The discourse surrounding money, financial markets, and the economy is rife with inaccuracies. However, beneath the surface lies an undeniable reality: Uncle Sam is in desperate need of your money. He requires an immense amount, and the urgency is palpable!
According to the Congressional Budget Office, the federal budget deficit for the first two months of fiscal year 2020 stands at $342 billion. This figure exceeds last year’s deficit in the same timeframe by $36 billion. At this current pace, Washington is predicted to add over $1 trillion to the national debt in FY 2020.
On a brighter note, the CBO’s data reveals that revenues during October and November of 2019 outperformed those from the same months in 2018 by 3 percent. Unfortunately, expenditures in these months grew by 6 percent compared to 2018.
Both the astute and the oblivious recognize that progressing at a pace of three steps forward and six steps back is an exasperating way to regress. Moreover, the longer this trend continues, the steeper the losses become, rendering recovery increasingly challenging.
For instance, aside from the top three budget allocations—Medicare, Social Security, and Defense—comes the Interest on Debt. Currently, this interest surpasses $375 billion. However, with the national debt accumulating by more than $1 trillion annually, the Treasury finds itself at a disadvantage.
Additionally, as interest rates rise and the government’s debt nears $40 trillion over the next decade, the interest burden will likely exceed $1 trillion. This will position interest payments on the debt in line with expenditures for Medicare and Social Security, well above Defense spending.
This scenario underscores Uncle Sam’s dire need for your funding. But the way he secures your money spells trouble…
Dotards Anonymous
President Trump is keen to avoid tax hikes, particularly in an election year, favoring tax cuts instead. Voters tend to favor tax reductions—provided they don’t benefit the wealthy.
The historically successful strategy for a sitting president to maintain their position involves reducing taxes while ramping up spending. This is precisely the course Trump has taken, with spending outpacing revenue by a factor of two.
So how will Uncle Sam claim your funds? By continuing the trajectory already established. He will do so through escalating deficits.
When the government amplifies the money supply via deficit spending, it effectively dilutes wealth tied to the dollar. For Uncle Sam, it’s inconsequential whether the dollar turns into a watered-down version of itself. He gets access to the freshly minted money first and spends it while it still retains its value against goods and services.
John Maynard Keynes persuasively pointed out:
“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
Ultimately, the increase in the money supply translates into a deterioration of purchasing power for each dollar. Thus, without directly imposing taxes, Washington effectively seizes your wealth—your savings of time and effort—in exchange for diminished currency.
Nonetheless, this does not remedy the ongoing issue of making three strides forward while slipping back six. On the contrary, it exacerbates the predicament. As the country ages and debt interest claims a growing share of the budget, the economy deteriorates akin to a forgotten dotard.
Yet, this is just the tip of the iceberg…
Banana Republic Money Debasement In America
The U.S. debt-based fiat currency system relies heavily on continuous issuance of Federal Reserve credit, setting the stage for inevitable failure. The route to this downfall is increasingly littered with irrationality.
For example, this week, the Federal Reserve Bank of New York—administrators of the xe/xem/xyr genderqueer pronoun identity—released their latest schedule for overnight and term repurchase agreements. In essence, this document outlines the amount of counterfeit money projected to be printed and distributed to major banks by January 14, 2020.
Dissecting the details is overwhelming. Fortunately, Zero Hedge—insightful analysts using he/him/his pronouns—provided clarity:
“The NY Fed will continue offering two-week term repo operations twice weekly, including four spanning year-end. Furthermore, a longer-term repo operation will also be issued. The minimum amount for this operation will be $50 billion…”
“Additionally, to mitigate a potential year-end liquidity crunch, the Fed will conduct daily overnight repo operations, increasing their size significantly. On December 31, 2019, and January 2, 2020, the overnight repo offering will rise to at least $150 billion to accommodate a surge of overnight liquidity. Moreover, on December 30, 2019, the Desk will introduce a $75 billion repo maturing on January 2, 2020.”
“Should this prove insufficient, the NY Fed’s markets desk has indicated that they will modify the timing and amounts of repo operations as necessary to alleviate any money market pressures impacting policy effectiveness, aligned with FOMC directives.”
“Thus, in addition to escalating their overnight repos to $150 billion, the Fed will initiate a total of nine term repos for the year-end from December 16 to January 14, with eight of them totaling $35 billion and the first one at $50 billion, leading to a grand total of approximately $365 billion over the next month…”
“Adding incremental liquidity from the modified overnight repo of about $50 billion and another $60 billion in T-Bill purchases, the Fed stands to inject nearly $500 billion over the next 30 days!”
“Consequently, by January 14, the Fed’s balance sheet is projected to expand by a cumulative $365 billion in ‘temporary’ repos. Together with the enhanced overnight repos and the $60 billion in monthly T-Bill purchases, by mid-January, the Fed’s balance sheet, currently at $4.066 trillion, will exceed its historic peak of $4.5 trillion!”
This undeniably reflects a level of mass money debasement typically associated with banana republics. Curiously, we seem to believe that this influx of fictitious currency is essential for keeping the U.S. Treasury solvent.
Furthermore, if this $500 billion frenzy is necessary just to reach January 14, what kind of madness will follow on January 15?
Our prediction: Take the current figure and double it. Then, repeat that process.
Sincerely,
MN Gordon
for Economic Prism
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