Bamby
New member
The U.S. Treasury, if you didn’t know, will issue $1.3 trillion in new debt in 2018. This represents a 146 percent increase in new federal government debt issuance from 2017. By our rough estimation, this number will significantly increase in 2019 and again in 2020.
But who will buy this glut of Treasuries? Not the Fed. Remember, the Fed is currently reducing its balance sheet. Not China. Remember, China, facing a trade war, surely isn’t eager to buy U.S. debt.
Without the demand of these big debt buyers yields will rise at the worst possible time; when public and private debt are at record levels. As interest rates rise, credit becomes more and more expensive. So, too, servicing existing debt takes up a greater and greater percentage of the borrowers budget.
Rising borrowing costs will also have the effect of strangling inflated asset prices, including stocks and real estate. Yet as asset prices deflate consumer prices, thanks to trade tariff policies, will inflate. This scenario, in short, will be the exact opposite of the wealth effect. But there is more…
The unfavorable conditions facing the U.S. economy are the product of fake money. Over the past decade, an abundance of fake money has fashioned a world that is greatly at odds with itself. Take away the fake money and the whole giant edifice collapses.
When Fake Money Becomes Scarce
To clarify, honest money, the kind that cannot be created by making digital notations on a central bank’s balance sheet, is a scarce resource. It represents accumulated capital, including the time and sacrifices made to earn it. When spent, it is spent wisely.
Fake money, on the other hand, is squandered in the most incredible ways. Namely, fake money is squandered on fake businesses. By this, we mean businesses that provide products and services that wouldn’t otherwise exist without a seemingly endless supply of fake money.
Fake businesses, like Silicon Valley’s bizarre Ponzi balloon companies, are dependent on fake money for their existence. Similarly, the abundance of state sponsored credit has transformed University campuses into money sucking country clubs. Absent fake money, the customer base for colleges would dramatically shrink – along with the glut of fake majors and fake degrees.
The automobile industry is another example of a business that is dependent on fake money. Without fake money, only a small fraction of the current sales would materialize.
Of course, the granddaddy of all fake money dependent businesses are the deep state lard bucket companies that swig and slurp directly from Washington’s fake money trough. These companies would quickly vanish if not for the plentiful supply of fake money.
Throughout all corners of the economy these fake money dependent businesses persist. Yet at this point in the business cycle many of them are running on fumes. Employees show up to work each day to move them forward. Management borrows money to cover the gaps between accounts payable and accounts receivable. But it’s a losing battle.
Credit markets, because of Fed policies of extreme liquidity, have been distorted well beyond what was thought to be conceivably possible over the last decade. The attraction of fake money was too much to pass up. Why save and invest when you can borrow and spend?
Yet, now, as credit tightens and fake money becomes scarce, clarity will be delivered with impassive rigor. Busts, bankruptcies, and bailouts will become the order of the day.
https://economicprism.com/when-fake-money-becomes-scarce/#more-6286
You can take the above for what you paid for it, nothing. But IMHO a lot of good valid points are given and worth at least some contemplation....
But who will buy this glut of Treasuries? Not the Fed. Remember, the Fed is currently reducing its balance sheet. Not China. Remember, China, facing a trade war, surely isn’t eager to buy U.S. debt.
Without the demand of these big debt buyers yields will rise at the worst possible time; when public and private debt are at record levels. As interest rates rise, credit becomes more and more expensive. So, too, servicing existing debt takes up a greater and greater percentage of the borrowers budget.
Rising borrowing costs will also have the effect of strangling inflated asset prices, including stocks and real estate. Yet as asset prices deflate consumer prices, thanks to trade tariff policies, will inflate. This scenario, in short, will be the exact opposite of the wealth effect. But there is more…
The unfavorable conditions facing the U.S. economy are the product of fake money. Over the past decade, an abundance of fake money has fashioned a world that is greatly at odds with itself. Take away the fake money and the whole giant edifice collapses.
When Fake Money Becomes Scarce
To clarify, honest money, the kind that cannot be created by making digital notations on a central bank’s balance sheet, is a scarce resource. It represents accumulated capital, including the time and sacrifices made to earn it. When spent, it is spent wisely.
Fake money, on the other hand, is squandered in the most incredible ways. Namely, fake money is squandered on fake businesses. By this, we mean businesses that provide products and services that wouldn’t otherwise exist without a seemingly endless supply of fake money.
Fake businesses, like Silicon Valley’s bizarre Ponzi balloon companies, are dependent on fake money for their existence. Similarly, the abundance of state sponsored credit has transformed University campuses into money sucking country clubs. Absent fake money, the customer base for colleges would dramatically shrink – along with the glut of fake majors and fake degrees.
The automobile industry is another example of a business that is dependent on fake money. Without fake money, only a small fraction of the current sales would materialize.
Of course, the granddaddy of all fake money dependent businesses are the deep state lard bucket companies that swig and slurp directly from Washington’s fake money trough. These companies would quickly vanish if not for the plentiful supply of fake money.
Throughout all corners of the economy these fake money dependent businesses persist. Yet at this point in the business cycle many of them are running on fumes. Employees show up to work each day to move them forward. Management borrows money to cover the gaps between accounts payable and accounts receivable. But it’s a losing battle.
Credit markets, because of Fed policies of extreme liquidity, have been distorted well beyond what was thought to be conceivably possible over the last decade. The attraction of fake money was too much to pass up. Why save and invest when you can borrow and spend?
Yet, now, as credit tightens and fake money becomes scarce, clarity will be delivered with impassive rigor. Busts, bankruptcies, and bailouts will become the order of the day.
https://economicprism.com/when-fake-money-becomes-scarce/#more-6286
You can take the above for what you paid for it, nothing. But IMHO a lot of good valid points are given and worth at least some contemplation....