Friday, December 6, 2019

How The Democrats & Federal Reserve Ensured Trump's Re-Election

The story I'm not hearing...

July 31...Debt Ceiling Deal - July 31st of this year, Senate Democrats carried President Trump's budget deal eliminating the debt ceiling through July 31st of 2021.  This after a majority of Trump's House Republicans voted against the budget deal but House Democrats overwhelmingly passed it.  And thus the debt ceiling was no more.  Since July 31st, the Treasury has issued over $1 trillion in net new debt but that is just the start.  Trump tweeted there would always be plenty of time to make budget cuts "later".
July 31...Federal Reserve begins series of interest rate cuts - On July 31st, the Federal Reserve begins cutting rates and has cut rates from 2.4% to 1.55% or a 35% reduction on the cost of overnight intra-bank lending, the foundation of credit.
August 21.. Federal Reserve restarts QE - In August, the Fed ceased quantitative tightening (QT) and restarted quantitative easing (QE).  The Federal Reserve balance sheet has expanded by over $300 billion in short order, with an $180 billion increase in Treasuries held.  The supposed rationale for the QE restart, inadequate excess reserves or liquidity...
Excess Reserves Not Restarted - With all the new QE, hardly any of it has been added to bank excess reserves...just a paltry $16 billion out of the $306 billion in new currency digitally conjured. 
Direct Monetization - That is $290 billion in new dollars directly in banks hands...and banks do what banks do, which is leverage those dollars by 5x's to 10x's (or more), resulting in...
Asset Explosion - Using the Wilshire 5000 as a proxy (as it represents all publicly traded US equities), US equities have risen $2.42 trillion over the 4 month period as all the new digitally conjured cash has been passed to large banks for the "assets" they held...or about a 8.5x the quantity of new "not QE" and "not excess reserves".
What does that look like?
In dollar terms over the past four months, US debt up over $1 trillion, Federal Reserve held assets up over $300 billion, Fed held Treasuries up $180 billion, Excess Reserves up only $16 billion, direct monetization of $270 billion...resulting in an increase of $2.4 trillion in the Wilshire 5000 market weighted capitalization (chart below).
In percentage terms in just four months, total US debt is up 4.8%, Federal Reserve held assets up over 8%, Fed held Treasuries up 8.6%, excess reserves up just 1.2%, direct monetization up over 18%, and equities up over 8% (chart below).  Not shown is in addition to all this, the Federal Funds rate was also reduced by 35%.
Summary
Trump and the Democrats agreed to spend without limits, Trump and the Federal Reserve agreed to QE4 and mainlining the digitally created cash into the economy (errr...financial assets) via direct monetization.  Trump tweeted, "Budget deal is phenomenal for our great military, our vets, and Jobs, Jobs, Jobs!  Two year deal gets us past the election.  Go for it Republicans, there is always plenty of time to CUT!".  But the true result has been to massively enrich the few who own the vast majority of all assets which are surging upwards and pass all the debt along to the working stiffs.  And once you start pumping digitally counterfeited dollars directly into the markets, you can never stop without a massive asset collapse.  Trump, the Fed, and politico's have broken the market and now they own it.
Trump is truly an evil genius...Dem's are truly self serving dolts...and the Fed is truly the best central bank money can buy.  Or the Fed is the evil genius, Dem's still self serving dolts, and Trump is the best president money can buy.  Either way, Trump, the Democrats, Republicans, and the ultra-wealthy are laughing all the way to the bank. And the vast majority of Americans have been sold into debt slavery.

Further reading...
Putting Monetization Into Perspective. Or "When It Becomes Serious, You Have To Lie" 
and
Indefensible Conclusions - Why Social Security is Far Worse Off Than Advertised 
and
Demographics, Credit Demand, & Money Creation...Why The Federal Reserve Monetization is Just Getting Warmed-Up 
and the macro global picture
Is Elon Musk Right About Global "Population Collapse"???

Post Script - Context
And for those who stuck around, I'll try and put the above in a wider context.  The chart below details why this is the greatest asset bubble in modern history.  The chart shows the market value of all household assets (stocks, bonds, real estate, etc.) as a percentage of disposable personal income (simply put, the value of all assets held by US citizens versus their total national income that may be invested or saved after all taxes are paid).  As the chart below details, as rates go up, asset valuations go down...and vice versa.  And never have asset valuations been so far beyond underlying incomes to support those valuations as now.
Since 1981, household assets as a percentage of disposable personal income versus federal funds rate with primary sources of debt detailed below.  The breakdown of mortgage debt and surge of federal debt since 2008 are not so hard to see.  Plus the Federal Reserve balance sheet is included as those assets will only be increasing from here on out.Below, debt creation by periods, comparing 1960 through 2000, 2000 through 2008, and 2008 through 2019.  Relatively stable corporate debt growth (shifting from capex to share buybacks and dividends due to decelerating organic demand growth), collapsing mortgage debt growth, and surging federal debt growth.  And collapsing mortgage debt and surging federal debt is only just getting started, because...Mortgage debt won't be rising anytime soon and all debt creation will be up to the federal government.  The chart below shows the annual change in young (working age) versus elderly...a surging population of elderly versus huge deceleration of growth among the working age population.  Just a reminder in our fractional reserve system where money creation resides with the banks, on average elderly earn and spend half as much as working age persons and "destroy money" via deleveraging while working age persons "create money" via undertaking new loans (debt).  The long standing balance of growth among inflationary young overwhelming growth among deflationary elderly is, and will continue to be, broken...as is our economic model of perpetual growth.The current and future situation is one of collapsing credit and collapsing money creation as the growth of deflationary elderly overwhelms inflationary working age growth...and into that entirely predictable situation, steps the Federal government, Federal Reserve, and ludicrous politicians to serve the interests of the few at the expense of the many.

3 comments:

  1. "Two government shutdowns have occurred twice since President Trump took office, yet the media failed to properly cover the major event that just happened: A bipartisan agreement on a budget that increased spending caps and suspended the debt ceiling, allowing for more government borrowing until July 31, 2021, which is after the next presidential election. No debt ceiling! Utterly mind boggling that after the daily mudslinging, the majority came together across party lines to sweep the massive governmental fiscal problem under the rug."
    https://www.amazon.com/dp/1686204787

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  2. This might be the most frightening article I have ever read.

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  3. Another way to look at it, the chart that looks very busy but I want you to look at two items, one is the blue bars that show the level of household assets (HH in blue, new high at 567% of disposable income (DPI)) and the mortgage debt level (yellow line). Notice how the wealth (increasing household assets) and the moderate growth in mortgage debt sets a good stage for a confident consumer.

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