Originally published on June 25, 2021 by TraderStef at CrushTheStreet
The U.S. national debt is closing in on $30 trillion this summer and clocking in at 127.5% of gross domestic product (GDP) as of 1Q21 as history and early indicators for the housing market point toward another deflationary cycle on the horizon. Any fantasies you may have about returning to an actionable debt limit, paying off our sovereign debt with mathematic machinations via fractional reserve banking, or revisiting a goldilocks economic situation are not based on reality.
Debt-to-GDP Ratio… “As a rule, the higher a country’s debt-to-GDP ratio climbs, the higher its risk of default becomes. If a country defaults on its debt, it often triggers financial panic in domestic and international markets alike. A study by the World Bank found that countries whose debt-to-GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns in economic growth. Pointedly, every percentage point of debt above 77% costs countries 1.7% in economic growth.” – Investopedia
“We just saw the biggest 2-month miss in new home sales since the beginning of the housing bust.” – Otavio (Tavi) Costa, Jun, 2021
Remember Jun. 2017, when Yellen muppet’d us all by proclaiming another financial crisis in our lifetime was unlikely when the national debt was at $19.8 trillion? I opined about that gaffe with “Yellen Flipped to a Financial Crisis Trigger in Your Lifetime” in Dec. 2018 when she backtracked on crisis divination.
Former Fed head Janet Yellen warns of potential financial crisis ahead… “’I think things have improved, but then I think there are gigantic holes in the system… The tools that are available to deal with emerging problems are not great in the United States.’ Yellen cited leverage loans as an area of concern… She said regulators can only address such problems at individual banks, not throughout the financial system… ‘I’m not sure we’re working on those things in the way we should, and then there remain holes, and then there’s regulatory pushback. So, I do worry that we could have another financial crisis.’” – NBC News, Dec. 2018
Yellen has returned to public service in the financial arena for the new Biden administration as his Treasury secretary. This time she pulled a catastrophe trigger instead of the crisis trigger she owned as the Federal Reserve chair. She cannot blink in reverse during this pandemic era because “The Naked Emperors’ Great Reset” brokers will not allow her and the Fed the luxury or time to pull a Jean-Claude Juncker upon awakened plebeians. The globalists know exactly what they’re doing and told us how via Klaus Schwab from the World Economic Forum (WEF).
‘When it becomes serious, you have to lie’… “‘We decide on something, leave it lying around and wait and see what happens. If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back,’ he said of the euro’s introduction. At the height of the eurozone crisis, Jean-Claude Juncker was described as the ‘master of lies.’” – The Telegraph, Nov. 2014
Yellen Pleads with Congress to Raise Debt Ceiling or Risk ‘Unthinkable’ Default… “Yellen made the remarks in testimony before a Senate Appropriations subcommittee, urging lawmakers to raise the legal cap on how much the federal government can owe, while warning that, if they don’t agree, there could be ‘absolutely catastrophic economic consequences. I think defaulting on the national debt should be regarded as unthinkable.’” – Epoch Times, Jun. 2021
Why the whole banking system is a scam – Godfrey Bloom MEP
In the meantime, Biden and your congressional representatives are wheeling and dealing for infrastructure spending and expanded social program legislation with a price tag of $1 trillion to $6 trillion depending upon how you slice and dice socialism.
Even Democrats are balking at Bernie Sanders’s $6 trillion spending plan… “‘What we are working on right now is on a budget that builds on the proposals that the president has brought to us,’ Sanders told reporters after the meeting… President Joe Biden earlier this year sent a $6 trillion budget proposal to Congress that built on his two-part infrastructure and social spending proposals. The plans would pay for crumbling roads, bridges, and waterways and would also fund universal preschool, free community college, paid leave, and green energy initiatives.” – Washington Examiner, Jun. 21
‘We have a deal,’ Biden says after meeting with Senate infrastructure group… “The sides still need to finalize how they would pay for the plan, as Republicans vow not to touch their 2017 tax cuts and Biden says he will not raise the gas tax or electric vehicle user fees… Senate Majority Leader Chuck Schumer, D-N.Y., and House Speaker Nancy Pelosi, D-Calif., have signaled they will support the bipartisan framework. They aim to pass it in concert with a larger bill that addresses more of their priorities without Republican votes. The Senate has started to work on the budget resolution that would allow Democrats to use the reconciliation process to pass the plan(s). Democrats will have to try to convince skeptical progressives to support the narrower bipartisan infrastructure deal, and centrists to back a sprawling plan to expand social programs and fight climate change.” – CNBC, Jun. 24
An upcoming “X-Date” is the first fly in the ointment. That is when the federal government will no longer be able to meet its obligations in full and on time. In Aug. 2019 (six months before the U.S. pandemic lockdown), a bipartisan budget deal suspended the debt limit for two years. On Aug. 1, 2021, the debt limit will be reinstated at a level covering all borrowing that occurred during the suspension. If the suspension lapses, the Treasury Department cannot raise funds by selling government securities and can resort to emergency measures to float the Titanic for only a brief time period.
Republicans have been vocal in their opposition to any new big-ticket spending proposals and the Biden team is hawking a $1 trillion to $6 trillion budget-buster deal. Since the infrastructure plan is now split into two, a smaller $1.2 trillion bill focused on infrastructure and separate but much larger legislation for social programs wrapped in the new green deal via a reconciliation process, a battle will ensue that needs settlement before Aug. 2021. That is why Yellen is gung-ho to obliterate any debt limit barriers before your congress-critters leave for summer break in August.
The second fly in the ointment is the credit rating of the U.S. A standoff over raising the debt ceiling in 2011 resulted in a downgrade by Standard & Poor’s of the U.S. government’s AAA-bond rating to AA+. The other downgrade that stands out was from Fitch in Jul. 2020, when they revised the U.S. outlook from stable to negative and highlighted that the U.S. had the highest debt of any AAA-rated sovereign and no fiscal fix following the pandemic shock. They predicted the debt to exceed 130% of GDP in 2021, and they were correct.
We could have a credit rating crisis on our hands if the infrastructure/new green deal legislation turns into a goat rodeo and the debt limit mandate is not mitigated. Keep your investment house in order as usual because this summer is littered with potential black swans ranging from geopolitical tensions, war, and domestic dystopia.
Biden says US more divided than at any time since the Civil War… “Also said it was initially harder to convince Blacks to get vaccinated because ‘they’re used to being experimented on.’” – Fox News, Jun. 24
M.I.A. – Paper Planes: All I Wanna Do Is Take Your Money
Plan Your Trade, Trade Your Plan
NONE of the content produced by TraderStef™, staff members, or any services associated with this website should be construed as financial or investment advice. Financial investment is a risky endeavor and may lead to substantial loss. Always perform due diligence before undertaking any financial decision. Not a Financial Advisor. Copyrighted Material – A “by TraderStef” credit linked back to this website is required when using any quotes, technical analysis charts, or publishing a partial version of an article.