Monday, May 21, 2018

Train Crash Ahead


John Mauldin is predicting:
1. A global recession by 2020.  He puts the odds at 60-70%.
2. When the recession starts, the deficit will quickly jump to $2 trillion+ per year.
3. Within 4 years of the recession's onset (i.e. by 2024), the total government debt will be at $30 trillion.
4. The total government debt will hit $40 trillion by 2029.
5. The Federal Reserve's balance sheet will hit $20 trillion, as it injects money into the system.
6. A "Great Reset" where all the major central banks in the world will erase all debts.

I can totally see this happening, except for the Great Reset.  We will see the debt hit $1 quadrillion before that happens.

In any event, we have about 2 years max of relative normalcy until another great recession hits.

Monday, May 14, 2018

Theory of Money

Just some random thoughts.  What is money?  This question isn't as easy as it sounds.  Land is not money, nor is gold, bitcoin etc (but maybe someday).  These are the types of money:

1. Fed dollars.  Cash in your pocket, obviously.
2. Money on deposit with the Fed.  The average person can't open a checking account at the Fed, but at the risk of oversimplifying, assume that every bank does as well as the US government.  This includes "excess reserves", which are basically locked up and can be considered similar to a CD or bond.
3. US Treasury bonds.
4. Bonds from Freddy Mac and Fannie Mae.
5. Checking accounts at banks.
6. Credit card debt.
7. Loans from banks (but need to offset checking accounts balances).
8.  Stocks and bonds of mega-corporations (i.e. those with a market value of at least $250 billion).
This isn't a complete list but these illustrate the idea.

Who can create money?  All of the issuers of the above.  Individuals create money when they charge their credit cards or use a line of credit.  Banks create money when they make loans.  Mega corporations create money when they issue bonds.  However, all these types of money are temporary (until the loan is paid back) and require some sort of collateral (with the exception of credit cards, but those imply a lien against future earnings).  Even the Federal Reserve dollars require collateral, in the form of treasury bonds.

During the normal business cycle, money is created primarily by banks and businesses.  (Assume for the moment that there is no government deficit spending during this period).  The business cycle is unstable because there isn't enough money to pay both the interest and pay back the loans, and defaults and bankruptcies destroy money.  Money becomes more valuable and is deflationary as loans are paid back or defaulted on.

To counteract this deflation, the Federal Reserve can step in and buy treasury bonds, thus creating more high-powered money in a process called quantitative easing, lend the money to banks at 0% interest, which can then lend out more money at low rates to businesses in an attempt to prime the pump and restart the business cycle.  However, this also requires confidence in the future.  The high-powered money is also deflationary because of interest and maturing treasury bonds.

Which leads us to the U.S. government, specifically the Treasury Department, as the ultimate source of money.  When they issue bonds, they are unsecured.  They are really only backed by faith that they will be able to issue more bonds in the future. (That and taxes).  It is the issuance of bonds that creates the money, not the deficit spending, although the spending distributes the money through the economy.  (Maybe they could issue bonds and do something productive with the money instead?)

Which leads to the insane conclusion that in our economic system the US government is the source of all wealth.  We need more debt and more deficit spending, (although maybe the spending could be done more wisely).  And how long can this state of affairs continue?  Apparently forever (think trillions, quadrillions, quintillions, etc) as long as the rate of increase in the debt is restricted to a certain rate so it doesn't get out of control.  And maybe recessions in this system are planned or at least allowed in an attempt to put a lid on the spiraling hyperinflation.

Tuesday, May 1, 2018

Debtwatch April 2018

On Mar 31, 2018, the debt held by the public was $1.543 x 10^13.

On Apr 30, 2018, the debt held by the public was $1.534 x 10^13, a decrease of $93 billion or 0.6%.  This is probably because lots of people pay their taxes in April.  This is probably the last time the debt will ever decrease, so enjoy it while it lasts. 

Saturday, April 28, 2018

Debt is the Root of All Evil

What keeps us from revolt? To what do we bow our daily collective heads in fealty to?
The answer is Money.
What we call “money” today was a wicked genius invention that popped up right around the same moment in history when humans were working out other keen, life-altering inventions such as clocks, and printing presses.
“None are so hopelessly enslaved as those who falsely believe they are free.”
~ Goethe
A person in debt is a person controlled. But they think it was their own decision. Hence the Goethe quote above. A nation in debt is a nation controlled. The debt trap is especially insidious, and it relies on the illusion of free will combined with the full weight of ‘the law.’
By attaching a stated rate of interest to a loan, a person’s future output was yours if you were the holder of that note. What a stroke of pure (evil) genius! Set the rate high enough and the term long enough and you can get all of your money paid back plus another 100% of that amount or more, every bit of which was actually the future productive output (i.e. time) of the borrower.
Conjure up a promissory note out of thin air and then you get to skim the true productive output of that person, regardless of outcome. Whether they succeeded or failed in the endeavor, you still won. If they paid you back, the win was obvious. If they failed you often had collateral on the back end protecting your “investment.” No matter what, you won.
And even if that wasn't the case? Well, you lost the amount of effort on your end that it took to draft up the note. In other words, nothing really.

Friday, April 13, 2018

Are we in an 11 year cycle?

Ok, here is a theory, that we are at a point in the business cycle that matches the previous one, with a 11 year delay.  Let's see if we can prove or disprove it.

Oct 9, 2007:  DJIA peaks at 14,164.
Jan 26, 2018: DJIA peaks at 26,616.   This is about 10.3 years later.

Fed Reserve Rate
June 2006: Fed raises rates for the last time in the cycle to 5.25%.  The first cut is in Sept 2007, to 4.75%
June 2018:  The Fed projected to raise rates to 2.0%, which I speculate will be the last one, because there won't be enough room to raise it more, with the 10 year at 2.75%.  This indicates a 12-year cycle.  (On the other hand, it could keep going for several years).

Housing Market
Summer 2005. "The booming housing market halted abruptly in many parts of the United States in late summer of 2005, and as of summer 2006, several markets faced the issues of ballooning inventories, falling prices, and sharply reduced sales volumes."

Summer 2018.  It is hard to get numbers, but the refinance index seems to have peaked about Jan. 2018 and applications have declined since then. We haven't seen a peak in the housing market yet, but it seems inevitable with rising rates and decreases in financing.  This would indicate a 13-year cycle.

This is obviously still a work in progress.  But it seems like housing will cause the next bust, just like in 2007-2008, and this may occur sooner.  So keep a tight eye on housing news, specifically when the housing market peaks.

Keto Military Diet

Here is a 3-day diet I have invented, based on the military diet, that I will try sometime.  I have omitted the bread, crackers and fruit.  It is almost a fast it is so low in calories.  Here it is:

Day 1 Breakfast: quiche, peanut butter (2 tbl), coffee.
Day 1 Lunch:  tuna (5 oz can)
Day 1 Dinner: meat, any kind (8 oz), can of green beans (15 oz).  Non-fat greek yogurt (5 oz).

Day 2 Breakfast: 2 hard-boiled eggs, butter, coffee
Day 2 Lunch: 4% fat cottage cheese (8 oz), 5 slices of small salami rounds (not lunch meat)
Day 2 Dinner: 2 hot dogs (without bun), broccoli and carrots (12 oz), greek yogurt.

Day 3 Breakfast: cheese (2 oz), 5 salami rounds, coffee
Day 3 Lunch: 2 hard boiled eggs, small side salad w/no dressing or croutons
Day 3 Dinner: 1 can tuna, greek yogurt.

You can add celery and cheese as a snack.

Monday, April 9, 2018

Why a recession is inevitable and it will be caused by the housing market tanking again


We have made our economies fully dependent on banks creating loans out of thin air. Which is a ridiculous model, and as Steve says: “That is no way to run an economy”, but we still have. And if and when home prices start to fall, and fewer people buy homes, the money supply will first stop rising, and then start falling, and we will have the mother of all deflations.

Update:  I keep trying to find patterns and I keep being wrong.  But maybe we are in a 11-year cycle?  I.e. 2018 is like 2007.  So a major crisis in Sept. 2019?

New CBO Projections

The CBO just released their new 10-year budget projections.  I don't find it that interesting.  Yea it shows trillion-dollar deficits that increase each year, and a deficit of $1.5 trillion for the first time in the year 2028.  They are projecting that FY 2018 will only have a $804 billion deficit, and that FY2019 won't reach a trillion, only $981 billion.  Yea, right.  And that net interest will be at 3.1% of GDP in 2028 (which is well below the level at which I freak out).

I am however really interested in two upcoming reports they will issue.  The first is the next Long-Term Budget Projection.  The last one of those they issued was in March 2017, which is like an eternity ago, because so much has happened since then to increase the deficits.  I would like the deficit projections extended out to 20 years and see if the US will still be credit-worthy

The next is the 2018 Report on Long Term Projections for Social Security.  The last was issued in Oct. 2017, so it will be a while until the next one. 

Tuesday, April 3, 2018

Debtwatch March 2018

On Feb. 28, 2018, the debt held by the public was $1.515 x 10^13.

On Mar 31, 2018, the debt held by the public was $1.543 x 10^13, an increase of $278 billion or 1.8%.  

Update:  The interest paid in March was $33 billion per the Treasury, up from $23 billion in February.  This will number will continue to increase exponentially as interest rates rise and the base increases.

Thursday, March 29, 2018

FY 2020 deficit could exceed $2.5 trillion

If there is a recession within the next 2 years, something that is almost guaranteed to happen, the deficit will skyrocket even more.

If one assumes that a recession is likely to arrive within the next two years, and that such a recession will reduce government revenues and increase spending by at least 20%, the federal deficit would easily exceed $2.5 trillion in fiscal year 2019 or 2020, not the $1 trillion currently being forecast.

Congress and the Whitehouse have chosen to greatly increase the federal deficit. As a result, if a recession arrives in the next couple of years, the government will be in a weak fiscal position to respond with stimulus. Even if a recession doesn’t arrive, the government is ensuring that an ever increasing percentage of tax revenues will go towards debt interest expenses and not actual government services and programs.

Wednesday, March 28, 2018

Dystopia in Songdo

'Songdo is a new kind of city: Completely artificial, painstakingly designed, without a hint of decay or poverty, and nearly empty. It's a human desert'. 'There is an oppressive, Chernobyl-like emptiness here. The shallowness is awesome, in both the modern and traditional sense of the word; you can almost feel that these huge buildings are only years away from being completely abandoned.'

But it appears that like the UAE’s Masdar City, another perpetually unfinished ‘international’ ‘green’ ‘futuristic’ gated community, Songdo may be just one more city on its ways to becoming one more exhibit in the Museum of Futures That Never Were.

This also reminds me of other dytopian cities:  BrasiliaYujiapu, and Ordos, Mongolia.

Thursday, March 22, 2018

New Interstates

I don't have time to write a complete article so this will be short.

The Interstate Highway System was mostly completed by 1980.  The original act proposed 41,000 miles of highway, and 40,000 were built by 1980.  And the system was deemed complete in 1992 with the completion of I-70 through Glenwood Canyon in Colorado.  But there are 3 new major interstate highway being built now.

Interstate 11 is being built between Phoenix and Las Vegas, and it may eventually reach Reno in the north and Nogales, AZ in the south.  It is hard to believe it was left out of the original system.

Interstate 69 is partially built and will connect Mexico with Canada.  I think the most useful part of it will connect Houston with Shreveport.

Interstate 14 is mostly across the middle part of Texas, starting in El Paso following I-10, then branch off.  It will eventually go all the way to Augusta, Georgia.

Since we have unlimited money to spend, why not fully fund these? 

Friday, March 16, 2018

Global 12 Stocks

There are 12 stocks which seem to rise head-and-shoulders above the rest.  These are listed here:

G12 as of 3/16/2018

In Shares (M) Price
Total (M)
Rank Symbol Company DJIA 03/16/18 03/16/18 Subtotal 03/16/18
1 AAPL Apple Inc X 5070 178.02

GOOGL-A Alphabet
298.49 1134.42 338,613

GOOG-B Alphabet
47 1134.42 53,318
2 GOOG-C Alphabet
349.84 1135.73 397,324 789,255
3 AMZN Amazon
484.11 1571.68
4 MSFT Microsoft
7700 94.60
5 TCEHY Tencent
9500 59.27
6 FB-A Facebook
2400 185.09 444,216

FB-B Facebook
505 185.09 93,470 537,686
7 BABA Alibaba
2560 200.28

BRK-A Berkshire Hathaway
0.74875 310630 232,584
8 BRK-B Berkshire Hathaway
1340 206.96 277,326 509,911
9 JPM JP Morgan Chase X 3430 115.44
10 JNJ Johnson Johnson X 2680 133.68
11 BAC Bank of America
10240 32.17
12 XOM Exxon Mobil X 4240 75.12

The market cap of these companies is about $6.7 trillion.

Honorable mention:
Samsung (SSNLF)
Wells Fargo (WFC)
Walmart (WMT)
Royal Dutch Shell (RDS-A & RDS-B)

These companies are just dominating their fields to such an extent that they are clearly in a different league then the rest.  Note: I may have made some mistakes in calculation.

$21 Trillion of close of Friday, the US Treasury reported that total US debt has risen above $21 trillion for the first time; or $21,031,067,004,766.25 to be precise.

It hit $20 trillion on 9/8/2017, so this is only a little over 6 months later.  I had earlier seen 9/30/2018 as the date when the $20 trillion line would be breached, so this is 5.5 months early.

If we are spending $100 billion per month, we should get to $22 trillion on about 1/20.2019, by the 2nd anniversary of Trump taking office.

When did we first cross the $10.5 trillion mark?  On 10/30/2008.  So this took about 9.5 years.  So if past trends continue, we should get to $42 trillion on about 10/30/2027.

Monday, March 5, 2018

$1 trillion in interest per year by 2021

Here is a thought:  If the national debt rises to $25 trillion, and interest rates on that jump to 4%, then the annual bill for interest will be $1 trillion.  And this could occur as soon as 2021.

Read this:

We are now ramping up government debt by orders of magnitude at the same time when interest on our mountains of debt will easily rise to 4% in about two years. I come by that number partly from the present rate of interest rise but mostly from the fact that the Fed is moving out of controlling the cost of debt, and will be doing so at a faster rate in the months ahead. (That is, if it stays with the program it has promised; and if it doesn’t, we simply have QE forever.) Mostly I come to it because 4% is the low side of what interest on the debt has historically been when the Fed wasn’t sopping up all government bonds, bills, and notes.
A rise to the low side of normal for government bond interest will likely put interest payments alone on the national debt at a $1 trillion a year by the end of this decade (because the debt will also rise by another $3-4 trillion by then with all new debt being financed at the higher rates and all rolled-over debt being financed at those rates, and most of the US debt is short term, so will roll over soon).
The time (end of 2020), then, is not far off when the entire newly normal trillion-dollar deficit will be consumed just to pay interest on the debt. Whether inflation drives interest up or the Federal Reserve’s unwind or the Republican’s new normal of trillion-dollar annual deficits or the president’s proposed fiscal stimulus plan, the concern that is shaking markets is ALL about lethal levels of interest coming to our already monumental mountains of debt.

My comment:  When this happens we will just up the deficit to $2 trillion per year.  Why not?  We just established that the government is the source of all wealth and its ability to create wealth is unlimited, so everybody will get richer.  And why stop at $2 trillion, why not $3 trillion.  That would be enough to give everyone a Universal Basic Income.  And then there would have to be cost-of-living-adjustments on the monthly non-welfare checks everyone would receive.

New crytocurrencies from Marshall Islands and Cambodia

The Venezuelan Petro appears to be a total fraud even if it isn't banned by the US Treasury.  But two new challengers appear for the title of the first successful official national cryptocurrency.

The Republic of the Marshall Islands is preparing to issue the Sovereign (SOV).  It is unknown what technology this will be based on, whether on Ethereum or something else.  This will be legal tender.  The Marshall Islands currently uses the US dollar as its official currency and this would circulate alongside it.

Cambodia will soon release its new digital currency, to be called the Entapay.  It is aiming at replacing Visa as a payment mechanism.

I don't intend to comment on every single one of these, since there are dozens every day, but I may comment on some of these going forward.  I don't expect these two to be wildly successful, but I think that some country like India or Singapore will have successful cryptocurrencies, which other countries will then copy.

Saturday, March 3, 2018

The government is the source of unlimited wealth

Read:   The Radical Left-Wing Theory That the Government Has Unlimited Money

Now read: Martin Armstrong - Hyperinflation Unfolds Only When Public Confidence Collapses

Now, while we at it, read: Monetarily Sovereign

What is MMT?  MMT (modern monetary theory), or Monetary Sovereignty (from Rodger Mitchell) is the idea that the government can create wealth by spending money, specifically by deficit spending. 

What about inflation? Inflation can be reigned in if it gets out of control through increasing interest rates.  The Fed wants inflation to be about 2%, and it hasn't been 3% or higher since 2007.

How long can this state of affairs last?  Forever, apparently, unless public confidence in the system breaks down.

But what about interest on the debt?  It gets paid to rich people, and we can just jack up taxes on rich people to pay for the interest.

But what about rich foreigners who buy the debt, collect interest, and don't pay taxes?  Well, they are stupid because they will never get paid back in the same dollars, instead they will get paid back in depreciated dollars. The interest is just to compensate for the loss of purchasing power, and it may not even do that.

What is the purpose of taxes?  The purpose of taxes in this system is not to raise revenue, because the government doesn't not need any revenue at all, it can just digitally create money at the push of a button.  The purpose of taxes is: A) to keep inflation under control, and B) wealth redistribution.

Isn't this madness?  Absolutely.  But we have already past the point of no return, which was Rand Paul attempting to filibuster the spending bill on Feb. 8.

We are on a roller coaster ride and there is no way off.  You might as well enjoy the ride.  Unlike Martin Armstrong, I don't believe this will work in the long run.  It certainly will work in the short run (the next 10-15 years).

So let's try it.  But at some point, which I think will be in the mid-2030's, the whole inflation thing will turn into hyperinflation and the whole system will break down, like what is happening in Venezuela right now, but probably not as extreme.

Friday, March 2, 2018

Debtwatch February 2018

On Jan. 31, 2018, the debt held by the public was $14.80 x 10^12.  Interest paid on the national debt for January was $27.8 billion per the monthly treasury statement.

On Feb. 28, 2018, the debt held by the public was $15.15 x 10^12, an increase of $350 billion during the month and an increase of 2.4%.

Update:  For interest, I will use the number on the 1st page of the monthly treasury statement.  So for January 2018, it was $25 billion.  For February 2018, it was $23 billion.  This is actually probably the most important number to watch.  I expect this number to skyrocket to as much as $100 billion per month within the next 3 years.

Tuesday, February 27, 2018

$15 trillion in Debt Held By the Public

The US finally hit $15 trillion in Debt Held By the Public on Feb 15, 2018.  The exact number was 15,018,135,646,693.34.  This is actually a bigger milestone than the $20 trillion National Debt because that includes the number held by the Social Security trustees, not that that isn't real debt, but it represents wealth to the holders, which are the general public. 

Many many moons ago in 2013, in this really old post, I predicted that a "Junior Day of Reckoning" would occur when we hit $15 trillion, and that it would occur about December 31, 2015.  So it took 2 years longer than I had predicted at that time.  And it doesn't seem like there is any sort of wall, other than the fact that spending is suddenly skyrocketing.

When did we cross the $7.5 trillion debt held by the public number?  On 9/15/2009.  So it took exactly 8 years and 5 months.  If it takes 8.5 years to double, we should be at $30 trillion held by the public on 8/15/2026.

We may need to start using floating point notation to represent it.  So the debt held by the public in floating point notation is $15 x 10^12.

I wonder when the deficit will first cross $2 trillion per year.  Maybe in FY 2020.  But that is just a wild guess.  We know that in a recession that government revenues drop and spending increases.  $5 trillion in spending and $3 trillion in revenue doesn't seem out of the question in a couple of years.

Tuesday, February 20, 2018

Venezuela launches the Petro


Venezuela is beginning to sell 82.4 million Petros, which is a crypto-currency, each one tied to the price of a barrel of oil.  It will have the currency code PTR.  This is the first national crypto-currency, but it won't be the last.  I predict that eventually every country will have its own, except for the US.  In the US, each major bank and corporation will have its own.