The future of our economy, if we don't change course

 

Brandon Smith offers his forecast.

Currently, the US national debt is $33.8 trillion and has a 120% debt-to-GDP ratio. In a single month (October) the US added over $600 billion to the debt, and at the current pace the total official debt will hit over $41 trillion in one year. The speed of this accumulation is frightening. To put this in perspective, the Obama Administration and the Federal Reserve added around $9 trillion to the debt in 8 years during the corporate bailouts. Under Joe Biden, this is set to happen in a little over 1 year.

. . .

At higher interest-rate levels, borrowing enters a destructive spiral. There’s interest payments on debt, which was itself borrowed to make interest payments on debt. To put it in simple terms, it’s a bit like a broke person taking on a stack of new credit cards to make the interest payments on a stack of old credit cards. It’s financial suicide.

Eventually the avalanche of debt will stall inflation but it will also pop multiple asset bubbles cross numerous market sectors and trigger a deflationary crisis. We are already seeing this trend with a crash in manufacturing as well as frozen wages. We are seeing it in the freight industry, with layoffs and bankruptcies piling up in a shocking downturn indicating impending recession. Not to mention US home sales have plunged to a 13 year low as prices continue to rise.

These are all red flags of an impending deflation event that WILL lead to large scale job losses, likely within the next year. It would seem the magic of covid stimulus measures is finally fading away and we are beginning to see the real economy underneath.

. . .

Will the Fed keep rates steady, risking deflationary implosion and debt default, or, will they cut rates, return to stimulus to pay the debt and risk double digit inflation?

These are the two choices in front of us as debt overwhelms the system.

There's more at the link.

It's hard to argue with Mr. Smith's conclusion.  In fact, the headline to this blog post is probably over-optimistic, in the sense that we may no longer be able to change course, even if we want to.  The "debt overhang" is already there, and can't be wished away.  It's too late to do anything to stop it - only to endure its consequences.

To make matters worse, the Biden administration is spending money it doesn't have as if there's no tomorrow.  The money it wants to send to Ukraine?  It will all have to be borrowed, because our cupboard is bare.  And what about the vast sums wasted on illegal aliens crossing our border?

Immigrants who illegally cross the border into Arizona are being handed $5,000 in good-as-cash gift cards, along with cell phones and costly plane tickets, all of which are being paid for by the American taxpayer, according to Arizona Sheriff Mark Lamb.

. . .

“I was absolutely in shock when these agents came forward,” said Mr. Lamb. “I had known we handed out free cell phones and plane tickets, but to give out $5,000 Visa gift cards to people who break our laws and come into our country illegally when the average American is struggling to pay their bills is just tough to swallow.”

Again, more at the link.

That's your and my tax dollars being handed out, dear readers.  The administration is borrowing the money to dispense like candy, but it's our taxes that will have to pay off that debt.  If that makes your wallet feel happy . . . it doesn't do anything for mine except make it hurt.

David Stockman warns of "the destruction of the American middle class".  Bold emphasis in original.

Even though the CPI tends to undermeasure the cost of living on Main Street owing to its flaky hedonics’ adjustments for “quality” and other statistical razzmatazz, this imperfect proxy for the cost-of-living is still up by 82 percent since the turn of the century.

Accordingly, during the last 22 years the median real annual wage, as tracked by Social Security payroll tax records, has risen by only 14.5 percent or just $235 per annum.

. . .

The average worker in the bottom half of the wage distribution generated earnings that do not even remotely support a middle-class living standard. In fact, this figure amounts to only 65 percent of the Federal poverty line for a household of 4 persons ($27,750) and is barely above the $14,580 poverty level for a single person household.

In other words, the overwhelming bulk of the 84.5 million workers in the bottom half of the wage distribution pulled in paychecks over the course of 2022 which were below or just above the Federal poverty line!

That is to say, the U.S. economy is badly broken, yet you do not hear a peep from either wing of the Uniparty.

. . .

In short, a huge share of the workforce is no longer even remotely middle-income ... So the question recurs. Why isn’t the U.S. economy generating middle-income jobs at the scale needed to provide better opportunities to the 84.5 million workers below the median wage level?

The short answer, of course, is that the U.S. economy desperately needs far less speculation on Wall Street and far more productive investment on Main Street—when, in fact, the opposite has been happening during the past two decades.

More at the link.

As a result of this economic malaise, among other factors, Charles Hugh Smith wonders whether America could endure a French-style revolution.  Bold emphasis in original.

In the past, I reckoned the odds of America experiencing a revolution akin to France 1789 were low due to the different political, economic and cultural conditions present then and now, but recently I've considered the possibility that America's extremes of wealth, income and power inequality are a powder keg awaiting ignition ... extremes of inequality undermine ... stability, as the wealthiest elites now bring such a preponderance of wealth to bear that each of the three branches of the state are now beholden to the interests of the few, leaving little recourse to the many.

. . .

Another common factor driving the masses to revolt is when the essentials of life are no longer affordable or available in sufficient quantity. Historian David Hackett Fischer has documented the perilous impact of inflation, i.e. the collapse of the purchasing power of wages ... Another factor is the promises made by the state generations ago can no longer be met without creating new money on a scale that guarantees destabilizing inflation.

More at the link.

Friends, putting all that together, we're facing a bleak future.  Many of us who've experienced something similar, and/or who are economically literate, have warned of this for many years, but even so, there are plenty of people today living in an economic cloud cuckoo land.  They refuse to believe that things can fall off a cliff with little or no warning.  I fear they're about to learn that lesson the hard way.

The old idiom reminds us to "make hay while the sun shines".  I can only recommend that we do just that, while we still have the resources to do so.  Stock up on reserves of food and essential goods, so that in the hard times that lie ahead, you have something to fall back on if and when necessary.  You may get awful tired of eating oatmeal, canned soup and ramen noodles, but they're a darned sight better than having nothing to eat at all.

Peter