by Matthew Piepenburg, Gold Switzerland:
What the U.S. in particular, and the West in general, are failing to confess is that today’s so-called “Developed Economies” are in actual fact more like yesterday’s debt-straddled Emerging Market economies, and like a real banana republic, the only option ahead for our clueless elites is inflationary (and intentionally so).
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Titanic Ignorance
I’ve often cryptically joked that listening to investors, mainstream financial pundits or downstream politicians debating about near-term asset class direction, inflation “management” or central bank miracle solutions is like listening to First Class passengers on the Titanic debating about desert choices on the menu in their hands rather than the debt iceberg off their bow.
In short: The real issues are right in front of us, yet ignored until the economic ship is already dipping beneath the waves.
Rising Debt + Declining Income = Uh-Oh.
As for such hard facts (i.e., icebergs), the most obvious are fatal global and national debt levels rising at levels which can never be repaid….
Meanwhile, national income from GDP and tax receipts are falling, which means debts are grossly outpacing revenues, which any kitchen-table, boardroom or even cabinet meeting conversation should know is a bad thing…
Toward this end, it’s worth lifting our eyes above the A-deck menu and taking a hard look at the following iceberg scrapping the bow, namely: Tanking US tax receipts:
What Biden and Powell might wish to remind themselves is that U.S. tax receipts have fallen YoY by 16%, and are likely to fall even further as markets continue their trend South at the same time the US steers toward a recessionary block of ice.
No Love for Uncle Sam’s IOUs
What’s even more alarming is this stubborn fact: as U.S. Federal deficits are rising, foreign interest in Uncle Sam’s IOU’s (i.e., U.S. Treasuries) are tanking.
China’s interest in U.S. Treasuries, for example, has hit a 12-year low and Japan, as I’ve warned elsewhere, is too broke (and too busy buying its own JGB’s with mouse-klick Yen) to afford bailing out Uncle Sam.
The level of magical Yen creation (reminiscent of the Weimar era) coming out of Japan to “support” its pathetic bond market is simply mind-blowing:
Given the artificial and relative current strength of the USD and the fact that FX-hedged UST yields are negative in EUR, it’s fairly safe to conclude that there will be more sellers than buyers of UST’s. That means rising yields and rates near-term.
Ouch.
That’s a bad sign for Uncle Sam’s bloated and unloved bar tab. Who but the Fed (and hence more QE) will buy his IOUs by end of August?
Filling the Deficit Gap: Print or Default?
In the past, the spread between rising debts and declining faith in U.S. IOUs was filled by a magical money printer at the not-so-federal “Federal” Reserve.
But with a cornered Fed still tilting toward QT rather than QE, where will this magical money come from, as it sure as heck aint coming from tax receipts, the Japanese, China or Europe?
As I see it, the Fed has only two pathetic options left if it wants to fill the widening gap between its growing deficits and declining faith from foreign bond buyers (or even US banks, see below).
Namely: It can 1) default on its embarrassing IOU’s and send markets over a cliff, or 2) pivot from QT to QE and create more magical (i.e., inflationary and toxic) money.
When it comes between embarrassment or toxicity, my bet is on option #2, which means expect more rather than less QE and inflationary currency debasement ahead.
Why?
Saving the Politico’s, Drowning the Citizen
Because neutering one’s currency is the classic/desperate policy taken by all debt-soaked regimes to create a negative-real rate lifeboat for themselves while leaving the average Joe Citizen shivering in an inflationary ocean of pain.
As I’ve said countless times, the Fed WANTS INFLATION to inflate away its debt nightmare and only pretends to fight it.
Rising rates are simply no option as higher rates are simply too expensive for Uncle Sam.
YoY interest payments alone on Uncle Sam’s bar tab were already at $666B by end of May. If one tacks on the extra interest owed on Treasury Bills and maturing notes, that interest expense climbs to just under $900B.
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