Is a second Great Depression coming? (Economic Reality Confronts Our Debt)

[INVAR]

While economic doom and gloom is often waved off as nothing of consequence, Trump's assistance in kicking the can of raising the debt ceiling, while printing trillions of dollars out of thin air is one day soon - going to come home to roost.

There are economic laws that have been horrifyingly broken.  The consequences of doing so are going to be painful beyond any of our abilities to comprehend.

Is a second Great Depression coming?

By: Sam Brown

Readers of my articles know that I believe that the unprecedented high debt level in the US makes bankruptcy of both the government and the private sector unavoidable.

...If the problem of an ever-growing debt burden cannot be resolved, then the next logical question is: When will the borrowing train run out of steam?

This snippet stands out above all others in the essay:

The problem is – you can only expropriate so much until the public wakes up because they are with their back against the wall. The wall of the poorhouse. The victims are now called populists by the mainstream media who make the utmost effort to disguise the reasons for the unrest. To flank their operations, generations of economists have been trained to explain to the public that you only need to tweak this or that and everything will be all right again. It won't. The system has been broken beyond repair by the extraordinary greed of the oligarchs. We are now at a point where the cost to squeeze more wealth out of impoverished nations becomes almost prohibitive. The halt of the borrowing train is the halt of the oligarch's wealth extraction scheme. The mechanics of this exploitation system are also stifled by the awakening of the public. The election campaign of Barack Obama should have raised some eyebrows. He won almost exclusively by repeating the word "CHANGE". Donald Trump promised the same. And both have and will betray the electorate because they are part of the "Swamp". You do not need an IQ of 200 to understand that elections are a charade and that the people of the so called Free World are nothing but serfs of a few trillionaires. In today's world, it does not matter what party you vote for – the oligarchs corrupt them all.

[LMAO]

This article is partially correct and it's assessment but it misses the fact that the rest of the world is in tougher shape than we are

[catfish1957]

This article is partially correct and it's assessment but it misses the fact that the rest of the world is in tougher shape than we are

All the world economies are intertwined like dominoes.  Even a severe crisis in a relatively small country can trigger the tsunami.

I remember reading several years ago that the $20T debt number was key concern for a trigger, where the debt becomes unmanagable.

We will see.

[Free Vulcan]

As I've said here before, just 8% interest rates and near half our tax revenues would be going to service the debt, today. That doesn't factor in adding another $10T the next 10 years as is projected, or a recession only as bad as the last one where tax revenues decline by 20%.

Now we have the Chinese preparing to implement a futures contract for oil not only denominated in yuan, but redeemable in gold. It's darned near a silver bullet that could create a panic run on the dollar, which would crash our stock and bond markets right along with it as foreign investors dump dollar denominated instruments along with our currency.

So you tell me.

[ABX]

All the world economies are intertwined like dominoes.  Even a severe crisis in a relatively small country can trigger the tsunami.

I remember reading several years ago that the $20T debt number was key concern for a trigger, where the debt becomes unmanagable.

We will see.

One thing that should worry people that really isn't mentioned is the massive decline in the dollar. It is making the markets appear artificially high and a correction in that could start the domino effect exactly as you describe.

[Weird Tolkienish Figure]

Don't think so. The debt just represents more of the inequality of wealth. Who holds bonds? Mostly rich people.

No depression just that the rich will get richer.

[Free Vulcan]

Don't think so. The debt just represents more of the inequality of wealth. Who holds bonds? Mostly rich people.

No depression just that the rich will get richer.

Cash flow. If we can't pay the interest, the jig is up. If the dollar collapses because it's no longer the reserve currency, the jig is up.

[Weird Tolkienish Figure]

Cash flow. If we can't pay the interest, the jig is up. If the dollar collapses because it's no longer the reserve currency, the jig is up.

Meh, they'll just print more and more, much of that will go overseas.

[Free Vulcan]

Meh, they'll just print more and more, much of that will go overseas.

They aren't going to take our dollar if it keeps declining in value when they can invest in yuan based commodities, especially those backed by gold.

[catfish1957]

Don't think so. The debt just represents more of the inequality of wealth. Who holds bonds? Mostly rich people.

No depression just that the rich will get richer.

You have to realize that service of the debt is a rapidly increasing outlay of the federal balance sheet.  As it rises, available funds for other parts of fedzilla becomes smaller.  At some point, there will be a trigger* due to that shortfall.  As I said these things domino into panics.

*  Huge tax increases
* Cut back in services
* Drop in US credit rating

etc.  etc

[ABX]

Don't think so. The debt just represents more of the inequality of wealth. Who holds bonds? Mostly rich people.

No depression just that the rich will get richer.

That used to be the case, but it is shifting. The largest percentages of debt are held by the government itself, foreign governments, and the federal reserve now.
Yes, the government buys its own debt.

https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124

5.5 Trillion held by the government.
6 Trillion held by foreign governments.
2.5 Trillion held by the Federal Reserve.


The big private ownership that holds bonds you referenced would be
1.7 Trillion held by mutual funds.
663 Billion held by banks.
166 Billion held in savings bonds.

That doesn't count a whole lot of 'other' holdings like GSAs, Insurance companies, etc.

But the big take away here, and one that really could be part of that domino effect, is the government holding their own debt and reinvesting debt into debt.

They are essentially paying off credit cards by taking out more credit cards.

[Weird Tolkienish Figure]

They aren't going to take our dollar if it keeps declining in value when they can invest in yuan based commodities, especially those backed by gold.

The Zero Hedge kooks have been saying this for like a decade, it's never happened.

[Sanguine]

That used to be the case, but it is shifting. The largest percentages of debt are held by the government itself, foreign governments, and the federal reserve now.
Yes, the government buys its own debt.

https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124

5.5 Trillion held by the government.
6 Trillion held by foreign governments.
2.5 Trillion held by the Federal Reserve.


The big private ownership that holds bonds you referenced would be
1.7 Trillion held by mutual funds.
663 Billion held by banks.
166 Billion held in savings bonds.

That doesn't count a whole lot of 'other' holdings like GSAs, Insurance companies, etc.

But the big take away here, and one that really could be part of that domino effect, is the government holding their own debt and reinvesting debt into debt.

They are essentially paying off credit cards by taking out more credit cards.

We don't have a similar historical situation to compare this to.  Who knows how this will shake out, but shake it will.

[ABX]

As I've said here before, just 8% interest rates and near half our tax revenues would be going to service the debt, today. That doesn't factor in adding another $10T the next 10 years as is projected, or a recession only as bad as the last one where tax revenues decline by 20%.

Now we have the Chinese preparing to implement a futures contract for oil not only denominated in yuan, but redeemable in gold. It's darned near a silver bullet that could create a panic run on the dollar, which would crash our stock and bond markets right along with it as foreign investors dump dollar denominated instruments along with our currency.

So you tell me.

China beginning to move to the gold standard is something to be closely watched. No, I'm not one of those who think the gold standard is the be all/end all fix, but it will make the Yuan a serious contender for a worldwide reserve currency- one that could potentially be far more stable than the USD and with fewer strings.  In many ways, China is moving faster and faster towards free markets while we move faster and faster away from them. Add to that saber rattling to start a trade war with them instead of finding a beneficial partnership and we are looking at a lot of red flags here.

[Free Vulcan]

The Zero Hedge kooks have been saying this for like a decade, it's never happened.

You're going to the conspiracy kook card because you don't understand markets, finance, and economics. The dollar is already falling because of our lack of legislative resolve. Printing a bunch of money while there are yuan denominated commodities out there won't help that.

You are taking it as divine truth that the dollar can never collapse because we can pull some trick out of our hat to rescue it, and the world will eat that turd. That's some seriously kooky koolaide true believer stuff right there.

[Weird Tolkienish Figure]

You're going to the conspiracy kook card because you don't understand markets, finance, and economics. The dollar is already falling because of our lack of legislative resolve. Printing a bunch of money while there are yuan denominated commodities out there won't help that.

You are taking it as divine truth that the dollar can never collapse because we can pull some trick out of our hat to rescue it, and the world will eat that turd. That's some seriously kooky koolaide true believer stuff right there.

You mindset of far East economies is all mercantalist: they all believe that exports matter above all else and will do what they can to prop the dollar up, which means that they will happily eat our inflation.

Stop reading Zero Hedge.

[INVAR]

Cash flow. If we can't pay the interest, the jig is up. If the dollar collapses because it's no longer the reserve currency, the jig is up.

I've talked with enough people who think that kind of thing is impossible to happen because... we rule the world.

Seriously.  These are "Republicans".

The same folks who tell me that Trump will fix everything.

[Free Vulcan]

China beginning to move to the gold standard is something to be closely watched. No, I'm not one of those who think the gold standard is the be all/end all fix, but it will make the Yuan a serious contender for a worldwide reserve currency- one that could potentially be far more stable than the USD and with fewer strings.  In many ways, China is moving faster and faster towards free markets while we move faster and faster away from them. Add to that saber rattling to start a trade war with them instead of finding a beneficial partnership and we are looking at a lot of red flags here.

Capital flows are what worry me. Large capital flows out of the dollar will make not only the currency they do hold less valuable, it will also make dollar denominated instruments like stocks and bonds less valuable, and they will be dumped along with our currency.

What has kept out dollar afloat is the MAD implicit agreement between the US and China. We buy their stuff, they invest in our financial instruments. If that becomes uncoupled, there is little to keep our dollar supported.

A dollar collapse would kill our stock and bond market. A stock market crash would be hard enough, but a bond market crash now means the govt has to borrow at much higher interest rates. Since we have about a 6 year average on the debt maturity, it won't take very long for those higher rates to begin eating up tax revenue, which would plunge on top of that.

Unfortunately we have backed ourselves into a corner.

[Free Vulcan]

You mindset of far East economies is all mercantalist: they all believe that exports matter above all else and will do what they can to prop the dollar up, which means that they will happily eat our inflation.

Stop reading Zero Hedge.

Not if they think the US is swirling the drain. The Chinese themselves have publicly said years ago that they were going to move away from dependency on the dollar. Yuan denominated commodities are the next step.

Also remember that China has over 1.5 billion people. If half a billion people were to die, they'd still be one of the world's most populous nations, and the survivors would say 'more room for the rest of us.'  They will take the pain of what ever comes to survive, because that is what they do.

We are putting them in an inevitable situation, and the Chinese will do what they have to do, because we forced their hand.

[Free Vulcan]

Stop reading Zero Hedge.

Uh no. I actually have a Finance degree, have worked in the financial markets in Chicago, and I trade for myself. I don't claim to be a renaissance man, but when it comes to this subject I've forgotten more than most people in my entire state will ever know.

You are above your paygrade and need to quit talking out your butt. You don't even understand the basics of the game you are speaking about.

[Weird Tolkienish Figure]

The Chinese themselves have publicly said years ago that they were going to move away from dependency on the dollar. Yuan denominated commodities are the next step.

Absolutely asinine to think they would do this. This would collapse the dollar, sure, then it would make their stuff way more expensive and we'd buy way less of it. Trump's dream of a 100% USA made economy would come true.

The Chinese want the status quo even more than we do. Stop believing their nonsense and the copious garbage that comes out of Zero Hedge.

[Free Vulcan]

Absolutely asinine to think they would do this. This would collapse the dollar, sure, then it would make their stuff way more expensive and we'd buy way less of it. Trump's dream of a 100% USA made economy would come true.

The Chinese want the status quo even more than we do. Stop believing their nonsense and the copious garbage that comes out of Zero Hedge.

China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.

The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.

Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the launch by the end of this year. ?

“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.

The yuan-denominated futures contract has been in the works for years, and after several delays, it looks like it may be launched this year. Some potential foreign traders have been worried that the contract would be priced in yuan.

http://oilprice.com/Latest-Energy-News/World-News/China-Readies-Yuan-Priced-Crude-Oil-Benchmark-Backed-By-Gold.html

Again, talking out your butt.

[ABX]

Absolutely asinine to think they would do this. This would collapse the dollar, sure, then it would make their stuff way more expensive and we'd buy way less of it. Trump's dream of a 100% USA made economy would come true.

The Chinese want the status quo even more than we do. Stop believing their nonsense and the copious garbage that comes out of Zero Hedge.

They are already doing it.

Remember, the Chinese don't work on short economic cycles like we do. Generally, the US makes rash, short term decisions, year by year, or at the longest, election cycle by election cycle. The Chinese work on 25 year minimum plans. They don't think about what will happen next year, they think about what will happen next decade.

[Fishrrman]

From the article:
"If the problem of an ever-growing debt burden cannot be resolved, then the next logical question is: When will the borrowing train run out of steam?"

I've posted about this before.

"The numbers" don't matter any more.
It doesn't matter whether the debt is $10 trillion, or $20 trillion, or $40 trillion, or [insert your number of choice here].

The government (that means the Republicans and the democrat/communists, it makes no difference which side you choose) is going to keep borrowing and borrowing.

The "train analogy" above is a poor one.
The train isn't going to run out of steam.
Rather, "the train" is running downgrade, down, down, down, with no brakes.
It's rolling freely and nothing can stop it.

(Aside: have you ever been at the controls of a train going downhill that was on the edge of being out-of-control? I have.)

Actually, there IS something that will finally stop it -- the curves at the bottom of the grade.
When it gets there, it's going off. Nothing can stop that, either.

But until that point is reached, it's gonna keep right on rolling.
And right now, there's no one who can say for certain as to where those curves that will wreck it are. But we'll know when we get there.

The only way the train could be brought back under control would be for the government to stop the spending. But no one in government is going to do that. Not now, Not in the future. Ain't gonna happen.

And that train I mentioned in the aside above?
I -did- manage to wrastle it back under control, but I was saved because we reached the bottom of the grade and that helped slow things down. But I was gettin' nervous for a few miles beforehand!

[Bigun]

That used to be the case, but it is shifting. The largest percentages of debt are held by the government itself, foreign governments, and the federal reserve now.
Yes, the government buys its own debt.

https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124

5.5 Trillion held by the government.
6 Trillion held by foreign governments.
2.5 Trillion held by the Federal Reserve.


The big private ownership that holds bonds you referenced would be
1.7 Trillion held by mutual funds.
663 Billion held by banks.
166 Billion held in savings bonds.

That doesn't count a whole lot of 'other' holdings like GSAs, Insurance companies, etc.

But the big take away here, and one that really could be part of that domino effect, is the government holding their own debt and reinvesting debt into debt.

They are essentially paying off credit cards by taking out more credit cards.

You younger folks should know that a large chunk of it's own debt our government owns is in your Social Security trust fund.   In fact, that is almost all thats in there!