JAN 5 19 SIT EC y POL
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
"The conditions
today not only rhyme with this history on a global scale, but there
is a worrying degree of replication becoming evident in US financial markets..."
[[ Here only extracts.. go to
source below to read full article ]]
The collapse of Italy, Deutsche Bank, China,
Brexit… take your pick. Very few engage on the subject that really matters, and
that is the underlying monetary flows into and out of financial markets.
It should be noted that while some shares are sure to rise
reflecting specific corporate developments and investor focus, money draining from financial
markets has the same effect as air draining from a leaking balloon. They
deflate, and taken as a whole, prices of both
bonds and equities persistently decline.
Interest rates begin to rise when
the monetary expansion earlier in the cycle finds its way into the
non-financial economy, inflating prices of goods and services instead of
financial assets. More money ends up chasing the same quantity of
manufactured goods and services, and their prices rise without an increase in
demand. It is this effect which confuses those who can only equate rising
prices with increased demand.
But for investors,
the important effect of the evolving credit cycle is that it begins to limit
the flow of new money into financials, relative to the money exiting into the
non-financial economy. It is the balance of these flows which
basically determines market values as a whole. .. And it must
be borne in mind that in the absence of new money flowing to support financial
asset prices, there are always marginal sellers who will drive prices
lower.
The supply of
government debt will increase
Besides the ebbing away of money supply from financials into
the real economy, we must also consider the effect of
stock flows on financial prices, the most significant being changes arising
from the financing of government deficits. In a conventional Keynesian
economic model, the government stimulates the economy by deliberately
engineering a budget deficit early in the cycle. As economic activity recovers,
tax revenues improve, and government finances return to a surplus. Therefore, according to Keynes’s theory, demand for capital evens out
over the cycle as a balance is restored towards the end of it.
This
idealised setup is no longer the case. The last US budget surplus was eighteen years ago in 2000.
Since then the US economy has had a bust, followed by a boom, another bust and
in 2017-18 was in its second boom. The accumulated budget deficits since 2000
total $12.454 trillion and government debt has increased from $5.674 trillion
to $21.516 trillion.[i] Whatever one thinks of Keynesian interventionism,
the abuse by the US Government of Keynes’s theory of the state’s management of
the economy is truly staggering, and seems set to drive it into a debt trap that
can only result in either a severe retrenchment of state spending or the
eventual destruction of the state’s currency.
So far,
investors have ignored this underlying trend. They have happily taken the
combination of zero interest rates and monetary expansion and invested in
financial assets, including all the government debt on offer. The money and credit have been
issued for them to do this, but it cannot continue for ever. Monetary inflation
has led to many governments adding to their debt obligations throughout the
whole credit cycle, so the affordability to governments of future debt issues
is bound to become an issue.
The next two sections in this
article will concentrate on the debt position of the US, on the basis that the
dollar is the world’s reserve currency, and international markets
reference prices in dollars. An acceleration of debt supply from the US
Government is likely to dominate global investment flows and financial
valuations in the next decade, so we should try to quantify them.
When considering the US Government’s
debt, it must be noted that roughly one-third is
held by the government itself in accounts such as the Social Security Trust
Fund. However, they represent funding of
external welfare obligations, so are external liabilities for the Federal
Government. For the purposes of this debt analysis, they will be dealt
with the same way as other public obligations, rather than as a purely
technical internal government arrangement, which is the assumption of the
Congressional Budget Office from which much of our information is drawn.
The
threat of a US Government debt trap
The issuance of debt is normally
subject to a contract that it will be repaid at the end of its term, along with
the coupon interest. The exception is undated bonds, when only the
interest contract must be fulfilled. In practice,
governments and many corporations roll over debt into new bond obligations at
the end of their terms, but at least bondholders have the opportunity to
be repaid their capital. Therefore, the credibility of
government debt is based on the assumption the issuer can afford to continue to
roll it over rather than repay it.
However,
the rolling over of old debts and the continual addition of new ones will
almost certainly become a problem for governments everywhere. It is less of a problem when the debt is put to
productive use, but that is rarely, if ever, the case with government finances.
To judge whether the rolling over of debt is
sustainable and at what cost, we need to rely on other metrics. The traditional method is to compare outstanding debt with
GDP, and by using this approach two economists (Carmen Reinhart and Ken
Rogoff) came up with a rule of thumb, that once a
government’s debt to GDP ratio exceeded approximately 90%, economic growth becomes
progressively impaired.[ii]
The
Reinhart-Rogoff paper was empirically based, and loosely impresses upon us that
the current situation for the US and other nations with higher debt to GDP
ratios is unsustainable. Key to this
reasoning is that rising debt levels divert savings from financing economic
growth, and therefore a government’s ability to service it from rising taxes is
undermined. At the Rubicon level of 90% and over, median growth rates in the
countries sampled fell by 1%, and their average growth rates by “considerably
more”. It is entirely logical that a government forced
to tax its private sector excessively in order to pay debt interest will
restrict economic potential overall.
It turns
out that the Reinhart-Rogoff report severely understated the problem by
reporting early. Their 90% debt to GDP Rubicon has been left behind
anyway, with government debt to GDP ratios around the world in excess of 100%
becoming common. In the case of the US, total Federal debt, including intra-governmental
holdings, is currently over 105% and rising. The Congressional Budget Office is
forecasting substantial budget deficits out to 2028, adding an estimated
further $4.776 trillion in deficits between fiscal 2019-23, or $9.446 trillion
between fiscal 2019-28.[iii]
This
assumes there is no credit crisis, so for those of us who know there will be
one during the next ten years, these numbers are far too optimistic. Accordingly,
we should look at two possible outcomes: first,
a best case where price inflation continues to be successfully
managed with a target rate of two per cent, and a second base case
incorporating an estimate of the effects of the next credit cycle on
government finances.
Best
and base case outcomes
Our best-case outcome of controlled price inflation is
essentially that forecast by the Congressional Budget Office. Working from the
CBO’s own figures, by 2023 we can estimate accumulated debt including intra-governmental
holdings will be $26.3 trillion[iv] including our estimated interest cost
totalling $1.3 trillion[v].
That is our best case. Now let us assume the more likely
outcome, our base case, which is where the effects of a credit cycle play a
part. This will lead to a fall in Federal Government
receipts and an increase in total expenditures. Taking the last two
cycles (2000-07 and 2007-18) these led to increases in government debt of 59%
and 239% respectively. Therefore, it is clear that borrowing has already been
accelerating rapidly for a considerable time due in large measure to the destabilising
effect of increasingly violent credit cycles. If the next credit cycle only
matches the effects on government finances of the 2007-18 credit cycle,
government debt including intra-governmental holdings can be expected to rise
to $51.4 trillion by 2028. This compares with the CBO’s implied forecast of
only $34 trillion of government debt over the same time-frame and makes no
allowance for the cyclical effect on interest rates. More
on interest rates later.
Because
the underlying trend is for successive credit cycles to worsen, the $51.4
trillion figure for federal Government debt becomes a base figure from which to
work. But there are still considerable uncertainties, particularly over the
form it will take.
However, it would be complacent to expect an outcome of relatively low
price-inflation to be simply repeated at a time when government finances are
even more dramatically spiralling out of control. Last time
the threat was systemic to the banks, but next time the
inflationary consequences of government finances is likely to be the dominant
problem.
The
explosion in the quantity of government debt that our analysis implies has many
economic consequences. In
the context of our rough analysis we should comment on the point made in the
original Reinhart-Rogoff paper, which is that the reduction in GDP potential
that results from an increase in the ratio of government debt to GDP is likely
to be significant. The growth in Federal debt that replicates the post-Lehman
experience will leave the US Government with a debt to GDP ratio of over 170%.
The CBO assumes GDP will increase by 48% by 2028 to $29.803 trillion, whereas
our cyclical case is for debt to rise to $51.4 trillion. While both these
figures should be taken as purely indicative, clearly, US Government debt will
increase at a faster pace than the growth in GDP and will strangle economic
activity.
If the
purchasing power of the dollar declines more rapidly than implied by the CBO’s
assumed 2% price inflation target, interest payable on Federal debt will in
turn be sharply higher than expected, compounding the debt problem.The Federal Government will face a
potentially terminal debt trap from which there can be no escape.
READ THE NEXT:
Flows v
purchasing power
In the source below:
…
===
SHORT NEWS
Submitted by Charles Hugh Smith from Of Two
Minds
The other deflationary pressure is the stagnation of wages for the bottom
90%.
See Chart:
…
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2-
"US equity, bond and commodity markets appear to be pricing in on
average close to 60% chance of a US recession over the coming year
compared."
See image at:
3-
Near the culmination of all great stock market bubbles, at least one of
that cycle’s supposed luminaries suffers an epic collapse because of fraud.
===
US
DOMESTIC POLITICS
Seudo democ duopolico in US is obsolete; it’s full of frauds
& corruption. Urge cambio
Senate Bill
1 of 2019 cites defending allies Israel and Jordan, as officials say "no fixed deadline" for troop
withdrawal.
[[ “Rebuke”
means ‘disapprove’.. this is not the case here: Dems-Reps have similar ideas ..
they are twins in politic s with
different body. Both parties represent
big Corp with anti-American interests..
Dems +Reps are in favor of WW3 &
Syria is 1 place it could start. ]]
===
It appears the next fad in virtue
signaling in the corporate world may be gun control...
[[ If they’re afraid of
Constitut rights (guns) is because they
are afraid of American People.. If so, they represent the oligarchy, not the
Nation.. Then, they should be removed from power via impeachment.. Do not
expect the other party will fight for
real impeachment.. They both represent similar oligarchical groups, not to
America. The Nation has to force impeachment
via REFERENDUMS town by town, state by
state.. Do not accept the stupid idea that arms confiscation will prevent
Children to use them.. It’s the context of violence (war-mongerism and open policies in favor of
wars abroad plus de FED spending in manufacturing weapons & selling them)
.. that create the environment for children to act. They will do it worse if
FED-state personnel shoot home owners during their search for guns. IF they
come to your house searching for arms..
request Judge-Court order.. IF they
trespass your property by force.. do not shoot them.. use your cameras instead
.. HIDE YOUR guns NOW.. or do it immediately after they approve their confiscation. Guns are only for self-defense
.. If they shoot first.. then you have to use it too.. 1st: know
which station they come from. 2nd never ever act as single
individual. Before acting in self
defense-retaliation call a lawyer, friends and family-adults. ]]
===
US-W ISSUES (Geo Econ, Geo Pol &
global Wars)
Global depression is on…China, RU, Iran search for State
socialis+K-, D rest in limbo
"This process of
controlled demolition needs a considerable distraction so that the
central banks and the globalists ultimately avoid blame for the painful consequences of the
event..."
===
"Mr. Jeffrey and his State Department team have created a color-coded map of northeastern Syria in an
attempt to negotiate a power-sharing plan that could avert a costly
Turkish-Kurdish fight in the area."
See Map:
===
"I
think we will make a deal with China. I really think they want to. I think they sort of have to."
===
It happens also with the INCA Empire from Peru: 5 Cent
before Christ
Meet the
"new economic hitman" on the block.
See Chart:
…
===
"China
is increasing its military training so that it has the best solutions for the
worst outcomes, either related to the US or across the [Taiwan] strait."
===
SPUTNIK and RT SHOWS
GEO-POL n GEO-ECO
..Focus on neoliberal expansion via wars & danger of WW3
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SHOWS RT
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NOTICIAS IN SPANISH
Lat Am search f alternatives to neo-fascist regimes &
terrorist imperial chaos
REBELION
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Guerra de cerdos y política tribal Jorge Majfud
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La Carta Dem de la OEA contra el Sandinismo Atilio Boron
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ALAI NET
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RT EN ESPAÑOL
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COUNTER PUNCH
Analysis on US Politics & Geopolitics
Anthony
DiMaggio The
Shutdown as Fascist Creep: Profiling Right-Wing Extrem in Am
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Nicolas
J S Davies The
Hidden Structure of U.S. Empire
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Louis Proyect Sanders,
Warren and the DSA
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Nick
Pemberton Will
Bernie Sanders Will Be Our President in 2020?
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Graham
Peebles Tribal
Nationalism vs Global Unity
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Stephen
Zunes Despite
Everything, the US Troops Should Leave Syria
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Paul Street “If
Bernie Runs?” Wrong Question
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DEMOCRACY NOW
Amy Goodman team
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PRESS TV
Resume of Global News described by Iranian observers..
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