The Pain of Debt

So for this first foray into writing about financial markets I will use this first article as a prologue. My opening scroll consists of things that I find interesting and things that I have spent the better half of 2 years learning deeply about from people far more wealthy and credentialed than me. However, the value I bring is I have digested this market information and I believe I understand it enough to relay it to the average person and in some ways talk to those who think they understand how our modern economy works.

Many remember the movements that started up right around the 2007-2008 housing market bubble crash. We had Occupy Wall Street and the Tea Party Movement. Both movements instinctively knew the system is rigged, its a pay to play system for the elite on Wall Street and in Washington DC. However along comes the 2016 presidential run and Donald Trump (then candidate, currently president) would talk about the economy as phony, that unemployment was really low because the statistic didn't count those not looking for work. Trump called the economy recovery fake - that the Federal Reserve (Fed) was playing with numbers to make things appear as if the economy was alright.  However just like a cheap high - an influx of cheap money with near 0% interest rates and four rounds of Quantitative Easing (QE)1 has not corrected the damage from the bubble that very few predicted.  One of the few that foresaw the housing bubble was the Representative and future presidential cadidate Ron Paul of Texas in 2003 who stood on the house floor, live on C-SPAN warning congress of the impending financial crisis.  By 2005 Peter Schiff, an american stock broker and financial commentator was on to the same conclusions as Dr. Paul. I will also mention that author and professor Thomas Sowell has also been a large critic of the Federal Reserve for most of his professional career. 

So back to President Trump. He is now taking credit for a new economy - but what had changed? The tax cuts are not a true slash in the size or scope of government. In fact government spending, therefore government debt, will  go up again! More military and welfare spending that the prior president started is shooting the United States national debt to $21 trillion. This is also due to ignoring unfunded liabilities. There have been very few cuts to taxation, regulation or trade deals - therefore the economic impact of the United States has relatively been unchanged. In fact the only reason why people are talking about the “booming” stock market is because it is mostly driven by the motivation. Investors and in general people “feel” more optimistic.  

Trump taking credit after just 2 years for this economy is very dangerous for the future. The Fed have responded to the last crisis by printing so much money that was cheap to borrow and had very damaging effects. The disease we have is an economy stimulated by debt. The average American is highly leveraged (just look at student loans), the average US corporation is highly leveraged and a lot of the stock market growth is from central banks investing cheap money back to companies. These companies then turn around and rebuy there own stocks. 

To end this prologue and to lay the groundwork for where future articles will lead, let us look at the symptoms of drugged economy. 

The United States Government is highly leveraged and the Federal Reserve for all its talk about shrinking its balance sheets, had done very little if any. The bond market is extremely dangerous, and many predict this could be the cause of the looming major crash.

The American people are debt saddled, highly educated and mostly skills deprived. We live a lavish lifestyle that is paid for by the cheap goods coming from countries like China. The reason we have a trade deficit is because we have no investments, no savings and very weak production, production being the driving force of sound economy. This also does not take into an account that millions upon millions of people are out of work, refuse to work or live off the massive welfare state. 

The US dollar has reached total Fiat status. Most transactions are completed digital and due to fractional reserve banking system the risk of the Dollar reaching stagflation are very high. The costs of living are already rising beyond the targeted inflation rates. 

And finally US Foreign Policy is keeps this massive bubble on life support. If it wasn't for the constant continuation of endless wars in the middle east that prop up American weapons manufacturing this bubble would have burst much sooner. 

More to follow along these topics as there is a ton of data, facts, miss information and detail to break down here.

1: the introduction of new money into the money supply by a central bank.

-Howard Roark

http://podcasts.joerogan.net/podcasts/peter-schiff-3
https://mises.org/library/us-household-debt-rises-all-time-highs
https://mises.org/wire/end-cheap-debt-will-bring-wave-bankruptcies