In Debt We Trust
On May 7, the U.S. national debt officially reached $25 trillion for the first time in the country’s history. Under any normal circumstances, this would capture mainstream headlines. However, since the Coronavirus economy is still enrapturing the world and everybody wants to spend until America's finances defy the space-time continuum, the once-in-a-lifetime event elicited a shrug.
As the nation crosses such a historic threshold, here are some figures to file for future reference:
The debt per citizen is $76,000.
The interest on the debt is about $383 billion.
The federal debt-to-GDP ratio is 117%.
S. debt held by foreign countries is $7.2 trillion.
America's unfunded liabilities exceed $147 trillion.
You should never delude yourself into thinking this red ink will be cleaned up anytime soon. It does not matter if the next administration raises the corporate tax rate by 10%. It will not make one iota if Congress applies a 0.5% speculation levy on Wall Street. Republicans and Democrats could confiscate the fortune of every millionaire and billionaire by 100% and it would hardly make a dent to the federal debt.
At this point, the only thing the U.S. can do is maintain the status quo by monetizing the hemorrhaging, perpetually borrow from private investors and foreign governments, and ensure the dollar remains the world’s chief reserve currency. If any of these components change, Kansas is going bye-bye.
A Tariffying Sequel
Are you ready for another lengthy, tumultuous, and damaging U.S.-China trade war? It looks like President Donald Trump is planting the seeds for a second spat between the world’s two largest economies. As his administration attempts to seek retribution over Beijing’s mishandling of the Coronavirus pandemic, the president’s team is looking for ways to punish China. Tariffs seem like the top option for the White House.
It has only been a few months since both sides signed a historic phase-one trade agreement. President Trump noted that any import levies would not impact this deal, but it would be difficult for President Xi Jinping and his communist government to ignore when the state tries to adhere to the provisions of the current arrangement. Could Beijing choose to abandon the first phase and partake in another dispute?
Washington could always make the case that China has failed to live up to the elements of the first phase, so it has carte blanche to slap new penalties and restrictions. A bunch of year-to-date data dumps reveal that the country is not even halfway to meeting its monthly targets. Although Chinese importers have been striking several deals with American farmers over the last month, it may not be enough to satisfy the incumbent administration.
The White House has repeatedly stated that the COVID-19 pandemic would not be used as an excuse not to stick to the deal. The president is reportedly going to provide an official update to the press this month, though he recently noted that the pact is taking a backseat to mitigate the pandemic.
“We're watching the deal very closely. They understand. They have a deal and hopefully, they are going to keep it. They may or they may not, we'll see,” President Trump told reporters.
Whatever happens, the rumblings have global financial markets on edge. When the reports first surfaced, the leading stock indexes tumbled. As we saw for 18 months, equities reacted favorably and negatively on every piece of news regarding negotiations. At a time when there is so much economic pain throughout the international marketplace, the last thing anyone needs is a trade war. A recent survey found that 71% of Americans are concerned about new tariffs, and industrial lobbying firms have been accelerating an anti-trade war campaign.
Just when you thought 2020 could not get any more bizarre!
Where's the Beef?
Is this the beginning of the much-anticipated price inflation explosion? This past week, wholesale beef prices soared to an all-time high of $400 per hundredweight, doubling the 2019 average. The spike came as Costco and Kroger announced they have very limited supplies of beef, so do not be upset if you cannot barbecue some steaks and hot dogs. There is always Beyond Meat!
On the other side of the lockdown, the cost of goods and services that consumers want is likely to spike. Price inflation could increase as much as 8% over the next 12 to 18 months. If the U.S. and China renew their trade war, many American consumers could witness a double-digit sticker shock that would intensify the COVIDepression and make matters worse.
You are already starting to see it unfold, thanks to disruptions to global supply chains and the money printer go brr trend occurring in the United States and the rest of the world.
Sure, certain segments of the marketplace will produce some deflationary effects, such as cruise lines and air travel. For the most part, a trip to the supermarket, a visit to the local picture house, and a meal at a restaurant will inevitably cost you more. This could be the worst development in the post-Coronavirus world because everyone will try to refill their coffers, pay off their debts, and prepare themselves for the next major meltdown. It will not help matters that the government will need to raise taxes, at least in specific areas, to cover the astronomical spending that took place during these devastating times.
What could a family of four and a pet hamster do? Grab your precious metals! You’re gonna need ‘em.
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Read more from Andrew Moran.
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