As we’ve reported, the US government is spending money like a drunken sailor. But nobody really seems to care.
Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino.
The House and Senate both passed the GOP tax bill yesterday. As of Wednesday morning, it needed just one more vote in the House on some technical changes made in the Senate before it heads to Pres. Trump’s desk.
The media keeps calling the Republican bill “tax reform.” Peter Schiff called that, “fake news.”
Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.
We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.
The US national debt stands at over $21 trillion and neither political party in Washington D.C. seems inclined to do anything about it. In fact, the GOP tax plan winding its way through the political process will add an estimated $1.5 trillion more to the debt over the next decade. And that doesn’t even account for the increases in spending that Congress will certainly approve over that timespan.
Of course, all of this government debt has serious ramifications. Corporations are also piling on credit. Last month, Mint Capital strategist Bill Blain predicted that “the great crash of 2018 is going to start in the deeper, darker depths of the credit market.”
Now consider this. China has an even bigger debt problem than the US, and analysts say it could threaten global financial security.
Loose monetary policy has dumped billions of dollars of easy money into the world’s financial systems over the last eight years, pumping up a whole slew of bubbles. We are still on the upside of the business cycle, with stock markets hitting record levels it seems like on a daily basis. But if history serves as any kind of indicator, a crisis is on the horizon.
What will precipitate it? That’s the proverbial $64,000 question.
Jim Rickards has compared financial crises to an avalanche. Snow piles up becoming increasingly unstable. Eventually, it reaches the point when all it takes is one more snowflake to set off an avalanche.
In a recent column, Rickards highlights three potential “snowflakes” that could set off the next deluge.
Last week, the House passed its version of “tax reform,” along party lines. The final vote came in at 227-205, with the entire Democratic caucus opposing the bill. Thirteen Republicans joined the Democrats in voting no.
The debate now shifts to the Senate where things will likely become more contentious. Wisconsin Republican Sen. Ron Johnson has already announced he opposes the current Senate plan. And the Senate bill differs from the House version – significantly putting off corporate tax cuts for a year. If the Senate can get something passed, the two chambers will have to figure out a compromise plan.
Peter Schiff has been saying the Republicans aren’t even really attempting to reform the tax system. He called the GOP plans “tax cuts masquerading as reform.” Peter is not alone in this thinking.
Last summer, US Global Investors CEO Frank Holmes called debt “the mother of all bubbles.” That bubble continues to blow up.
US consumer debt increased even more than expected in September. According to data released by the Federal Reserve, total credit rose by $20.8 billion, an annualized rate of 6.6%. Analysts had expected an increase in the neighborhood of $18 billion. It was the largest increase in overall consumer indebtedness since last year’s holiday season.
We live in a world full of bubbles. We’ve reported extensively on the stock market bubble, the student loan bubble, and the auto bubble. We even told you about a shoe bubble. Last summer, US Global Investors CEO Frank Holmes called global debt “the mother of all bubbles.”
So what happens when these bubbles start to burst?
In a recent interview, outgoing German Finance Minister Wolfgang Schäuble warned about bubbles and said global debt could set off the next financial crisis.
What happens when government officials spend with virtually no restraint and they don’t have a printing press that can crank out more money?
Last week, both S&P Global Ratings and Moody’s Investors Service downgraded Hartford’s credit rating deeper into junk status. According to a Reuters report, the downgrade puts Hartford near the bottom of the credit scale. This means the agencies view the city as essentially in default with little prospect for a full bondholder recovery.
When we reported on the Toys R Us bankruptcy, we argued that it wasn’t just about shifting shopping patterns away from brick and mortar to online companies. A recent article on TechCo complaining that millennials are broke backs up our assertion.