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Marching toward a debt crisis


Muda69

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9 hours ago, DanteEstonia said:

They do; one of those places was Andre Agassi’s charter school.

Another Democratic Socialist, like yourself:  https://www.opensecrets.org/news/2011/09/rick-perry-bundles-up-us-open/

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Another tennis great whose influence extends beyond the courts and into the world of money-in-politics is Andre Agassi. Agassi has donated more than $170,000 to federal candidates and committees since 1995, when he made his first federal level donation, according to the Center’s research. Almost all of this financial generosity has been directed toward Democratic candidates, especially those in his home state of Nevada.

Beneficiaries of Agassi’s financial largess have included Senate Majority Leader Harry Reid (D-Nev.), the Democratic Party of Nevada and Rep. Shelley Berkley (D-Nev.). Agassi’s top beneficiary has been the Democratic Senatorial Campaign Committee, to which he has donated $62,500, including a $28,500 gift in 2007.

 

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The Fed Has Gone Nuts. And It Can Get Worse.

https://mises.org/wire/fed-has-gone-nuts-and-it-can-get-worse

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With its $700 billion bond-buying expansion in response to the COVID crisis, the Federal Reserve has thrust itself into the limelight. Like a sixteen-year-old with a credit card, the Fed is salivating over what money-printing powers it shall seize next. How is the prudent investor to respond?

First, what the Fed’s already done: pushed interest rates to zero and expanded into “unlimited” buying of assets, now reaching to corporate bonds and local government bonds. These bring the same concerns we had in 2008: trillions in new money to dilute the spending power of current savers, along with the risk of “moral hazard” where government covers the losses for corporate, and government, irresponsibility.

What’s more concerning is what the Fed might do next. Proposals are floating up for four very corrosive measures: negative interest rates; directly subsidizing bonds; writing Fed checks for corporate equity or for a universal basic income up to $72,000 per year; and letting poor countries effectively print their own US dollars.

All four may be bonkers, but they carry significant political risk, because they enjoy support not just from the redistributionist left, but also “business conservatives” happy to raid our future to make their pain stop.

Why bonkers? Even champions concede that negative rates would need compulsory rules such as declaring worthless all serial numbers ending in zero, or forcing Americans to use “crypto” dollars that automatically devalue. Subsidizing bonds by targeting interest rates would permanently suck capital from the private sector into unlimited local government spending. Buying corporate equity risks turning every business in America into a government-run entity, a road Japan is already well along. Meanwhile, printing up $72,000 per family per year, or letting Guatemala print US dollars at will, is the kind of thing one expects from crash-the-dollar Bitcoiners, not from Congress and central bankers.

The common thread of all these proposals is to triple down on the money printing and gamble covering of 2008—spreading unlimited dollars to, especially, big business and governments, the price of it all to be paid by those unwise enough to either not work for the government or to not have a good lobbyist.

Alas, the joy of all that generosity is immediate but the pain is paid over decades, as savers are diluted by the new trillions. This fear was muted in 2008, because the ensuing recession lasted so long that new money was largely saved. If, as some expect, COVID leads to a V-shaped recovery, that inflation may come with a vengeance this time.

Beyond inflation, this level of spending risks permanent distortions in capital markets—a permanent siphon of trillions from the private sectors and individuals to the government and politically favored sectors. All that new money artificially props up prices, and the longer they remain propped up, the longer capital flows towards the prop. Even after the crisis, no politician, much less Trump, will want to be the guy who takes away the punch bowl.

And this is already becoming a supersized punch bowl. We can only imagine the pressure to keep propping, say, local government borrowers, again becoming a permanent siphon on the productive economy.

Historically pandemics have a limited impact on long-term growth. After all, as Austrian theory emphasizes, an economy is made of entrepreneurs forever seeking new desires to satisfy. This process does not stop just because a disease temporarily shutters businesses. There is a hit to wealth, yes, but the fundamental workings of an economy are not affected by pandemics any more than by an earthquake or a bad winter.

That said, what can affect the fundamental workings of an economy is radical policies that impose new burdens on producers, whether in the form of new regulations or new taxes to pay for a raft of handouts. We can see the difference in America’s last two pandemics, in 1957 and 1968. When policy was prudent, in 1957, recovery was very fast. When policy was interventionist, as in 1968, the pain lasted for a generation, through the 1970s and into the 1980s.

As for inflation, Austrian models of money demand suggest little risk during the recession itself, as excess money is saved, but a raised risk if we do get that V-shaped recovery and cash savings are spent. And, of course, stagflation becomes a real possibility if the government follows the 1970s playbook of economy-wrecking reforms while pumping out all that fresh cash.

It's still possible for us to get out of this relatively economically intact, but only if we reign in the empire-builders in Washington now.

 

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The Crazed Trillion Dollar Coin Proposal is Back

 
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Congresswoman Rashida Tlaib of Michigan has a big idea, almost Trumplike with a T.

Her proposal to save us from the Coronavirus and economic collapse involves giving every American $2,000 in a pre-loaded debit card, to be followed by additional $1,000 monthly recharges until the economy recovers (aka in perpetuity). This is simply a version of universal basic income schemes already proposed by many, and hardly noteworthy coming from a left-progressive. 

But her legislation has a big twist when it comes to funding it: trillion dollar coins!

Funding the Program

This is an old Paul Krugman idea from a few years back, and it effectively mimics the arguments of modern monetary theory supporters and old-fashioned Greenbackers: because the US federal government is sovereign, it can print (directly or indirectly) infinite amounts of money to pay its bills. Bankruptcy or insolvency is not an issue, and hey, why would anyone not want US dollars? 

In fact, why not mint twenty four $1 trillion coins and pay off the entire US Treasury debt today?

Notice the allure of the almost mystical platinum coins, presumably housed in a super cool safe somewhere at the Treasury Department or US Mint. We could even go visit them. like the Constitution! Even Krugman and Tlaib on some level understand the appeal of  "real" coins, in tangible physical form—and why the exact same scheme in purely digital execution would be a tougher sell politically. People still think of money in physical terms.

What will it take to get through to these knuckleheads that more money and credit does not mean more goods and services in the economy? That production precedes consumption? That incentives matter? Magical thinking will be the death of us.

Indeed it will.

 

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21 minutes ago, DanteEstonia said:

How about: 

Sandia National Labs uses its super-computers to mine Bitcoin, and then the Feds sell it on the open market. The proceeds would then be split between paying off the debt and a COVID19 bailout.

As of March, 4, 2020 the total value of all Bitcoin was "only" about $160 billion U.S. dollars,  a drop in the bucket compared to the U.S. federal deficit.    Also there is only a finite number of bitcoins that can be mined.

https://www.investopedia.com/tech/how-much-worlds-money-bitcoin/

https://blockgeeks.com/how-many-bitcoins-are-there/

 

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How Big Will These Federal Programs Get? No One Knows.

https://mises.org/power-market/how-big-will-these-federal-programs-get-no-one-knows

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When was the last time the government delivered both on time and under budget? In the case of public bailouts, it seems every week brings more program expansions. We can only speculate as to how big the Main Street Lending Program (MSLP) and the Paycheck Protection Program (PPP) will be by the time we get out of the Great Lockdown.

Last Thursday, after reviewing 2,200 public comments regarding the MSLP, the Fed decided to lower the minimum loan amount from $1 million to $500,000, allowed lenders to retain a 15 percent rather than 5 percent share for certain loans, and increased eligibility to companies with an annual revenue of up to $5 billion instead of $2.5 billion. The $600 billion facility still has yet to open. But when it does, and if it gets fully funded, it will expand the Fed’s balance sheet by approximately 10 percent.

The PPP could also expand the balance sheet by this amount, considering that the program started at $349 billion and has already grown to $670 billion. The same day as the MSLP release, it was announced that the PPP would expand to work with smaller nonbanks such as those in the farm credit system and community development institutions. The April 27 to May 1 US Small Business Administration Report showed that in the second round of funding there were over 2 million applications approved for $175 billion. This means that there is still a couple hundred billion dollars left which should be exhausted shortly. Given the number of approvals for these forgivable loans, would anyone be surprised if the program were expanded for a third time?

We can only wonder. But as a CNN interview with Larry Kudlow revealed, the top economic advisor to the president said that they might consider getting additional money for the PPP since:

This has been an extremely popular and effective program, no question about it. You know, keeping folks on the payroll is so important….we will be looking at that.

The Fed’s most recent balance sheet update shows that only $19 billion from the PPP Liquidity Facility has been utilized thus far; therefore, we will continue to monitor this amount. Unfortunately, it could reach $600 billion in the months ahead. Both programs are unique because the public will be able to directly participate compared to other programs, in which most cannot, such as various Fed asset purchases, lending, and bond programs.

However, a third program might include Main Street as well. This too has been expanded as of last week: the $500 billion Municipal Lending Facility (MLF). The population requirements were lowered to accept cities with 250,000 residents (formerly 1 million) and counties with 500,000 residents (formerly 2 million). This may spawn more grant programs and other “investments” that could sweep the country and trickle down to members of the public.

Between the maximum capacity of these three programs, the Fed may contribute a $1.7 trillion increase to the money supply. How big the balance sheet will be by the time life returns to normal is anyone’s guess. Also keep in mind that the effect of the banks later pyramiding this money is rarely ever discussed. Nevertheless, all this debt raises another interesting question: How will we pay this money back?

The Wall Street Journal recently posed a similar question to St. Louis Fed president James Bullard. When asked about “the inevitable day of reckoning,” he replied:

We’re borrowing and we’re gonna have to pay that back in the future, so our future tax burden is that much higher. But can we handle it as a nation? I think we can.

Should we take the advice of one of the most respected central bankers in the country? After all, we’ve been told that it was the Fed that brought us out of the last financial crisis. Surely, they can do the same thing again, only this time on a much larger scale…

 

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The Next Coronavirus Stimulus Bill Is Here. It's a $3 Trillion Spending Plan That Bails Out States and the Post Office.

https://reason.com/2020/05/12/the-next-coronavirus-stimulus-bill-is-here-its-a-3-trillion-spending-plan-that-bails-out-states-and-the-post-office/

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Another stimulus bill could be on its way through Congress by the end of the week, as House Democrats on Tuesday announced plans for $3 trillion in new spending to combat the economic consequences of the COVID-19 pandemic.

The new $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act) would nearly double the $3.6 trillion in stimulus spending already approved by Congress since mid-March—and that's after Speaker of the House Nancy Pelosi (D–Calif.) stripped out about $1 trillion in additional spending requested by various lawmakers, Politico reported. The new bill includes another round of stimulus checks for all Americans, funds additional coronavirus testing, and spends billions to bail out states and government agencies straining under pension debt and a collapse of tax revenue due to the coronavirus.

In its current form, it would surpass the $2.2 trillion Coronavirus Aid, Relief, and Economic Recovery Act (CARES Act), passed in late March, as the largest stimulus spending bill in U.S. history. The Treasury has already borrowed more than $3 trillion in just three months, and the new proposal will certainly add to that total.

The draft of the bill released Tuesday includes a $25 billion bailout for the cash-strapped U.S. Postal Service, which could lose as much as $13 billion this year and is on a fiscally unsustainable path.

The HEROES Act also contains $540 billion in aid for states and $375 billion for local governments. That's in addition to the $150 billion relief fund for states established by an earlier stimulus bill.

The bill also includes another round of stimulus checks for all Americans, with payments capped at $1,200 for individuals and another $1,200 per dependent, with a maximum of three dependents allowed. Those payments will be means-tested in a similar way as were earlier payments authorized by the CARES Act. The HEROES Act also incorporates a Democratic proposal to provide $100 billion in new funding to a Housing and Urban Development program offering assistance to renters.

The 1,800-page bill would also extend the boosted unemployment payments authorized by the CARES act through January 2021. Those extra $600 in weekly unemployment payments are meant to soften the blow for laid-off workers at a time when the unemployment rate has spiked to 14 percent and is likely to go higher. But the added unemployment payments are also likely to make reopening the economy more difficult, as workers may be hesitant to return to their jobs as long as the boosted benefits remain available.

The HEROES Act also includes some provisions that seem unrelated to the public health and economic crises unleashed by the pandemic, like a provision that would temporarily reinstate the state and local income tax deduction—known as the SALT deduction. That deduction, which primarily benefits wealthy people who live in states and localities with high taxes, was capped by the 2017 federal tax reform law. Restoring the deduction has been on Democratic to-do lists ever since.

The omnibus bill also includes a provision giving marijuana-based businesses greater access to banking. That's a worthwhile (and long-awaited) measure, but another thing that seems disconnected from the stated purpose of the HEROES Act.

In some ways, however, the HEROES Act is already looking like a return to some sense of normalcy in Congress—though "normal" is nothing too great when it comes to congressional spending. The bill has already drawn more opposition than the first three rounds of coronavirus stimulus, which passed quickly and with only token opposition, and is likely to be subject to significant negotiation and rewriting before it is passed.

The Postal Service bailout is one point of contention, with the White House and Republican lawmakers opposing a similar plan in earlier rounds of coronavirus stimulus. The timing of the new bill has also been questioned by Senate Majority Leader Mitch McConnell (R–Ky.), who on Monday said Congress needed to give the previous stimulus spending more time to have an impact.

McConnell has also expressed worry over the mounting levels of debt. "We now have a debt the size of our economy," McConnell said Monday. "We have to take a pause here and take a look at what we've done."

Republicans have mostly abandoned fiscal conservatism since President Donald Trump took office, but the prospect of borrowing another $3 trillion right now might get those embers burning again.

Asked about McConnell's comments, Pelosi told MSNBC's Chris Hayes on Monday night that waiting was not an option.

"We have to put money in the pockets of the American people, recognizing the pain, the agony that they are feeling," she said. "To those who would suggest a pause, I'll say the hunger doesn't take a pause. The rent doesn't take a pause."

The passage of another major spending bill to respond to the economic crisis created by the pandemic seems almost inevitable. If not by the end of this week, then it will probably happen sometime in the near future. The failure of lawmakers to use the economic boom of the past decade to fix America's fiscal problems—the national debt, the Post Office, state pension systems, and so on—has never seemed more foolish.

"We now have a debt the size of our economy."  Don't those words deeply frighten anybody who truly cares about this country, and it's future for our children and grandchildren?

 

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On 5/13/2020 at 4:50 AM, Muda69 said:

The Next Coronavirus Stimulus Bill Is Here. It's a $3 Trillion Spending Plan That Bails Out States and the Post Office.

https://reason.com/2020/05/12/the-next-coronavirus-stimulus-bill-is-here-its-a-3-trillion-spending-plan-that-bails-out-states-and-the-post-office/

"We now have a debt the size of our economy."  Don't those words deeply frighten anybody who truly cares about this country, and it's future for our children and grandchildren?

 

Buy gold, Muda.

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4 minutes ago, Muda69 said:

Are you purchasing gold and burying it in the Nevada desert for safekeeping?

 

I’m storing mine at an undisclosed location I call “Fortress Bobref.” It’s there along with supplies, weapons, and DVDs of every game I ever officiated. I’ll be ready for whatever.

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24 minutes ago, Bobref said:

I’m storing mine at an undisclosed location I call “Fortress Bobref.” It’s there along with supplies, weapons, and DVDs of every game I ever officiated. I’ll be ready for whatever.

Good for you Bob.  Are seeds part of your supplies?

 

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  • 2 weeks later...

The Spread of the Debt Virus

https://www.nationalreview.com/2020/05/national-debt-washington-postponing-frightening-choices/

 

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The current U.S. budget deficit could soon exceed a record $4 trillion. The massive borrowing is being driven both by prior budget profligacy and by a hurried effort by the Donald Trump administration to pump liquidity into a quarantined America.

The shutdown has left the country on the cusp of a self-inflicted economic collapse not seen since the Great Depression.

Americans may soon have to service a staggering national debt of about $30 trillion — nearly $100,000 of debt for every American.

Democrats and Republicans can blame each other, either for spending too much or for too little taxation or both. But both sides will agree that managing such an astronomical debt requires several frightening choices.

One, Americans would be forced to live with permanent near-zero interest rates, or perhaps even negative interest rates.

We are already seeing how the current low interest rates punish those who were thrifty and put away money in savings accounts. Negligible interest rewards those who borrow but forces savers to look for returns in volatile real estate or the risky stock market.

In other words, there would be little interest paid out on the federal debt. The selling point for investors would be that the U.S. at least honors its bonds and debts and is safer than alternative global investments.

America would become a permanent debtor that avoids paying much interest to anyone who lends it ever more money — on the cynical rationale that investors have no other safe place to put their money.

Two, Americans, who are already taxed heavily at the local, state, and federal levels, would simply have to pay even more. Top earners might pay a real tax rate of 60 percent to 70 percent of their incomes to government, with deleterious effects on incentives to create or earn further wealth.

Gasoline prices are at astonishing lows, so some have advocated yet another federal fuel-tax increase, a national sales tax, or a wealth tax on the rich. The problem with constant increases in taxation is the ensuing culture of even greater spending that inevitably follows and the destruction of individual incentive.

Three, the government could make draconian cuts in spending, focusing mostly on entitlements such as Social Security and Medicare, along with defense, where the bulk of federal expenditures are found.

Cutting Social Security and Medicare is usually political suicide. In times of growing tensions with China, Russia, Iran, and North Korea, it would equally be foolish to slash defense spending.

Instead, expect some sort of reductions in Social Security benefits for high-income Americans, along with higher Medicare deductibles for everyone.

Four, the government could fall into the bad habits of the 1970s and simply expand the money supply, fuel inflation, and pay down the debt with funny money. We would then likely experience the baleful consequences that a prior generation faced with stagflation and curative but staggeringly high interest rates during the Nixon, Ford, Carter, and early Reagan administrations.

Rather than fooling with interest rates and the money supply, a mixture of increased revenue and spending cuts seems wiser. Yet both are far harder to enact politically than just letting the Federal Reserve Board adjust national liquidity and interest.

Five, the government could hope that new deregulation and more tax incentives might spur GDP growth of 3 percent or more per annum and thus “grow” our way out of deficits by radically expanding the economy. Such optimism is frequently voiced but rarely has prevented large budget deficits.

A decade ago, the bipartisan National Commission on Fiscal Responsibility and Reform, headed by former Republican senator Alan Simpson and former Democratic official Erskine Bowles, charted a pathway out of debt. The commission outlined a holistic plan of gradual cuts and revenue increases. Its wise recommendations found little to no political support.

In the first two decades of the 21st century, the United States has faced three existential crises. The first was the 9/11 terrorist attack on the World Trade Center and the Pentagon, which prompted a global effort to fight radical Islamic terrorism. The second occurred in 2008, when the U.S. financial system and stock market nearly collapsed. The third began earlier this year with the COVID-19 epidemic and a quarantine that reduced the economy to its most shaky state since the 1930s.

During the first two crises, we snapped back the economy with low interest rates, increased government spending, and larger annual deficits — and passed the greater long-term debt to another administration, another Congress, and another generation of Americans.

12

We are postponing another rendezvous with reality. But as we near $30 trillion in debt, what cannot go on much longer soon probably won’t.

 

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  • 2 weeks later...

Alarming Study Finds US Public Pensions To Run Out Of Money By 2028

https://www.zerohedge.com/economics/us-public-pensions-run-out-money-2028-finds-alarming-new-study

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At a moment a number of US public pension plans have barely recovered - if at all from the 2008 financial crisis - now to be hit with continuing economic fallout from the corona-crisis and domino effect of historic unemployment, an alarming report in FT warns that seven major public pension plans are due to deplete their assets by 2028.

"The correction in the US stock market has increased the long-term structural problems across the entire US public pension system, particularly for the weakest funds," FT observes.

debtpensions.jpg File image via Reason/Dreamstime.com

A new, detailed study attempting to forecast the near term struggles of public pensions at the Center for Retirement Research at Boston College found: “Public plans with extremely low funded ratios in 2020 may face the risk of running out of assets in the foreseeable future if markets are slow to recover,” according to researcher Jean-Pierre Aubry.

 

The depletion would impact many hundreds of thousands of Americans and their retirement, assuming a potential slow recovery for the US stock market. 

FT summarizes the Center for Retirement Research's analysis according to the following study highlights:

  • Over 320,000 members of the New Jersey Teachers and Chicago Municipal public pension plans: "A slow recovery for the US stock market could result in Chicago Municipal’s funded position falling from 21 per cent this year to just 3.6 per cent by 2025. This would leave assets to cover just three months of the fund’s retirement payments..."
  • New Jersey Teachers: "...funded position projected to decline from 39.2 per cent to 23.2 per cent over the next five years. By that time, New Jersey Teachers would have assets to cover 19 months of retirement payments."
  • Police and fire departments: "public pension plans of Kentucky and Providence along with Dallas Police and Fire, Charleston Fire and Chicago Police could all end up with less than three years of retirement benefit payments saved as assets."
  • “Chicago has particularly high pension risks. The city has built up very large unfunded liabilities through years of very weak pension contributions,” a senior credit officer at Moody’s.

Of course, the structural weaknesses existed long before the coronavirus crisis, only to be exacerbated in the covid-lockdown domino effect of debt problems most expect to cascade in the next years.    

States nationwide are facing a pension crisis that existed well before the coronavirus economic shutdown ever hit, according to independent reviews of state budgets. https://t.co/IvsgSTevcj

— The Center Square (@thecentersquare) June 3, 2020
 

All of this also suggests increasing heavy reliance on Social Security for retirement - nothing new - but further alarming given all three legs of the "stool" - including private pensions and individual savings, are now at huge risk

So how much of your hard earned money are you willing to pony up to keep these public section pensions solvent?

 

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18 hours ago, Muda69 said:

Alarming Study Finds US Public Pensions To Run Out Of Money By 2028

https://www.zerohedge.com/economics/us-public-pensions-run-out-money-2028-finds-alarming-new-study

So how much of your hard earned money are you willing to pony up to keep these public section pensions solvent?

 

Buy gold, Muda.

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7 minutes ago, DanteEstonia said:

Nope; my pension is funded in part by a Net Proceeds of Minerals tax, which applies primarily to gold mines.

Hmm. In the future I'll try and see that I purchase only non-Nevada sourced gold.

 

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59 minutes ago, DanteEstonia said:

Nope; my pension is funded in part by a Net Proceeds of Minerals tax, which applies primarily to gold mines.

My Social Security payments will be funded with tax payments directly from our esteemed Mudrator.

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