Friday, July 27, 2018

National Debt Exploding Is A Fraud Cast Upon Us All

Click (Here) To View National Debt Clock
While we fixate on an improving GDP the national debt is not just growing but it is exploding. A marvelous take on the soaring national debt was recently presented by James Grant on The Sounding Line. It was followed by Jim Chanos speaking on fraud Chanos states, "The fraud cycle follows the financial cycle and so as you’ve noticed for the last eight or nine years… we’ve been in a pretty epic bull market." Both these speakers noted the dangers faced when central banks venture down the path of QE by greatly expanding the supply of fiat money and how the journey ultimately ends in tears.

America is not alone in spending far more than it takes in and running a deficit, however, that does not make it right or mean that it is sustainable. Much of our so-called economic growth is the result of government spending. Both Grant and Chanos claim this has created a false economic script and like a Ponzi scheme, it has a deep relationship to fraud. History confirms that during such cycles the argument flourishes that, "this time is different" but always, in the end, proves wrong.

When first unveiled in March of last year the 2018 financial year budget was projected to be $440 billion. An under-reported and unnoticed report was issued last week by the Office of Management and Budget which is required to from time to time review and update the U.S. federal budget. The report titled the “Mid-Session Review” paints a far bleaker forecast of the deficit going forward than originally predicted. The last report issued in February indicated we were looking at a deficit of $873 billion now for the fiscal year ending on September 30th they are predicting the deficit will come in at $890 billion. This means the deficit is now expected to roar in at double what they predicted in March of 2017.

To many people, such a miss would bring up the question of whether the discrepancy in the 2018 budget is an outlier or a sign of incompetence. This is especially troubling when we look forward to finding the next batch of numbers has also been ratcheted upward drastically increasing next years budget deficit as well. What was projected as a total budget deficit of $526 billion for 2019 Fiscal Year has now been revised to a staggering $1.085 trillion. These numbers, of course, are presented assuming the economy will move forward without a recession or slip into crisis. This moves them away from reality and opens the door to the likelihood if wrong the deficit will be far worse.

Debt Has Grown Faster Than Wealth Across The World
Not only should the sheer size of these numbers trouble us but we should remember that until last year some Washington optimists were forecasting that deficits would begin to decline in 2020 and that we would even have a small surplus of 16 billion in 2026. The updated revisions have washed away this glimmer of hope and replaced it with trillion dollar deficits not only next year but in the year after and even more of these going forward. Interestingly, a read of the summery that begins on page one of the Mid-Session Review comes across as a promotional piece using terms like MAGAnomicics both praising and touting the Trump administration for its vision and great work.

This is a time where it would be wise to remember numbers don't lie but the people using them do. Washington specializes in putting lipstick "On A Pig." and this report is an example of how they re-frame a colossal train wreck into something more palatable. The report even goes so far as to assure us that the deficit will fall to 1.4 percent of the GDP in 2028, currently, it stands at 4.4 percent. Those of you who have followed this blog know that I have written about the national debt on several occasions and in an article at the end of last year it was pointed out that many Americans no longer consider this an important issue. As a result of having survived with little effect what was years ago described as a financial cliff we have become emboldened and now enjoy a false sense of security. Today instead of dire warning we hear news from Washington and the media how the stock market continues to push into new territory and all is well.
Past Estimates Have Been Very Very Wrong

Those who have been through bankruptcy will tell you that running up debt is far easier than paying it off. We should also be aware that figures released by the U.S. Treasury are for public consumption rely on accounting tricks which massively understate how much debt is really being accumulated. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. It is important to remember predictions of future spending and revenue often turn out to be wrong. The chart to the right predicted that by 2019 the national debt would top 12 trillion dollars. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact.

This means that such numbers most likely will prove to be totally unreliable. The ugly truth many people ignore is that starting last year entitlements became the driving force that will carry the deficit higher and higher into nosebleed territory. Even though we have seen deficits reach unprecedented levels the deficits in our future will be dramatically worse. Any claim that Washington has the budget deficit back under control is a total lie. We are currently mired in the midst of the greatest government debt bubble in the history of the world. Circling back to the talk James Grant and Jim Chanos participated in at the New York Historical Society, both men make it perfectly clear they see what is being cast upon us is a giant fraud and we should be dubious of those making promises this will end well.


  1. Entitlements? We PAID into those "entitlements"!
    We need to raise taxes on the RICH that's where most of the wealth is now ending up.
    I don't think "entitlements" is the biggest problem, what about the multi-TRILLION dollar endless WAR & MILITARY budget?
    What about that billion dollar tax cuts for the RICH Trump got passed?
    What about giving our tax dollars to those big, RICH farmers?
    How come it's always the poorest, weakest, most vulnerable people who get the cuts & not the richest?

    END all those unjust, illegal & immoral WARS, close most of our overseas, unwanted military bases, raise taxes on the rich & big, successful corporations who aren't now paying taxes & watch the deficit go away.

    1. Right. According to Fauxcahontas and Bernie, all will be paradise per your calculations. Uh oh, did we forget the gubmint printing tens of trillions of toilet paper $$$. No inflation either. Cut gubmint personnel in half (pensions shrink). Stop foreign "aid". Stop funding the UN. Close many offshore military bases. Cut the pers. armed forces 25%. Cap all all capital spending and taxes
      in every state and locality therein. End "student loans". Stop all illegal immigration aid and payments of any sort. And ,and and , the list is too long. Corporations don't "pay taxes". Any taxes levied are considered "costs of doing business" and are simply recovered by raising the prices of any products or services provided by the corporation. Please. Wake up sweetheart.

    2. Our payments in don't cover the cost of our promised benefits. For example, social security was a Ponzi scheme at the outset.

      "Raise taxes on the RICH" -- it's far worse than that. Forget the 1%. Let's take 100% of all income and assets from every household earning over ~$100,000. That's the top 20%. Even if we did such a ridiculous thing... even that is NOT enough to cover the cost of the benefits already signed into law.

      Multi-trillion endless war and military budget is tiny in comparison to the entitlements. And military is something we in theory could just stop paying for. But the entitlements are legally promised forever.

    3. Unfortunately Shelia requires a few years in economics lessons. Just ignore here. She doesn't even understand that the money printing is the biggest tax of all. How sad.

  2. While prices for debt rose (and rates fell), for every dollar borrowed, two dollars in wealth came into being: ONE cascaded through the GDP economy when it was spent. A SECOND came into being as an asset, a "receivable" on the bondholder's balance sheet.

    Two for one! What genius thought of it?!

    (sarcasm). It was an artifact of a bond bull market, one that by all appearances ended in 2016. While it ran, the quantity of debt issued had no limit. And an OCEAN of bonds was filled.

    As bonds were issued, they amplified economic activity in one industry after another. The new jobs in those industries yielded income, and savings. The savings largely found its way back into DEMAND for BONDS!! What a great Ponzi scheme.

    Each dime of all that debt is someone's asset. Pensions are a form of debt. Promised entitlement spending is a form of debt. All told, the amount of future cash flows promised is truly unimaginable.

    If rates continue higher (no group of men can control the largest market on Planet Earth, the Debt Market) eventually we'll hit our Minsky Moment, when debt-holders stop worrying about return ON their money and begin to worry about return OF their money (h/t to Bob Prechter.) If it sets off a stampede, bond values will collapse, along with all the pensions, wealth and entitlements promised.

    Paradoxically, surviving claims on dollars should rise in purchasing power during that period, same as a dollar bought 9 times more DJIA in 1932 than it did in April 1930.

  3. i hope this isnt a silly question, but ive never actually received a satisfactory answer to it, so here goes.

    Who is this debt due to. And WHY do they keep giving more debt. Whoever 'they' are, must surely be wondering if they are ever going to see any of this debt paid back? I know if i owed my buddy $1,000, and he was broke and asked me for another $10,000, Id be dubious about his ability to pay me back?!?
    Secondly, what are the chances and/or repurcussions of simply, not paying back the debt. Of waking up 1 weekend, and saying, ye're not getting it back - tough.
    (In my head, this is the only way this can end up, am i completely daft?)
    Thanks in advance.

  4. its funny the military is quick about getting the money you owe them but slow as hell on getting you money that they owe to sure youll eventually learn that. your SSLI or SGLI wont show up as a debt payment it will show up in the same column as the debt payment but its not your debt payment

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  6. So now it is August of 2019, we have had two mass shootings in the last couple of days, and this year alone almost a million illegal immigrants have come into our country.. I hear no one talking about the debt or balancing the budget; it is a non issue for any of the "presidential candidates" ! How is this going to end ? Why isn't Trump closing the Borders or doing whatever he needs to do to stop the invasion of people from 40 plus countries coming here not knowing who the hell is in our country literally!?? What am I missing?? HELP me understand this please..