This past week was filled with numerous distractions that kept the American public from recognizing the pressing issues right before them. From midterm elections and conflicts in the White House to the abrupt resignation of Attorney General Sessions, these events served as diversions, diverting attention from more consequential matters.
Such sideshows provide endless occasions to focus on trivialities. Why take the time to delve into the root causes behind a headline when countless new ones emerge every moment? Real analysis requires effort, and in our fast-paced world, that effort is often neglected.
Furthermore, the S&P 500 saw an impressive nearly 3 percent surge from market open on Monday to close on Thursday, suggesting that the panic experienced in October is now just a fading memory. At this pace, many might feel optimistic about becoming wealthy through stocks by the New Year.
Despite the frenzy of each new distraction, we remain focused on a more critical narrative: the systematic draining of the nation’s resources—time, talent, and wealth. While this isn’t the headline that grabs attention, it is unmistakably present for those willing to look beyond the surface.
The overlooked narrative is threefold: escalating borrowing costs, a burgeoning debt crisis, and rising price inflation are converging, leading to severe consequences. This situation is impossible to ignore.
Fake Money
The U.S. Treasury plans to issue $1.3 trillion in new debt in 2018, a staggering 146 percent increase from the previous year. Projections suggest this figure will likely rise further in 2019 and 2020.
The pressing question is: who will purchase this surplus of Treasuries? It certainly won’t be the Fed, which is busy shrinking its balance sheet. Nor will it be China, which, grappling with a trade war, is unlikely to invest in U.S. debt.
Without these significant debt buyers, yields will inevitably rise at the worst possible moment—when public and private debts are already at unprecedented levels. This escalation in interest rates will make credit increasingly expensive, leading to a larger portion of borrowers’ budgets being consumed by debt servicing.
Rising borrowing costs will also squeeze inflated asset prices, affecting sectors like stocks and real estate. While asset prices may deflate, consumer prices will rise, largely due to trade tariffs. This scenario represents a departure from the classic wealth effect we’ve come to know. And it doesn’t stop there…
The unfavorable conditions affecting the U.S. economy stem from the existence of fake money. Over the past decade, an excess of this fake money has created a disjointed economic reality. Remove the fake money, and the entire structure begins to crumble.
When Fake Money Becomes Scarce
True money, which cannot be conjured through mere digital entries in a central bank’s ledger, is a valuable and limited resource. It embodies accumulated wealth, reflecting the time and sacrifices made to earn it. When spent, it tends to be utilized judiciously.
On the contrary, fake money is often wasted in astonishing ways, particularly on businesses that thrive only because of its seemingly unending availability.
Such businesses, like the “Ponzi balloon” companies of Silicon Valley, depend entirely on fake money for survival. Likewise, the surge of state-sponsored loans has turned college campuses into financially draining institutions, creating an environment where student populations and their array of degrees might sharply diminish without continued access to fake money.
The automobile industry stands as another testament to this phenomenon; without fake money, much of today’s vehicle sales would simply not occur.
Perhaps the most notable examples of businesses reliant on fake money are the deep-state corporations that benefit directly from government funding. These entities would vanish in a heartbeat if the supply of fake money were to dry up.
Throughout various sectors of the economy, these businesses continue to exist, although many are now running dangerously close to empty. Employees arrive each day to keep operations moving, while management resorts to borrowing money to bridge gaps between accounts receivable and payable. Unfortunately, this approach is ultimately unsustainable.
In recent years, credit markets, heavily influenced by the Federal Reserve’s policies of excessive liquidity, have become distorted beyond reason. The allure of fake money proved too tempting to resist. Why save when you can simply borrow and spend?
However, as credit tightens and fake money becomes scarce, the truth will be revealed with unavoidable intensity. We can expect a wave of busts, bankruptcies, and bailouts in the near future.
Sincerely,
MN Gordon
for Economic Prism
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