TRUMP TRAMPED & US ECON
DEBACLE
explained by the Economist
Chris Hamilton
The current and future situation is
one of collapsing credit and collapsing money creation as the growth of
deflationary elderly overwhelms inflationary working age growth...
THE STORY I'M NOT HEARING...
July 31...Debt Ceiling Deal - July 31st of
this year, Senate Democrats carried President Trump's budget deal eliminating
the debt ceiling through July 31st of 2021. This after a majority of
Trump's House Republicans voted against the budget deal but House Democrats
overwhelmingly passed it. And thus the debt ceiling was no
more. Since July 31st, the Treasury has
issued over $1 trillion in net new debt but that is just the start.
July 31...Federal Reserve begins series of interest rate cuts - On July 31st, the Federal Reserve begins
cutting rates and has cut rates from 2.4% to 1.55% or a 35% reduction on the
cost of overnight intra-bank lending, the foundation of credit.
August 21.. Federal Reserve restarts QE -
Since August, the Fed ceased quantitative tightening (QT) and restarted
quantitative easing (QE). The Federal Reserve balance sheet has expanded
by over $300 billion in short order, with an $180 billion increase in
Treasuries held.
Excess Reserves Not Restarted - With all the new QE, hardly any of it has been added to bank excess
reserves...just a paltry $16 billion out of the $306 billion in new currency
digitally conjured.
Direct Monetization - That is $290
billion in new dollars directly in banks hands...and banks do what banks do,
which is leverage those dollars by 5x's to 10x's (or more), resulting in...
Asset Explosion -
Using the Wilshire 5000 as a
proxy (as it represents all publicly traded US equities), US equities have risen
$2.42 trillion over the 4 month period as all the new digitally conjured cash
has been passed to large banks for the "assets" they held...or about
a 8.5x the quantity of new "not QE" and "not excess
reserves".
WHAT DOES LOOK LIKE?
In
dollar terms over the past four months, US debt up over $1 trillion,
Federal Reserve held assets up over $300 billion, Fed held Treasuries up $180
billion, Excess Reserves up only $16 billion, direct monetization of $270
billion...resulting in an increase of $2.4 trillion in
the Wilshire 5000 market weighted capitalization (chart below).
See Chart:
Since
July 31 2019 –Change, Trillions S’s-
In percentage terms in just
four months, total US debt is up 4.8%, Federal Reserve
held assets up over 8%, Fed held Treasuries up
8.6%, excess reserves up just 1.2%, direct monetization up over 18%, and
equities up over 8% (chart below).
See Chart:
Since
July 31-2019 –Change Percentage-
Federal
Funds rate was also reduced by 35%.
SUMMARY
Trump
and the Democrats agreed to spend without limits, Trump and the Federal
Reserve agreed to QE4 and mainlining the digitally
created cash into the economy (errr...financial assets) via direct monetization. THE RESULT has been to massively enrich the few who own the vast majority of all
assets which are surging upwards and pass all the debt along to the
working stiffs.
Trump
is truly an evil genius...Dem's are truly self
serving dolts...and the Fed is truly the best
central bank money can buy. Or the Fed is the evil genius, Dem's
still self serving dolts, and Trump is the best president money can buy.
Either way, Trump, the Democrats, Republicans, and the
ultra-wealthy are laughing all the way to the bank. And the vast majority of Americans have been sold into debt
slavery.
POST SCRIPT - CONTEXT
The chart below details why this is the greatest asset bubble in modern history.
The chart shows the market value of all household
assets (stocks, bonds, real estate, etc.) as a
percentage of disposable personal income (simply put, the value of all
assets held by US citizens versus their total national income that may be
invested or saved after all taxes are paid). As the chart below details, as rates go up, asset valuations go down...and vice
versa. And never have asset valuations been so far beyond underlying
incomes to support those valuations as now
See Chart:
In
blue: HH Assets as % of DPI. In Black: Fed Funds
Since 1981, household assets as a percentage of disposable personal
income versus federal funds rate with primary sources of debt detailed below.
The breakdown of mortgage debt and surge of federal debt since 2008 are not so
hard to see. Plus the Federal Reserve balance
sheet is included as those assets will only be increasing from here on out
See Chart:
DEBT
CREATION BY PERIODS,
1960 through 2000, 2000 through 2008, and 2008
through 2019. Relatively stable corporate debt creation, collapsing
mortgage debt, and surging federal debt. And collapsing
mortgage debt and surging federal debt is only just getting started, because...
See Chart
Sources
of US debt by periods
And
finally, why mortgage debt won't be rising anytime soon and all debt
creation will be up to the federal government. The chart below shows the
annual change in young (working age) versus elderly...a surging population of elderly versus huge
deceleration of growth among the working age population.
See Chart:
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