child bearing population reduced by 60%, the post child bearing 45-64 year old population over a 20% reduction, but the 65+ year old elderly have only been reduced by 7%.

To begin, let’s look at the engine to population growth, the 18 to 44 year old child bearing cadre, through five separate projections from ’00 through ’17.  In the 2000 projection, the child bearing population was expected to fall through 2015 following long term negative birth rates and the baby bust following the baby boom.  But by the 2008 projection, a massive infusion of immigrants and slightly higher births than were previously expected, resulted in a child bearing population 6 million in excess from the ’00 projection…and by 2015, the child bearing population was 10 million greater than projected.

Perhaps it was reasonable for the Census to make two assumptions, that both turned out to be terribly wrong;

1- immigration rates would continue at the early ’00’s pace

2- total births would continue to rise and fertility rates would remain in positive territory

Looking at the annual births (chart below), it’s very clear 2007 was an aberration with consistently declining births since.  Births are now lower by nearly a half million since ’07 high water mark (-11%) but 700 thousand fewer annually than was projected in ’00 and ’08.  This trend of flat to lower births shows no signs of turning around.  The actual annual birth deficit compared to the projections only continues growing.

But it is also immigration that is well below projections, chart below.  It is easy enough to determine the quantity of legal immigrants but given the roughly 15 million illegals in the US, determining the net flow of illegals is more guesswork than simple accounting.  This is why the ’10 Census was so critical in that it showed the net flow of illegals had turned negative following the ’08/’09 financial crisis…and the net flow is likely to have continued this trend since.

The impact of all this on the headwaters (under 18yr/olds) of US population growth through 2050 is paramount.  And this is before the next projection even further reduces what little growth remains (or perhaps projects outright declines).

Energy Consumption

Changes in energy consumption have long been considered a good proxy for real economic activity.  From a total energy consumption standpoint, as of year end 2016, the US was using less energy than all the way back in 2000, according to the EIA (US Energy Information Administration).

And comparing the US primary energy consumption versus the Wilshire 5000 (representing the value of all publicly traded US equity), a funny thing shows up.  Flat to declining energy consumption vs. surging asset valuations…this is typically understood as a red flag for phony wealth creation via market manipulation, monetization, and banana republic central banking.

Federal Debt & Unfunded Liabilities

From a federal debt perspective, the surging annual issuance of Treasury debt since 2008 is in contradiction to the decelerating potential for population growth, demand growth, and potential tax revenues to repay or even service the debt.

Looking at federal debt since 1970 split between public and Intra-governmental holdings (trust fund surpluses)…and the accelerating issuance far outstripping the ability of Social Security and other trust fund “surpluses” to purchase the debt.

Treasury Demand?

But since QE ended in late 2014, the Federal Reserve has been a net seller and Foreigners have ceased adding to their holdings, leaving all that new and rollover low yielding Treasury debt to be purchased and held domestically.

And who bought it all?  According to the most recent Treasury Bulletin, since QE ended, the vast majority of buying has been among a buyer solely identified as “other investors”?!?

Since the end of QE, the quarterly changes in domestic Treasury holdings are detailed below.  Surging domestic demand that is not from banks, not savings bonds, not private purchasing, not insurers, slowingamong mutual funds, minimal among state/local pensions…leaving an unidentifiable “other investors” to buy and hold trillions in low yielding US Treasury debt?!?

Unfunded Liabilities

However, according to the Treasury’s 2017 Financial Report of the US Government, the “total present value of future expenditures in excess of future revenues” is $49 trillion in addition to the federal debt!!!  The chart below details the sources of the unfunded liabilities and federal debt from ’00 through ’17 (the large dips in Medicare Part A & B from ’09 to ’10 were apparently to do with Obama-Care and how the Treasury calculated shifting a portion of the burden from the Feds to the States or individuals).

And the chart below shows known federal debt, GDP, and best guestimate for unfunded liabilities through 2018.  Even according to the Treasury #’s, this is getting pretty out of hand.

Social Security and Medicare require $49+ trillion, here and now, to allow that money to grow (a compounded annual rate double or triple that currently offered by the 10yr Treasury is needed) in conjunction with (over)estimated future tax revenues and diminishing working age population growth to meet the present and future payouts that have been promised to an elderly population that isn’t shrinking.  However, the Census is making it clear the population growth is in all the wrong places and nowhere near enough in the right places to meet any of these goals.  The EIA making it plain real US economic activity has been slowing for a decade…and further deceleration is the most likely course.

Finally, if we review federal tax receipts plus federal tax receipts as a percentage of outstanding liabilities, the picture is bleak (below).  Since ’00, federal liabilities have risen twice as fast as federal tax receipts despite a decade of ZIRP, Quantitative Easing, three asset bubbles, innumerable economic crutches, and stimuli.

Conclusion:

The US Treasury is telling you that between the federal debt and unfunded liabilities, the US is $75 trillion in the hole and despite rising tax receipts, record stock and real estate valuations…the US is bankrupt.  Of course, the US can never “technically” go bankrupt as it will issue new debt at an accelerating rate to pay the old debt…but this has been the “end times” for every empire.  Debasement (or Modern Monetary Theory, as it is currently being rebranded) is the functional equivalent of national bankruptcy, the only means to pay the bills is creation of new debt at an accelerating rate.  The US situation and reaction is not unlike most of the developed and developing nations of the world, as I detailed recentlyHERE.

Still, ideally, a mature and sophisticated nation would stop and reconsider its priorities about now, determine how to go about a functional bankruptcy, share the pain, and start over.  Unfortunately, we appear more interested in scapegoating, trade wars, walls, and countering with calls for socialism.  This may not go well.

Global sovereign debt to peak at $50,000,000,000,000 this year

from RT: Ratings agency S&P Global said governments are continuing to run up huge debt levels and will borrow an equivalent of $7.78 trillion this year, which would be up 3.2 percent on 2018. That will come as another jump in borrowing to take the global mountain of sovereign debt to $50 trillion in 2019. […]

The post Global sovereign debt to peak at $50,000,000,000,000 this year appeared first on SGT Report.

S&P Warns Global Sovereign Debt Will Top $50 Trillion This Year

It has been one week since the US Treasury revealed that the national debt had topped $22 trillion (only 11 months after it had topped the $21 trillion threshold). And as the US budget deficit shows no signs of shrinking thanks to the Trump tax cuts and the death of the Obama-era budget sequester that has allowed for an expansion of federal spending (with more presumably on the way once the Trump infrastructure plan comes into focus), S&P warned on Thursday that worldwide sovereign debt could reach $50 trillion this year.

SNP

According to Reuters, S&P predicted that governments will borrow some $7.78 trillion this year, up 3.2% since 2018 (the US will constitute more than $1 trillion of that all by itself). That’s a 6% increase in the total debt pile from the year before.

Most of this borrowing will be rolling over long-term debt.

“Some 70 percent, or $5.5 trillion, of sovereigns’ gross borrowing will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of about $2.3 trillion, or 2.6 percent of the GDP of rated sovereigns,” said S&P Global Ratings credit analyst Karen Vartapetov.

Governments, like corporations and individuals, took advantage of low interest rates around the world to step up borrowing in the wake of the financial crisis. Now, with borrowing costs expected to rise, these long-term burdens will become more burdensome to service. And with central banks slowly beginning to allow their inflated balance sheets to run off…

Bank

…investors will be watching to see if more central banks follow the Fed’s lead in pausing its balance sheet runoff, or possibly even take it one step further and return to the expansionist glory days of global QE. Who knows? As the global debt pile appears increasingly intractable, more economic officials might seriously consider Alexandria Ocasio-Cortez’s Modern Monetary Theory.

Exclusive: Fed’s Williams says new economic outlook necessary for rate hikes

February 19, 2019

By Howard Schneider, Jonathan Spicer and Trevor Hunnicutt

NEW YORK (Reuters) – New York Fed President John Williams on Tuesday said he was comfortable with the level U.S. interest rates are at now and that he sees no need to raise them again unless economic growth or inflation shifts to an unexpectedly higher gear.

In an interview with Reuters, Williams estimated the Federal Reserve would continue trimming its bond portfolio well into next year. He also said he felt rates had reached his current view of a lower “neutral” level, with growth and unemployment leveling off and inflation, if anything, a bit weaker than hoped.

Asked if it would take some sort of shock to resume rate increases, he said it would require one or more of those factors to surprise to the upside.

“I don’t think that it would take a big change, but it would be a different outlook either for growth or inflation” to return to hiking rates, Williams, one of the Fed’s three vice chairs and a key voice on rate policy, told Reuters.

Williams’ comments, made just weeks after the U.S. central bank paused its once quarterly rate hikes, underscore just how high the bar would be for tighter monetary policy, and suggest that such a move may not come anytime soon.

The Fed could also keep levels of bank reserves on its books that are far closer to current levels than previously thought, Williams said.

Along with its rate-hike holiday, Fed policymakers are finalizing plans on how they would end the reduction of their balance sheet, which includes holdings of bank reserves bulked up in part by the Fed’s need for cash to buy bonds to halt the global financial crisis a decade ago.

Williams estimated the so-called balance sheet rolloff could end when bank reserves get to “maybe $1 trillion of reserves or somewhat more than that,” about $600 billion less than current levels.

The figure is “a guess today of the amount of reserves that will be held in the system in the future – but again we are learning and will get a finer touch on that,” he said.

That view implies the runoff would continue at least into next year at its current pace. At least two Fed policymakers have said the Fed could stop making changes to the portfolio this year.

Williams, who is vice chairman of the rate-setting Federal Open Market Committee and votes when that group meets, said policymakers are “in a very good place,” with rates around neutral, the U.S. economy growing and price pressures subdued.

“Monetary policy is where it should be,” he said. “It’s around my view of what neutral interest rates are.”

After Williams’ remarks, stocks pared gains into the market close Tuesday afternoon, with the S&P 500 ending up 0.15 percent. Yields on U.S. Treasury bonds fell. Benchmark 10-year notes fell to 2.64 percent from a high near 2.68 percent earlier in the day.

After its most recent meeting, Fed policymakers signaled their three-year drive to tighten monetary policy may be at an end due to a cloudy U.S. and global economic outlook as well as impasses over trade and government budget negotiations. Further details on the policy meeting at the end of January are expected when the Fed releases records from its deliberations on Wednesday.

The Fed increased interest rates three times in 2017 and four times last year, pushing them up to between 2.25 percent and 2.5 percent at its final 2018 meeting in December.

The central bank’s balance sheet ballooned to over $4 trillion in the wake of the 2007-09 recession but policymakers began trimming bond holdings in the final months of 2017.

(Reporting by Howard Schneider, Jonathan Spicer and Trevor Hunnicutt in New York; Editing by Chizu Nomiyama and James Dalgleish)

Thousands Sign Petition To Sell “Useless” Montana To Canada

More than 6,000 people have signed a Change.org petition to sell the “useless” state of Montana to Canada for $1 trillion in an effort to help pay down the national debt, which climbed above $22 trillion earlier this week.

“We have too much debt and Montana is useless. Just tell them it has beavers or something,” reads the Change.org petition. Additional reasons provided by supporters of the petition, who weighed in on the comments section of the petition, included the state’s “insignificant population” and their “aesthetic” which some argued doesn’t fit with the broader US.

Montana

Surprisingly, despite the accusation of being “useless”, some purported Montana residents chimed in in the comments to say that they’re supportive of the sale, and would love to join Canada without any of the associated expense of moving.

“Honestly, most Montanas are totally OK with this let’s do it I’m fine with being out of this hellhole,” one petitioner wrote. “Montana will get legal weed, health care and decent hockey…it’s a win-win.”

Some Canadians also sounded supportive of the idea.

SS

“Montana and its people would be a beautiful addition to our beautiful country. Welcome!…Dear Montana, we love you but we can’t afford that. Ditch the USA and join us for free. You don’t need that much debt.”

Apparently, selling off US states may be a viable alternative to fiscal restraint, or ordering the Federal Reserve to print a trillion-dollar “coin” and deposit it in the Treasury.

We Are Change TV.US