debt

Who is the Fool? Trump or Woodward? | Armstrong Economics

Posted on by johnbarleycorn12

According to CNBC, Bob Woodward reported that Trump told Gary Cohn, the former Goldman Sachs/director of the National Economic Council to just print more money to reduce the national debt. Woodward reports this discussion: Trump: “Just run the presses—print money.” Cohn: “You don’t get to do it that way. We have huge deficits and they matter. The government doesn’t keep a balance sheet like that.” Here is a chart of the US CPI not seasonally adjusted. It has begun its sharp advance since the Floating Rate System was adopted in 1971 with the fall of Bretton Woods. In spite of borrowing, inflation over time has actually advanced more aggressively than if we had just printed instead of borrowed. Cohn has said that Woodward’s book “does not accurately portray” his experience of the White House. This calls into question was Woodward also deliberately writing this book to overthrow Trump? This claimed quote of a discussion between Trump and Cohn demonstrates that someone is seriously out of touch with economics. Actually, Trump is correct. Now we have Quartz joining the media calling Trump an idiot confirming they too are clueless about debt and printing. In fact, if you did just print the money and retired the debt, it would be DEFLATIONARY and not INFLATIONARY from the budget perspective because these people are clueless themselves about how the national debt works. Before 1971, the debt could not be used as collateral for loans such as Savings Bonds. If you needed the money, you were forced to cash them in. Under this system, it was logically less inflationary to borrow than to print because you were not increasing the money supply under tradition economic theory. However, post-1971, you buy T-Bills and post them as collateral to trade futures. The distinction between borrowing and printing has been turned upside down. A national debt is now worse than printing economically because it is money that now pays interest forever. Once debt became collateral, then it lost its distinction as separate from the money supply. Since there is no intention of ever paying off the national debt, we have a money supply that is outstanding which pays interest and blows the government budget into deeper and deeper deficits every year. The truth is had we printed since 1971 instead of borrowing, there would be far less of an economic crisis compared to what we face today. If we simply printed to pay off the national debt, Social Security would suddenly become a Wealth Fund that actually made money instead of a Slush Fund for politicians. Now, Social Security can only invest 100% in US government debt and then the Fed lowers the interest rate to “stimulate” the economy and Social Security goes broke forcing higher taxes. Up to 70% of the national debt at times has been purely accumulated interest which never benefited anyone. It competes with the private sector in what we call the “flight to quality” and it forms the bank reserves. What is never discussed is the fact that US debt is also the reserve currency of nations – not paper dollars. That means that the interest we pay is exported and it stimulates foreign economies – not domestic. So who is crazy here? Trump or Woodward? To keep borrowing year after year is insane. To monetize the debt will be DEFLATIONARY from the perspective of government expenditure. In 2019, interest expenditures even at this low level of interest rates will EXCEED military expenditure. The cost to keep rolling the national debt will crowd out all social programs, result in a continued aggressive approach of government to confiscate the assets of innocent people, and it will raise taxes exponentially to retain its position of power. Sorry, Woodward – you are DEAD wrong here!!!!!!!!!!!!!!!!!!!!!!!! Woodward is by no means qualified to criticize Trump on such an issue he clearly does not even understand. He is contributing to the brainwashing of society which will prevent us from even noticing we have a major crisis on hand. Trump should really address the nation and explain this problem very simply. I will be glad to supply the charts.
— Read on www.armstrongeconomics.com/armstrongeconomics101/economics/who-is-the-fool-trump-or-woodward/

Economics 101

Emerging Market Debt Crisis – A Reality Check | Armstrong Economics

Posted on by johnbarleycorn12

QUESTION: Hello Martin … I follow emerging markets closely and one thing I note is that the size of the sovereign forex-denominated debt burdens are quite small relative to GDP except in the case of Argentina (48%). Everybody else, including Turkey and Indonesia) is 11% or less. How can you have a debt crisis if everybody is clearly able to service their debts? That’s what confuses me. Today the Bloomberg EM dollar debt index is at 6.05% — whereas in 1998 it was 17%! That is saying the risk is still fairly subdued no? Thank and regards, MC ANSWER: There are at least three major factors that are not calculated in this perspective. The dollar debt rises exponentially in the cost to service that debt as the currency declines. It was that very relationship which sent Germany into hyperinflation during the 1920s. Germany had to print more money to make reparation payments and the more they printed the worse it became. If you look closely, Turkey’s external debt has grown 10% just in the past year alone as its currency has declined and interest rates have risen. Next, we have the rising interest rates which add to the crisis further undermining the economy. The interest must be paid in terms of the foreign currency. Also, keep in mind that they have also issued external debt in euros. The third dimension of Emerging Market Crisis is private. In the case of Turkey, in particular, this debt crisis differs significantly in one very critical manner. We are not looking at purely as crises fueled primarily by government debt. Much of the private debt of corporations have also borrowed in dollars and euro. This makes the crisis very problematic. There can be no IMF bailout for all the outstanding private debt in foreign currencies. It is unwise to simply look at the government debt issue. Turkey’s problems through the combination of government and corporate debt can trigger a very critical global contagion. There are significant risks centered on lenders that get caught up in the financial crisis such as pension funds and banks who have lent into Emerging Markets in search of high yield. Portuguese and Spanish banks are heavily invested in Turkey. If Erdogan defaults and turns to Russia, he would take the Euro down with him. I have reported that there is also a rising risk of a debt crisis in China. However, this is confined to the private sector and at the provincial level – not federal. China has moved to discourage borrowing money in foreign currencies. It is extremely RARE to encounter a corporate borrowing in a foreign currency that even understands the long-term risk that is inherent within the transaction due to foreign exchange. Additionally, you must take into account the CONTAGION FACTOR that will erupt on trading desks. Once a crisis begins in Emerging Market debt, they will not look at the number on any individual country – they will just sell the entire category at the market. The Bloomberg EM dollar debt index is not a convincing indicator as is the case for the Dollar Index which is traded on the exchange. Also keep in mind that private contracts can be nullified by federal governments. In the case of the USA, when Roosevelt confiscated gold, all contracts that were between two private parties containing a Gold Clause for repayment, were declared illegal and unenforceable by the Supreme Court (see PERRY v. UNITED STATES, 294 U.S. 330 (1935).
— Read on www.armstrongeconomics.com/international-news/emerging-markets/emerging-market-debt-crisis-a-reality-check/

The German Pension Crisis to Become a Political Issue as in Italy | Armstrong Economics

Posted on by johnbarleycorn12

The Pension Crisis is starting to be noticed in Europe. The German Finance Minister Olaf Scholz is arguing that the federal government has to guarantee the pension level until 2040. He is arguing that the government MUST come up with a plausible financing model which seems actually impossible. The increase in taxes to cover pension that far out would devastate the younger generations. So far, this Grand Coalition in Germany has agreed on stabilization plan by 2025. We may see the pension issue become a major factor in the next election. There is no solution as long as Germany continues to adhere to austerity. The only way the pension crisis can be addressed is to inflate out so you pay people with a cheaper currency. The collapse of Socialism is underway because the people rightly expected all governments to do everything they could to live safely and satisfy their promises of bliss for retirement. They are already witnessing that saving for retirement has not worked when central banks use interest rates to manipulate the economy and in Germany, they have had negative interest rates thanks to Draghi and the ECB. Indeed, in Germany, this policy of austerity is in direct conflict with Socialism. The only way the system has held together this long is because of inflation. The Pension Crisis is one element behind the rise of political unrest, particularly in Italy. In Germany, the Pension Crisis is starting to fuel the AfD and the nationalist populists in their movement. Scholz has warned that without resolving this issue, Germany will see its own version of Donald Trump take command. Political change is coming and the current crop of politicians have no real answers. The German magazine, Spiegel, reported that according to estimates by the German Pension Fund, the so-called sustainability reserve will reach around €37.3 billion euros by the end of December 2018. The reserve has been increasing of late 4.4% (year/year) because of the strong employment situation in Germany under its export model. Nevertheless, the pension insurance assumes that by 2023, the contribution rate of 18.6% of gross wages must be increased yet again. This is already a hefty percentage of gross income and it is not going to be enough.
— Read on www.armstrongeconomics.com/international-news/germany/the-german-pension-crisis-to-become-a-political-issue-as-in-italy/