Notes: This is a preliminary list of public companies (listed on a stock exchange with outstanding shares) that grabbed PPP cash that was meant for small businesses. We are fairly certain there will be more now that a second infusion of borrowed cash into the PPP (Paycheck Protection Program) appears imminent.
Sutton/Mehl
Note: This column, while deemed relevant was written by a third-party author. The views, opinions, and content are attributable to the author, not the Institute for Economic Awareness.
Most people don’t understand the cause of hyperinflation. Many argue that we can’t get hyperinflation since asset prices are now under pressure and there is no demand led inflation as most people currently have very little money.
What few people understand is that hyperinflation is a currency driven event. It doesn’t arise as a result of prices going up. Instead hyperinflation comes from the value of the currency imploding. In every case of hyperinflation in history, it is the collapse of the currency that is the cause. So what leads to the currency collapsing. Well, exactly what is happening now around the world, namely unlimited money printing and credit creation. Led by the Fed and the ECB, the whole world is now extending trillions in loans, subsidies and guarantees to companies and individuals. Government deficits are now surging as tax revenues collapse and expenditures increase rapidly. So governments will also need to print money to finance their galloping deficits. The inevitable outcome will be bankruptcy although few nations will admit it.
I produced the debt chart below the first time at the end of 2017 when Trump was elected president. I forecast then that US debt would reach $28 trillion by the end of 2021 and double by 2028 to $40 trillion. These kind of debt increases seemed incredible at the time. But very few people study history and learn from the past.
All we need to do is to go back to 1981 when Reagan became president. Since 1981 US Federal debt has on average doubled every 8 years, without fail. Obama doubled debt during his reign from $10 to $20 trillion. Thus, it was totally in line with history that the US debt would be $40 trillion 8 years later, in 2025.
Until a couple of months ago, it seemed totally impossible to reach these high debt levels. But today it looks like we could exceed those figures by a big margin, especially the 2025 one of $40T. I am not surprised. Because when you make these forecasts you know that there are always unforeseen events that will occur to fulfil them. And the end of the biggest asset and debt bubble in history had to end with an unexpected event.
The bottom part of the graph above shows US tax revenue. It was $0.6T in 1981. Currently it is $3.4T. With the present situation in the US, it is likely that tax revenue will collapse, thus increasing the deficit further. But even at the current level of $3.4T, tax revenue has gone up less than 6X since 1981 whilst debt has gone up 31X.
As the banking system comes under pressure with debt defaults and imploding asset prices together with the $2Q derivatives going up in smoke, the US will be looking at an economic and social situation which is terrifying.
With falling tax revenues and galloping debt and deficit, the US is clearly on the way to default and bankruptcy.
SO WE ARE LOOKING AT THE FINANCES OF A BANKRUPT STATE. No additional printing of worthless dollars will remedy the situation. All it will lead to is a collapse of the dollar and an implosion of US debt. SO HYPERINFLATION HERE WE GO!
But the US won’t be alone, since sadly the EU (ED-European Disunion) and many other nations will encounter a similar destiny. A bankrupt world is the inevitable result of the irresponsible actions of central banks and governments in the last 100 years.
As Voltaire said already back in 1729:
The table below shows all the major currencies since the Fed was created in 1913. The straight line at 100 is Gold which represents stable purchasing power. In the last 100 years all major currencies have gone down 97-99% against gold.
If we look at more recent periods, the table below shows the currencies’ decline since 1971 and 2000. Since 1971 they are all down 98-99%, except for the Swiss franc and Yen, thanks to Nixon closing the gold window.
What few people realise is that since 2000 all the major currencies, except for the Swiss franc, are down 82-87%. This means that in real purchasing power, the currencies in industrialised countries have lost more than 4/5th of their value. So the final leg of the destruction of the current monetary system started 20 years ago. And from 2020 for the next 1-3 years, we will experience the final destruction down to Zero.
But what we must remember is that final fall to the bottom involves a 100% fall from today in the value of the Dollar, Euro, Yen etc. It was always clear that the current monetary system would end like all the others in history since no currency has ever survived in tact with the exception of gold. And the world’s central banks have now started the process that will lead to the demise of paper money as we know it today.
The facts and tables in this article are indisputable. The message couldn’t be clearer.
Still, most people don’t get gold, since less than 0.5% of world financial assets are invested in physical gold.
As I have outlined in many articles, stocks, bonds and property will lose 90-99% in real terms, against gold, in the next few years. Many bonds will lose 100%. And paper money will lose 100%.
Investors who don’t take immediate action are going to lose most of their investment assets. If you own property without debt, you can at least hold on to it but you will stop looking at it as an investment. But sadly most investors in conventional assets, like stocks and bonds, will be paralysed, hoping that Central Banks and Governments will save them yet one more time. But it won’t happen this time as more worthless debt cannot solve a debt problem. So I urge you to take action now.
Stocks will very soon start the next downleg in the secular downturn that started a few weeks ago. So there is a last little window to get out at what will seem like fantastic prices just a few months from here.
Gold has now started the acceleration phase and made new highs in most currencies except for in US dollars. The 2011 high of $1,920 will soon be reached on the way to much, much higher levels.
The three biggest gold refiners in the world in the Swiss canton of Ticino are now operating again but only at 1/4 of normal capacity. So there will be very little physical gold available. Our company can still get hold of gold but the tight supply situation will lead to prices going up rapidly and spreads widening.
Remember that you are not holding gold for illusory gains in worthless paper money. Instead, physical, and only physical, gold is life insurance against a collapsing world economy and monetary system.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
Notes: Almost exactly 6 years to go from $5T to $6T. We’ll ignore the jump from $23T to $24T because of the emergency spending. We assert that the spending would have happened anyway, but omit it in the interests of full disclosure. The jump from $22T to $23T took only 8.5 months. The slope of the debt curve is increasing at nearly the square of the annual increase.
Economists love to talk about ‘escape velocity’ in terms of economic recovery. We’re going to inject that term into the debt discussion. By 2024, the Congressional budget office estimates the national debt will be at $36T – another $12 trillion over top of where we are now. So.. $12T in the next four years. In the previous four years, the growth was around $4.5T.
It doesn’t take a mathematician to figure out if we get to $36T by 2024, there is no going back. In all honesty, that ship has likely already sailed. Our planning needs to move into the next phase now. Where do we go from here? We’ll be addressing that, along with some pointers on general risk management in the weeks that follow.
Just one follow-up question – when was the last time you heard anyone talk about the infamous debt ceiling???? Something to think about during all this time we all have for contemplation.
Sutton/Mehl
**Chart compliments of CNS News**
Andy’s Notes: This is where the Keynesian leanings of policymakers and economists are going to finish off an already weakened currency and the economy that uses it. The question used to be ‘Should we borrow to stimulate?’ Now the question is ‘How much will be enough?’. This progression has occurred over the last dozen years and it’s a global one. Debt is the mighty elixir for all that ails. In a completely unironic twist, the lack of economic ‘wiggle room’ people, businesses, and governments have for dealing with a crisis has been largely caused by a reckless accumulation of debt. Now the solution being offered is even more debt. The world has, in fact, gone insane. Ladies and Gentlemen of the jury, I rest my case.
Sutton
The full impact of the coronavirus pandemic may take years to play out. But one outcome is already clear: Government, businesses and some households will be loaded with mountains of additional debt.
The federal government budget deficit is on track to reach a record $3.6 trillion in the fiscal year ending Sept. 30, and $2.4 trillion the year after that, according to Goldman Sachs estimates. Businesses are drawing down bank credit lines and tapping bond markets. Preliminary signs are emerging that some households are turning to credit for funds, too.
The debt surge is set to shape how governments and the private sector function long after the virus is tamed. Among other things, it could be a weight on the expansion that follows.
Many economists believe low interest rates will help the nation manage the soaring debt load. At the same time, they say high levels of private sector debt could lead to a period of thrift, slowing the recovery if businesses and individuals try to rebuild their savings by holding back on investment and spending.
“People and firms and government are facing a negative shock, and the classic textbook prescription for a temporary shock is to do some borrowing to smooth that out,” says Alan Taylor, an economist and historian at the University of California Davis, who has studied the economic effects of pandemics going back to the Black Death of the 14th century.
Borrowing now amounts to a transfer of economic activity from the future to the present. The payback comes later. “You do have something to worry about in terms of the recovery path,” Mr. Taylor said. Overall U.S. debt as a share of GDP has been rising since the 1980s. Since the 2007-09 crisis, stimulus plans pushed federal debt to post-World War II levels, while household debt shrank as people paid off commitments.
Past crises and buildups in U.S. government debt led to changes in the tax code and sharp fluctuations in inflation. In the private sector, debt loads could become a dividing line between firms that fail and those that emerge more dominant in their industries.
Because states run balanced budgets to avoid large debt, they are likely to dip into rainy day funds in the weeks ahead and could turn quickly to cost cutting to keep their budgets in line in a downturn, squeezing the economy.
Moody’s Analytics sees $90 billion to $125 billion of such cuts or tax increases coming and says the hits will be unevenly spread around the country. New York, Michigan, West Virginia, Louisiana, Missouri, Wyoming and North Dakota are especially vulnerable, it said.
The Federal Reserve, the nation’s central bank, will play the critical role of navigating the nation through the rising tides of debt. It sways the cost of debt service, whether inflation emerges and whether banks and other financial institutions can bear the burden of lending that the nation demands.
So far the Fed is getting high marks from President Trump and many economists and investors for moving quickly to make credit widely available, though it faces challenges and uncertainties deciding how far to extend itself and when and how to pull back. On Thursday, it announced more programs to support $2.3 trillion in lending.
During and after the 2007-09 financial crisis, the Fed expanded its own portfolio of securities and other holdings from less than $800 billion to $4.5 trillion. The Fed unwound some of that as the expansion took hold. Now, in the initial stages of the coronavirus crisis, it has stretched its holdings from $3.8 trillion last September to $5.8 trillion as of April 1, and is on track to increase them by trillions more in the months ahead.
“Had the Fed not come in these past few weeks, we would have had a combination of the Great Depression and the 2008 financial crisis,” said Mohamed El-Erian, chief economic adviser at Allianz, the Munich-based financial firm.
The U.S. government currently has $17.9 trillion in debt held by private investors and other governments—the amount it has borrowed from others to fund its annual budget deficits. That works out to 89% of U.S. gross domestic product, the highest since 1947. Before the coronavirus crisis, debt and deficits were pushed higher by ramped up government spending on military and other programs and tax cuts enacted in 2017.
Government borrowing will soar in the months ahead due to the $2 trillion economic rescue program, higher spending on programs like unemployment insurance and an expected fall in tax revenues amid lower incomes and corporate profits.
Mr. Trump is pushing for an additional Washington stimulus program focused on infrastructure spending. House Speaker Nancy Pelosi said another round of stimulus could exceed $1 trillion. That could include an expansion of small business loans and grants by another $250 billion.
Dear Readers, Andy was on Liberty Talk Radio again with Joe Cristiano to discuss the 2020 economic stimulus package recently passed by Congress. We’ve reached a critical inflection point as a country – we now ‘need’ these stimulus programs / bailouts to continue to function in our current monetary and economic system. During the crisis of 2008, there was a chance to change course. With the passing of 12 subsequent years, so has the chance to sufficiently alter course. We’re locked into the petrodollar system until the next currency model emerges.
For convenience and at the request of several readers, we’re adding the audio from the discussion in mp3 format. You may listen below or download it by right-clicking the link. More updates to follow.
Sutton/Mehl
https://www.andysutton.com/blog/wp-content/uploads/2020/03/ltr_03282020.mp3