Ken Karachi

Ken Karachi

Bloomberg reports America’s $20 Trillion Debt Pile Is Getting Cheaper as It Grows

The U.S. government is paying less as it borrows more, one reason investors appear more comfortable than

Congress about funding another leg of stimulus. Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office.

 The concerns that pundits have regarding the US record debt stockpile is unfounded - at least for now and the near future. Take note that although nearly every government expense category has spiked from last year, one of the biggest actually shrank - net interest expense. 

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The CBO forecasts this cost savings to be extrapolated into the future as well. Of course, in today's highly politicized environment, I think it is wise to take many potentially conflicted data sources with a  healthy dose of skepticism. Alas, the logic behind their forecasts holds up (chart sourced from Bloomberg LP)....

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What Bloomberg, nor any other media outlet fails to inform us of is that the US is economically defaulting on its debt at the same time that it is paying a lower interest rate. That's right, what the US is doing is actually an economic default on it obligations to is investors. It is not a technical, legal or accounting default since the US is paying its debt service on time. What it is NOT doing is paying back the economic value of what it has borrowed, plus interest. Although this scenario is not laid bare in the charts above, it is plain as pie in the chart below. 

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What does all of this mean? Well, in a nutshell, it means that rates will not be going up anytime soon. If rates do go up, then debt service risks becoming untenable. 

It also means that one should expect the US to continue printing money at this ungodly clip until true, "organic" economic activity actually recovers at a reasonable pace. That will not happen this year, and is likely not to happen in full next year either. There's a risk that the year after that or more may be moot as well.

With the USD, being devalued, and interest rates dropping closer to zero as the Federal budget looms larger among historically unprecedented unemployment and corporate earnings that are dropping (even with the accounting "massaging" that's taking place - see Forensic Review of Bank of America's 2Q2020 Earnings - It's Ugly! and Analysis of JP Morgan's Terrible, Horrible, No Good 2nd Quarter of 2020 - Why Am I the Only One?) guess where the equity markets will go relative to gold? See "Panic-Driven Monetary Inflation and It's Effect on Tokenized Gold"

This chart is the base of the entire argument of holding gold as an currency reserve. First, look at the trend of each component/line.

    • The economic world has been upended during the popping of the 2007 bubble.
    • In 2009, the Fed has doubled in balance sheet through quantitative easing, thereafter increasing it by ~700% more through today. It has added more than 30% to its balance sheet in just the last two months.
    • The broad money supply has jumped 49% in the last 6 months.Monetary inflation is at its highest level, ever, and half of the annualized inflation rate of Zimbabwe.
    • US borrowing has increased by 300% over the largest period of borrowing in the modern history of this country. There has never been a period where the US has borrowed more, or borrowed as fast.
    • Gold has tracked this monetary debasement (inflation) closely, now near an all-time high

In closing, remember there's a strong chance that Stagflation is Here Right Now! As Is A Depression. Buy your VeGold digital, fully redeemable gold here

 

 U.S. Budget Gap Tripled to Record $3.1 Trillion for 2020. Shortfall relative to economy largest since World War II. Total outlays soar 47.3% Hear those machines go Brrrrr? If not, reference Panic-Driven Monetary Inflation and It's Effect on Tokenized Gold 

This chart below tells a harrowing story!

  • Federal debt as a percent of GDP is the highest it has been since WWII, without the ability to gun the manufacturing machine to create bullets and arms to sell to warring factions to boost the economy. 
  • M3 has skyrocketed, at the same time GDP has tanked - both setting all-time records,simultaneously
  • Gold has seen its sharpest spike that I know of. Gold has a 84% negative correlation to real interest rates. Guess who has negative real rates? Time's up! The country whose currency gold is priced in...
  • Oh yeah! Real rates are negative in a time of collapse GDP and record unemployment. Stagflation, y'all!

Intiially, I thought goldbugs would (and probably should) rejoice. Then I thought about the comparison the economic turmoil that led up to WWII in the US, and I thought, "Uh! Oh!". The US confiscated private gold and made its ownership illegal, in an attempt to effectuate an early form of QE and dollar debasement, You. see, you can't print dollars if you have to spend gold to do it, and the USD was on the gold standard. So, take all of the gold, then reprice what you have taken by government mandate (vs market forces), and voila! You've found instant money before the age of the digital printing press. The war started for the US 6 years later.

Things are al little different in this day and age, with tokenization, the blockchain and the Internet, but the government still wields nigh ultimate power.

For those that think this was a one time occurrence....

  • United States' Gold Confiscation of 1933 as discussed above, by presidential Executive order. This was primarily to effect QE, $20 per ounce was paid. Look at how good a deal that was over time.
  • Germany Seized Czech Gold through the Bank of England
  • German Nazis' Seizure of Jewish Gold (raubgold, or stolen gold) in World War II, making it illegal for any Jews fleeing Nazis German territory to take any valuable of theirs with them.
  • Australia Confiscated Private in 1959, but at least they paid for it in paper fiat, worth so much less now.
  • British Gold Ban of 1960's.., The UK literally prosecuted what they called "speculators" who held more than 4 gold coins as the pound collapsed against gold.
  • A Modern Day Case Study – Venezuela: Britain withheld Venezuela's gold requested to help deal with the COVID-19 pandemic. This was THIS year!

Buy your fully redeemable digital gold at VeAssets, and read the relevant research in the research section here.

 

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