"Have They All Lost Their Collective Minds?"

Authored by Sven Henrich via NorthmanTrader.com,

Have they all lost their collective minds? Look I get that some people are leaning Democrat versus Republican and vice versa and that’s fine, but what exactly are voters getting? If, on the one hand, you think Democrats tax and spend too much you get Republicans on the other hand who cut taxes with disproportional benefit to the top 1% and then spend even more. Fiscal conservatives? Please.

In early February the US government was already scheduled to borrow nearly $1 trillion this year. 

A week later and that figure is already out the door as this week both parties agreed to expand spending caps seemingly preparing for World War III. An incremental hundreds of billions of dollars to the military budget alone in just 2 years. What for? To what end? It’s a bonanza for defense contractors surely and the president apparently wants a parade, but have we entered the math no longer applies zone?

The numbers are staggering:

The end result? Much, much more borrowing and deficits into the trillion+ range forever and ever amen:

2019? Looks lot be $1.4 Trillion.

I didn’t see these figures mentioned in any campaign brochures have you? And this is all pre-recession folks. We get a recession and you are looking at 2-3 trillion dollar deficits.

Think I’m going hyperbole on you?

Watch this: Here’s a chart I posted back in 2016 when I called all this Empty Promises. Look at what the CBO then had projected in terms of coming deficits for 2018 and 2019:

I spot roughly $500B for 2018 and a little over $600B in 2019. Now we’re looking at figures double these for the same time frame and that’s ASSUMING the rosy growth forecasts they’ve all baked into these forecasts come to fruition.

These numbers don’t represent a slight increase, they represent a deficit explosion and the CBO forecast from 2016 for the 10 years into 2026 are already hopelessly outdated. At the current rate we’ll be hitting $24 trillion by the next presidential election.

In case nobody has noticed: Rates are going higher and any new borrowing will be at higher rates and old debt will have to be refinanced at higher rates. Reduce tax revenues in the process and you end up with a fiscal disaster.

Indeed rising interest payments will represent the fastest growth line item in the US budget:

“Interest On The Debt Will Be The Fastest Growing Part Of The Federal Budget…By Far. Forget Medicare, Social Security and the Pentagon: $1 trillion-plus deficits means massive increases in the national debt and that debt will have to be borrowed at higher interest rates (see #1). Add the need for the Treasury to roll-over existing debt at higher and higher rates and you get an immediate increase in the amount the U.S. will need to spend on interest each year.”

Watch this space:

Some people may argue that tax cuts will bring in so much economic growth it will all pay for itself. There is precisely zero evidence for such an assertion:

If you know your tax cut history you know where in the chart above major tax cuts were passed. The debt continued to rise and will continue to rise as spending continues to be expanded.

But here’s the kicker: Never in modern times have we seen tax cuts being implemented and spending increased with debt to GDP north of 100%:

Many corporations are drowning in debt, as are consumers, and so are their interest payments:

People invariably argue and say: Yea well, but as a percent of disposable income it’s not so bad. Yes, it’s called artificial low rates, they can mask a lot, but what is currently the situation is not the point, it’s sustainability of debt loads in the very immediate future.

As you saw in the above data we are already seeing a vast increase in interest payments despite rates having barely moved off of the historic zero bound line.

Here’s the prime rate history dating to the early 80’s:

We’ve barely scrapped off the bottom yet.

A sign to cut down on debt?

Nah, just keep charging it:

To fully grasp the depth of the insanity just follow the math:

“As for total debt, the CBO last predicted borrowings of $25.5 trillion by 2027. According to Riedl, the tax cuts, new discretionary outlays and additional interest on the extra spending could add $5 trillion to that number, bringing the total of $30 trillion. That’s 107% of the national income estimate projected by the CBO. The scariest unknown is what happens to interest expense. At $25.5 trillion, the CBO forecasts outlays for interest of $818 billion in 2027. Going to $30 trillion will raise the load to over $1 trillion. One dollar in seven in spending would be going to interest, versus one in 15 today.

And that scenario assumes that the yield on the 10-year Treasury increases to just 3.5% over the next decade, far below its historic average. “If rates go to their average in the 1990s,” warns Riedl, “the deficit will go not to $2 trillion, but to between $2.5 and $3 trillion.

I must repeat: Not one of these projections assume a recession.

So I must ask again: Have they all lost their collective minds? I see no party even pretending to care anymore. Debt ceilings? Gimmicks. Fiscal conservatives? A slogan. Caring about the obligations of future obligations? Nobody cares.

I’ve expressed my concerns before (see below) and the recent data points show an acceleration in debt accumulation into rising rates that takes the breath away.

Related Reading:

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Comments

Beam Me Up Scotty Dame Ednas Possum Mon, 02/12/2018 - 08:53 Permalink

" At the current rate we’ll be hitting $24 trillion by the next presidential election "

Thats all??  Hell the debt doubled under Obama, from 10 trillion to 20 trillion.  His debt was more than all the presidents who came before him COMBINED!!  From George Washington to GWB.  So if all we are is 4 trillion more in debt in 4 years, I would say thats pretty darn good!!  If Trump pulled an Obama, we would be looking at 30 trillion in 4 years, and 40 trillion in 8.

In reply to by Dame Ednas Possum

Sparkey WHATDIFFERENCE… Mon, 02/12/2018 - 10:52 Permalink

"If Nobody cares its because nobody can seem to remember what happened yesterday."

Can you remember what was the big story on TV last week? I don't and I don't think very many do, when there is no memory there is no history, and even though we now understand History is only what you think it is, a good historical narrative blending, as it must, fact and fiction, can lead to positive results.

No History means no roots, no roots equals no security, there is no security anymore.

In reply to by WHATDIFFERENCE…

eclectic syncretist Dame Ednas Possum Mon, 02/12/2018 - 08:57 Permalink

Please refrain from calling it "borrowing". Nothing is "borrowed" to create the "money" that becomes part of the national debt. It is merely printed into cyberspatial existence. The term "counterfiat" seems much more appropriate for a truthful description of what the federal reserve, bankster cartels, and US treasury do. Their parasitical skimming operations are unconstitutional and should be eliminated permanently.

In reply to by Dame Ednas Possum

Sparkey eclectic syncretist Mon, 02/12/2018 - 09:23 Permalink

I gave you an upvote, Look at this as an experiment, can an entity spend it's way to 'Victory' using 'Money' as it's primary weapon, this definitely works against weaker opponents in the Arena where the Money makes the rules, will it work against an Enemy which makes it's own money, and has it's own accounting rules? The experiment is underway and the answer will eventually be revealed. This is a very interesting time to be alive for folks like you Eclectic, people who can see a little bit past the Facade of the conventional description of reality ! 

In reply to by eclectic syncretist

Give Me Some Truth BaBaBouy Mon, 02/12/2018 - 09:00 Permalink

Re: Manipulate gold down and all is well ...

Bingo! This HAS to take place for the can to keep being kicked, for the Status Quo to stay the Status Quo. Everything "they" want is possible ... as long as the canaries of gold and silver do not sing their warning song.

In reply to by BaBaBouy

BandGap FreeShitter Mon, 02/12/2018 - 08:47 Permalink

That's the plan. When you know you're going over the cliff and your brake pads are gone, may as well step on the gas.

The US will try to buy as much shit with paper before the paper becomes useless, it's that simple. Why limit spending, why implement austerity, when the bottom is about to fall out anyway?

China has made it official - the yuan will be used to purchase oil directly on March 26th. The dollar assumes a position with the rest of the pack of worthless promises.

In reply to by FreeShitter

Give Me Some Truth Oldwood Mon, 02/12/2018 - 09:08 Permalink

Yes, China no doubt could end the whole charade/game by simply disclosing how much gold their nation has really acquired and by demanding America show how much gold it still owns "free and clear."

But if China did this they would harpoon the economy of the nation who buys most of the widgets their factories produce. Probably not going to happen. Plus, China is probably a partner with American and other nations in rigging the gold "markets" that have allowed them to accumulate so much real money. 

At some point - point of no return? To block America from starting a nuclear war? - China might have to show its cards. At some point, one assumes they will do this somehow. But this might be 10 years, 20 years down the road. This nation is patient if nothing else and playing the long game.

Also, I agree, they are in the same debt boat. Their politburo probably also gets the necessity of being able to print fiat whenever needed.

In reply to by Oldwood

bluez Oldwood Mon, 02/12/2018 - 09:21 Permalink

The Big Owners have simply sold the USSA productional system to China. And as long as they can obtain energy to power it, they can simply milk it like a colossal cow. Meanwhile, the Big Owners are spending the proceeds of the Colossal Sale on luxurious Deep Underground Bunkers.

They believe we are just cattle to be slaughtered, no better than the Vietnamese.

In reply to by Oldwood

Sparkey bluez Mon, 02/12/2018 - 09:52 Permalink

Sadly, for me to say, I believe your assessment is correct Bluez, there is a war on and the war is against us, I believe the Owners will go down into their Bunkers with dreams of emerging into a World where their wealth and privilege  is intact, where AI robots and Humanatrons do the work and they can live the life their wealth is supposed to bring them in this world but doesn't, life, for the believers, after the Bunker, will be Heaven on Earth! 

Humans can talk to themselves, the voice in their heads is very seductive and when it tells us what we want to hear it is hard not to be affected (deluded ?), I doubt that Importance and Wealth really deliver the Freedom we are led to believe they do and are more like Marley's chains.

Pity the rich they are the prisoners of their fate just like everyone else, and just like everyone else they are swept along by the madness of the times, humans don't create change, we react to change!

In reply to by bluez

chubbar FreeShitter Mon, 02/12/2018 - 09:07 Permalink

Not sure what is so confusing here? The debt system requires more debt each year or you have the demise of the system. Only short periods of true deflation can be allowed. The FED targets 2% inflation, or to put it another way, 2% loss of purchasing power each year to allow for stability of a system that had a "born on date" when it was created. It was known when it was put in place that it would eventually collapse, hence that famous economist saying "in the long term we are all dead". The long term has now arrived.

As debt increases, which is a "feature" of this particular system, interest HAS to go down. Increased debt doesn't allow for interest rates to go up without increasing defaults. Particulary when gov't debt has exceeded 20 Trillion and private debt is at all time highs.

Once you get to the size of gov't we currently have, there is no going back. That is why advocating for smaller gov't is stupid now. We can't go back without cutting so much spending that the economy collapses, which blows up the monetary system through massive private and gov't bond defaults. The gov't is now the economy, with about 1 out of 6 jobs directly tied to this gov't spending.

This is truly a ponzi scheme of epic proportions that is getting ready to collapse from it's own internal failures because it wasn't a viable system, one that could last into perpetuity, when it was created.

 

In reply to by FreeShitter

roddy6667 shankster Mon, 02/12/2018 - 09:51 Permalink

Any time people look to politicians, religious leaders, the military, revolutionaries, etc to solve problems, they have abdicated. They have given up taking care of themselves, and they have lost the right to complain about how things turn out (or don't).

Take care of yourself and your loved ones. That is all you can do. It is more than most people can do. 

In reply to by shankster

Sparkey roddy6667 Mon, 02/12/2018 - 10:07 Permalink

Good enough Roddy, as far as it goes, yet when you are on the Plane you give your trust to the Pilot, If you have no confidence in your own judgment you have to follow the Leader, problems come when the nominal Leader isn't really the leader they are fronting for someone else's agenda, humans can sense that, they may not be able to express it, but inwardly they know it and then they become cynical about everything! 

In reply to by roddy6667

roddy6667 Sparkey Tue, 02/13/2018 - 22:40 Permalink

No need to be cynical. Don't be a part of the media circus of partisan politics. They are no more real than the tabloids with all their TV and movie star trash "news". I think of American politics like this: I have just taken the lid off the septic tank and, much to my surprise, it is filled with people. They are all shouting and arguing about which side of the septic tank is better.  Do I jump down into the shit and take one side of the debate or do I just replace the cover? I chose to stay out of the shit of politics years ago. I started by first not watching the local news-the "if it bleeds it leads" trash. Shortly after, I turned off the national news. I read newspapers from all over the world, but few in America. I can view a forum like ZH because I am a skeptic and don't participate in the American septic tank party.

In reply to by Sparkey

nuerocaster FreeShitter Mon, 02/12/2018 - 11:25 Permalink

Clinton was running it up by different means that also laid the foundations for future running it up.

The Leverage Club ramp, derivatives/deregulation, had money flying in all directions. Systemic fraud and bubblenomics became the new normal.

Real estate fraud and well for example Credit Default Swaps were being counted as capital reserves in Europe. No wonder they needed trillions from the Fed.

In reply to by FreeShitter

TeethVillage88s Stan522 Mon, 02/12/2018 - 09:00 Permalink

Trade Deficit, Globalism, Bread Winner Jobs, Lack of Inventory on too expensive Housing, Foreigners Driving up Markets & Rents & Buying our Dip and our Treasuries, USA Financing Foreigners & Big Bank Projects that benefit very few US Citizens... that is part of what Donald Trump Promised to work on.  AND shift Troops back from overseas to spend in our Economy.  AND why fight expensive MIC Wars or Proliferate Stations overseas?

- Interest Rates going up above world average would stop US Carry Trade or Financing Going Off Shore... Strengthens Dollar, Slows down Exports which hurts US Jobs... Maybe mean higher Food Prices/AG Prices

- Interest Rates going down or staying down support mal-investment, Banker Casino type trading, Paper Pushing to collect 'Rents' on other paper or assets... Weaker Dollar and low interest rates support Exports and potentially US Jobs, Ag Exports

- Trump Appears to put US Jobs, Pensions, Benefits for Retirement, Fiscal Stability on back burner

In reply to by Stan522

Cloud9.5 Stan522 Mon, 02/12/2018 - 10:24 Permalink

The handwriting has been on the wall for some time.  Remember back in the day when Cheney said deficits don’t matter? http://www.ontheissues.org/2004/Dick_Cheney_Budget_+_Economy.htm

The deep state has understood since the 70’s that we are end the end game.  Nobody is going to balance the budget or pay off this dept.  We are in terminal decline.  The resource wars we have been fighting for decades and creative bookkeeping have kept the status quo afloat far longer than even the deep state imagined to be possible.  There is tremendous inertia in this massive system that has kept this monster moving long after the engine died.

It is to nobody’s advantage to talk about collapse in the public sphere.  That simply will hasten the unwind.  Happy talk and self-delusion keeps the lights on for now.  Make no mistake, the guys with the accurate numbers have been making preparations.  The government has bought 1.6 billion rounds of ammunition for Homeland Security.  https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/ralphbenko/2013/03/11/1-6-billion-rounds-of-ammo-for-homeland-security-its-time-for-a-national-conversation/&refURL=https://search.yahoo.com/&referrer=https://search.yahoo.com/

Home Land Security and the Center for Disease Control have been warning us for years to prepare for the zombie apocalypse.   http://www.nydailynews.com/news/national/zombie-alert-issued-homeland-security-article-1.1154245

The majority tends to take these warnings as some kind of tongue in cheek over top hyperbole.  Those of us who have thought this out realize that zombie is a code word for some good old boy who hasn’t eaten in a week with a 308 and a bottle of barbeque sauce.  Consequently, middle America has armed itself to the teeth.   https://www.npr.org/2016/01/05/462017461/guns-in-america-by-the-numbers

If you are finally waking up to the fact that there might be a problem, this is worth a read on taking small steps to get ready:   https://www.theburningplatform.com/2018/02/09/baby-steps-youve-been-woke-now-exit-the-matrix/

 

In reply to by Stan522

Give Me Some Truth Jason T Mon, 02/12/2018 - 09:16 Permalink

Re: There is no "collective mind"

I don't know. I get and accept the author's point. As a matter of semantics or logic, there might not be a "collective mindset." But there is "group think" and "conventional wisdom" and an accepted/preferred "narrative." 

There is "news" that "gate keepers of news" want to prevent from becoming "news." There is a consensus of opinion among the Powers that Be who benefit from the "status quo" that said Status Quo should not be altered.

In reply to by Jason T