Endgame

Interest Rate Response

I don’t read ZeroHedge much anymore because they don’t understand and/or deny the relationships between energy, overshoot, and the economy.

Today the US Fed lowered the interest rate so I had a peak at ZeroHedge to see what the knuckleheads were saying. It seems we’re approaching a Minsky Moment.

https://www.zerohedge.com/news/2019-07-31/endgame-starting-2024-all-us-debt-issuance-will-be-used-pay-only-interest-debt

Endgame: Starting In 2024, All US Debt Issuance Will Be Used To Pay Only For Interest On Debt

As we first pointed out back in March, when looking at the US ‘income statement’, most concerning by far is that for the first four months of fiscal year 2019, interest payments on the U.S. national debt hit $221 billion, 9% more than in the same five-month period last year, with the rate of increase breathtaking (see chart below). As a reminder, according to the Treasury’s conservative budget estimates, interest on the U.S. public debt is on track to reach a record $591 billion this fiscal year, more than the entire budget deficit in FY 2014 ($483 BN) or FY 2015 ($439 BN), and equates to almost 3% of estimated GDP, the highest percentage since 2011. In fact, as of June 30, US interest had already surpassed $600 billion.

In short: in the stylized cycle of the US “Minsky Moment”, the US will enter the penultimate, Ponzi Finance,phase – the one in which all the new debt issuance is used to fund only interest on the debt – some time around in 2024.

From that point on, every incremental increase in interest rates, which will eventually happen simply due to rising inflation expectations, will merely accelerate the ponzi process, whereby even more debt is sold just to fund the rising interest on the debt, requiring even more debt issuance, and so on, until finally the “Minsky Moment” arrives.

At that point, while we don’t know yet what the next reserve currency – either fiat, hard or digital – after the US dollar will be, we urge readers to own a whole lot of it.

In case you don’t understand any of this, let me simplify:

We are using more debt to fix too much debt, and not one of our leaders understands that fossil energy depletion is why we have to borrow $3 $4 of debt to generate $1 of growth, nor that doing so is a really bad idea.

Removing the Safety Valves

Pressure Cooker

Something big has recently changed in our culture.

We no longer accept any unpleasant reality, no matter the costs of denying it, nor the benefits it might return in the long run.

For example, parents who do not permit their children to play unsupervised for fear of a scuff. And school teachers who no longer fail anyone and mark all students as above average. And high schools that fly their students to Europe rather than make them sweat on the West Coast trail. And universities that have dumbed-down their curriculums. And citizens who refuse to accept election results and blame fictional demons rather than questioning their own beliefs. And environmentalists who promote green growth rather than austerity and population reduction.

Recessions function like the safety valves on a pressure cooker that prevent a dangerous explosion. Recessions used to be viewed as a normal event that purged malinvestments and poor performers thus allowing healthy re-growth in the next cycle.

Today we are unwilling to accept any downturn. As soon as the markets start to drop the central banks step in to prop them up. Extraordinary measures have become ordinary. The absurd has become normal.

We’ve removed most of the safety valves and the pressure is building. Soon the pressure will be so high that we’ll be forced to remove the last safety valve and start handing out printed money to citizens, thus risking a repeat of the Weimar event and its terrible consequences.

It’s not like we need to abandon capitalism and free markets. To the contrary, all we need to do is let markets function the way we pretend they function.

I understand all the thermodynamic reasons that we might not want to let a recession take root, but I ask you, how is delaying the inevitable going to make things better? It’s not. It’s going to make things much worse.

Our only choices are do we want to fall from a higher elevation later, or climb down from a lower elevation sooner?

Where are the adults?

The Fed Stops Pretending by Peter D. Schiff

The elephant in the room that no one wants to acknowledge is that the “unconventional” policies that were introduced to fight a “once in a century” crisis are now the conventional policies of choice to combat the normal fluctuations of the business cycle. But zero percent interest rates and quantitative easing only worked a decade ago because people thought they were temporary. If they knew that the policies were permanent, the dollar may have plummeted and the resulting inflation may well have overwhelmed any benefits the stimulation delivered. But the naïve belief that the Fed could reverse course, unwind its bloated balance sheet and normalize interest rates, kept the game going and kept the dollar strong. Now that the illusion may about to be shattered, the dollar may not survive the next round of enhanced QE and ZIRP.

QE4 will have to be larger than the three earlier rounds combined, as the annual Federal budget deficits could exceed 3 trillion. However, while China, Russia, and many emerging market nations were eager buyers of Treasuries during those initial rounds, they may likely be sellers of Treasuries during the next round. That means none of the inflation created to finance QE would be exported. So the big price increases next time may take place in the supermarket rather than the stock market. Americans would finally be forced to deal with the adverse effects of inflation that we have been spared for the past 10 years. It’s not going to be pretty.

https://www.fxstreet.com/analysis/the-fed-stops-pretending-201906100556

Hat tip to Panopticon for his excellent daily posts on the economy and climate.

https://climateandeconomy.com/2019/06/10/10th-june-2019-todays-round-up-of-economic-news/

Saving the World by Recycling My Garbage

 

Recylcing

A year ago I wrote an essay that tried to capture the depth and breadth of our predicament, and that offered a simple idea for increasing awareness, gratefulness, and temperance.

If you’re not an engineer the essay may be a painful read because my goal was to communicate maximum content with minimum words in a single sentence, and it thus reads like a computer program.

Nevertheless I like the essay because it touches on, and integrates, every topic that citizens should understand, but almost none do.

The essay did not get much traction when it was published, so I’m recycling it today for the pleasure and enlightenment of the millions of new readers that now follow this blog.

I make the bold claim that this essay holds the all-time world’s record for the highest number of important ideas in a single sentence, and the highest ratio of important ideas to words in any essay, with 86 important ideas and 1290 words it’s ratio is 6.6%.

I’m confident that readers will not be able to find another essay that unseats my world record, however if I’m proven wrong, I will publicly admit that I have the same denial genes as the rest of you monkeys.

Here’s the link to my world record essay….

On Burning Carbon: The Case for Renaming GDP to GDB