Armstrong Economics’ Post

Cheerful Sunday morning reflections on life: Perhaps the reason that work is so dysfunctional and anti-human is because work exists in an economic system that is dysfunctional and anti-human. As above, so below - fractals all the way down. “How Did You Go Bankrupt?” “Two Ways. Gradually and Then Suddenly.” - Ernest Hemmingway. The US national debt recently surpassed $35 Trillion. We find it hard to understand the scale of trillions, so here are some comparisons: 1,000 seconds is just under 17 minutes 1 million seconds is 11.5 days 1 billion seconds is 31.7 years 1 trillion seconds is just under 32,000 years 35 trillion seconds is over 1.1 million years Assuming the thickness of a dollar bill is 0.1mm a stack of 10,000 dollar bills would be 1 metre high. $35 trillion would be 3.5 million kilometres high - enough to circle the Earth 87 times! Or to get to the moon and back almost 5 times. The global economic system is on life support, needing a continual transfusion of debt to be sustained. Last week we saw stock markets tumbling, and more nervousness about the state of the global economy. Simply servicing the interest payments on the US debt costs $1 Trillion a year - the largest portion of spending from people's taxes, and even more than the US defence budget. The dollar has lost 25% of its value since 2020 The US national debt is increasing by $1 Trillion roughly every 100 days with no sign of abating - at this rate it will only be 4 years before it reaches $50 Trillion (before the end of the next presidential term) China is the largest holder of US treasury bonds - which are issued to create the debt - but China is now shrinking its holdings of US bonds as the BRICS countries (Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates) join forces against the USD. With an ageing and increasingly unhealthy population, the US currently has unfunded liabilities relating to social security and Medicare of $175 Trillion. There seem no good outcomes for an already bankrupt system, the fiat experiment where money was detached from any intrinsic value with departure from the Gold Standard in 1971 feels like it is in its death throes. The societal harm that would come from a collapse is unimaginable. What are the options? Debt restructuring, CBDCs (I hope not!), back to the Gold Standard, adopt the Bitcoin Standard? Who knows where this will go? I posted an article during the week about The Ladder of Abstraction. Money has become abstracted so far away from any inherent value and its intended functions as a facilitator of mutual exchange/store of value that it is losing all of its meaning. No wonder we humans experience a crisis of meaning in this crazy system. *Forgive (and correct) me if any of my above figures are wrong. I've used US numbers, but the same story is playing out globally. Here's a pic from a couple of nights ago, Alfie and I enjoying a beer, forgetting economic worries for a moment.

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The Keystone Fed together with Captain Yellen dug in so deep on transitory inflation, thinking they could refinance the debt at lower levels, that they placed the country at risk with huge supplies of treasuries coming to market at the same time. Reckless is an understatement. "Yellen has been moving away from long-term debt to finance the shortfalls to shorter-dated securities, essentially rolling over deficits with more and more Treasury bills instead of the normal way of debt issuance through 10- and 30-year debt. That’s according to an analysis by Robbert van Batenburg of the influential Bear Traps Report, who estimates that around 30% of all debt is the short-term variety — aka 2-year and shorter notes — compared to 15% in 2023." https://lnkd.in/eFqP6YWJ

Ah, the Quickening, not of the spirit, but of a more insidious force, one that erodes the very essence of our economic might. Picture this, if you will: In the shadow of towering debts, where once stood the proud edifice of currency, there now looms a specter, a financial apocalypse, the Quickening of economic despair. Here I stand, Ramirez, or let's say, an observer of time, watching as the purchasing power of your modern gold, your paper currency, withers away like leaves in a relentless storm. This Quickening, my friends, it's not of lightning and life, but of inflation and debt, a tempest that grows with each passing day. Governments, like reckless immortals, have drawn their swords not to fight for honor but to slash at the very fabric of fiscal sanity. They print money as if the paper itself were endless, as if by some dark magic, they could conjure wealth from the void. But hark! Every new note, every digital entry of currency debases the value of what you hold dear. Your wages, your savings, they tremble in this storm, their power draining, as if bled out by an unseen blade. The public debt, ah, it grows, it feeds, it becomes a beast of its own, a dragon that demands tribute in the form of ever-increasing interest. This Quickening, it's an unseen force, binding us all in its electric grip, where the value of what you own today is but a shadow tomorrow. The more they create, the less it's worth, a cruel paradox. And like the immortals of my tale, this cycle seems eternal, until one day, perhaps, there will be only one standing, amidst the ruins of a once robust economy. And what of the people? They feel this Quickening in their bones, in the rising costs of their bread, in the homes they can no longer afford, in the dreams deferred to a future that seems ever bleaker. This, my friends, is not the clash of swords, but the silent scream of a currency in its death throes, a lament for the loss of value, for the burden of debt that grows like a cancer. So here I stand, a witness to this economic Quickening, where the true battle is not for immortality, but for the survival of prosperity itself. Remember, in the end, there can be only one, but in this fiscal duel, perhaps none will stand victorious, only survivors in a wasteland of economic folly. #inflation #purchasingpower #hiddentax

Debt Bomb. Unfunded Liabilities. National debt at 130% of GDP. Yes, that's as bad as it sounds. When the smartest man in the room talks, it's advisable to listen. Paul Tudor Jones is one of the most success global macro hedge fund traders of all time. PTJ know business and finance. According to a recent CNBC interview with Projections for fiscal year 2024 indicate that net interest payments are expected to reach $870 billion, surpassing expenditures on national defense and Medicare, making it the second-largest budget item behind Social Security. Sustainable? Nope. Taxes going up? Yep. Tax mitigation is paramount to a successful financial life in retirement. Protect yourself and your family now while you still can. If you don't know how, just ask!

Contrary to popular belief, financial crises are not unpredictable black swan events. Mainstream economists love to paint them as rare and unforeseeable. But the reality is far different. Ignoring private debt and its bubbles leads to economic downturns. Take the 2007 housing crisis. It wasn't a bolt from the blue. It was a ticking time bomb. Private debt levels were skyrocketing, yet mainstream economists like Ben Bernanke were blissfully unaware. They were busy admiring their models, which conveniently ignored private debt. When the bubble burst, the economy collapsed. People lost their homes, their jobs, their savings. All because the so-called experts didn't see it coming. Recognizing and addressing these debt levels can prevent future crises. It's like ignoring a leaky roof. You can pretend it's not there, but eventually, the ceiling will cave in. By monitoring private debt, we can spot the bubbles before they burst. We can take action to deflate them gently, rather than letting them explode. This isn't rocket science. It's common sense. Yet, mainstream economics continues to ignore it. They cling to their outdated models, while the real world suffers. We need a new approach. One that acknowledges the role of private debt. One that can prevent the next crisis, rather than just reacting to it. Because the stakes are too high. People's lives are on the line. And we can't afford to keep getting it wrong.

𝗪𝗵𝗼 𝘄𝗶𝗹𝗹 𝗯𝘂𝘆 𝗮𝗹𝗹 𝘁𝗵𝗶𝘀 𝗱𝗲𝗯𝘁? 𝗧𝗵𝗲 𝗨𝗦 𝗧𝗿𝗲𝗮𝘀𝘂𝗿𝘆 𝗺𝗮𝗿𝗸𝗲𝘁 𝗳𝗮𝗰𝗲𝘀 𝗮 𝗰𝗿𝘂𝗰𝗶𝗮𝗹 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻 𝗮𝘀 𝗯𝗼𝗿𝗿𝗼𝘄𝗶𝗻𝗴 𝗰𝗼𝘀𝘁𝘀 𝗿𝗶𝘀𝗲. Adam Tooze 's newsletter, Daily Chartbook , highlights a pressing issue in the US Treasury market: the challenge of finding buyers for the increasing amount of debt. Key points include: • The US Treasury market has quintupled in size since the financial crisis, reflecting a significant reliance on debt financing over the past 15 years. • To avoid rising borrowing costs, the US Treasury has shifted towards issuing more short-term debt, though this strategy is nearing its limits. • The Federal Reserve, previously the largest buyer of US Treasury debt, is pulling back from the market, raising concerns about overall demand. • Analysts warn that an oversupply of Treasury bills could undermine the Fed’s quantitative tightening efforts aimed at controlling inflation.    The growing US Treasury market and the shift towards short-term debt issuance present several challenges: • Increased borrowing costs if demand for long-term debt remains weak. • Potential disruptions to the Federal Reserve’s quantitative tightening strategy, which is crucial for managing inflation. • The need for new strategies to attract buyers for US debt in a changing market landscape. Understanding the complexities of the US Treasury market is important to understand as you advise clients on their real estate and mortgage needs. Stay well informed. 𝗟𝗶𝗻𝗸 𝘁𝗼 𝗔𝗿𝘁𝗶𝗰𝗹𝗲: The US Treasury Market: The Economics of Debt Financing - Adam Tooze: https://lnkd.in/gn4ajt-W

New post by Sovereign Man... If this doesn't scare you, I don't know what will. Also don't expect the #MSM to talk about this at all. Bond investors are rightfully getting spooked by outrageous federal deficits, and they’re starting to demand a higher rate of return to compensate for the extra risk. This is a major reason why interest rates have been rising-- government bonds have lost a lot of appeal, and many investors no longer view them as the sacrosanct, risk-free investments they once were. Two years ago, a 90-day T-bill paid about 0.5%. Today it’s over 5%. That’s a 10X increase in the government’s interest expense. Another major trend is that bond investors have shifted towards the shorter duration maturities. So instead of buying 10-year notes and 30-year bonds, they’re buying 90-day bills that have to be refinanced every three months. This makes sense; with so much risk and uncertainty, few rational investors want to loan money to the federal government for three decades. Short-term bonds are a lot safer. But this trend towards short-term bonds means that the Treasury Department has to constantly be in the market refinancing record amounts of debt, just like last quarter’s $6.6 trillion. It also means that the government’s annual interest bill will continue to skyrocket-- because today’s interest rates are so much higher than they were in the past. Back in 2019, for example, investors were buying 5-year notes with a yield of less than 2%. Those 5-year notes from 2019 are about to mature. And for investors who are willing to roll over their funds and reinvest in, say, 90-day T-bills, the new yield is 5.25%. In other words, the government’s interest expense will increase more than 2.5x. Remember that this year’s interest expense on the national debt is already set to exceed the national defense budget. And if this trend continues, the government’s annual interest bill will surpass $2 trillion over the next few years. This is why we believe the Federal Reserve will ultimately step in and ‘fix’ this problem by expanding the money supply and slashing interest rates. The US government cannot afford to pay 5% interest on the national debt. Frankly they can’t even afford to pay 1%. The Fed understands this reality, and they know that the clock is ticking. Minutes from the Fed’s meeting last month showed that they still anticipate cutting rates 2-3 times this year. And just yesterday the Fed Chairman said that while rates may stay at current levels “longer than expected”, he all but ruled out any further interest rate increases despite rising inflation numbers. As a final piece of evidence to support our view, the Fed has already reduced its ‘quantitative tightening’ program… which is essentially the first step towards a new round of quantitative easing, i.e. money printing. To your freedom, James Hickman Co-Founder, Schiff Sovereign LLC