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How Much Debt Does The U.S. Really Have?

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A Pfennig For Your Thoughts November 21, 2019 * Currencies and metals continue to drift… * Fed’s FOMC Minutes show commitment to pausing rate hikes… Good Day… And a Tub Thumpin’ Thursday to you! I do believe I’ll be doing some tub thumping this evening, as I heard from a little bird that several of my former desk mates are planning to make the trek to my favorite watering hole this afternoon… I’m as excited as a kid at Christmas this morning… Well, my visit yesterday to the oncologist was good… She loves me, I have to say… Which is great for one reason… When I complain that the chemo is making me too sick, she says, “Ok, back off of it until you feel better”… And that’s where I am now… I’ve had a horrendous week of stomach problems last week, and she was concerned with my weight loss… (no

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A Pfennig For Your Thoughts

November 21, 2019

* Currencies and metals continue to drift…
* Fed’s FOMC Minutes show commitment to pausing rate hikes…

Good Day… And a Tub Thumpin’ Thursday to you! I do believe I’ll be doing some tub thumping this evening, as I heard from a little bird that several of my former desk mates are planning to make the trek to my favorite watering hole this afternoon… I’m as excited as a kid at Christmas this morning… Well, my visit yesterday to the oncologist was good… She loves me, I have to say… Which is great for one reason… When I complain that the chemo is making me too sick, she says, “Ok, back off of it until you feel better”… And that’s where I am now… I’ve had a horrendous week of stomach problems last week, and she was concerned with my weight loss… (no biggie, like removing a bucket of sand from the beach!) So… the decision was made to back off the chemo for a week… YAHOO! It’s like Christmas came early for me this year! I’ll get to celebrate Thanksgiving next week, and not worry about what I put in my stomach! YAHOO! OK… enough of that… Elton John greets me this morning with his song: Levon… (one of Elton’s best in IMHO)

OK… Well, yesterday saw no movement in most of the currencies, and they have settled into a drifting pattern where traders don’t know what to do… They know that buying dollars right now seems like the wrong thing to do, but buying most of the currencies in the world is also a bad thing to do… Of course if they asked me… I would point them in the direction of Russian rubles… But then that’s just me! The ruble still pays, relative the rest of the world, a nice interest rate, and the currency has been pretty steady Eddie for some time now… So, if the dollar traders need some direction… there you go!

I was exchanging emails with a long time reader the other day, and we were talking about how the Central Banks of the world are sending their respective economies to hell in a hand basket, and I said, “that’s why I like the Russian ruble, their Central Banks seems to “get it””… I then explained how through the years, I’ve been accused of being non-patriotic when talking about the ruble… And so on… Oh well, sticks and stones may break my bones…

The signs from China’s economy haven’t been very appealing lately, and they are beginning to weigh on Commodities and the Commodity currencies… The Aussie dollar (A$) is the poster child for commodity currencies, and it has been a rocky road for the A$ in recent weeks… It pops up over 68-cents and then drops back below it, pops up, and drops below, like the instructions on a shampoo bottle to later, rinse and repeat… (they never tell you how many times to repeat that process, do they? HA!)

In the old days when interest rates around the world were normal. You wouldn’t mind holding A$’s while it did this two-step dance with 68-cents, because most likely you were getting paid 4% or more to watch the dance… But not any longer… Governments with major debt, have to keep interest rates uber-low to finance their debt… It’s that easy peasy, lemon squeezy, folks… If you want more proof, I suggest you check out the debt levels and the rate structure of countries like: the U.S., Eurozone, Japan, China, U.K. and I could go on…

I used to write about how rising debt levels that weren’t getting paid off or down for that matter, would slow down an economy, for there’s just too much to have to deal with and it takes away from other things the Gov’t could be doing… Of course in a real world economy the Gov’t wouldn’t be required to do anything, but provide services like military defense, police, fire, etc. Everything else would be owner operated, and allowed to fail if it didn’t make it. But long ago, and oh, so far away, I fell in love with you before the second song… No wait! As I meant to say, long ago, and far away, people like you and me, not you and me per se, but like you and me, decided that it was OK, for the Gov’t to take on all sorts of things… And then the next thing led to another, and we have the mess we have in Debt accumulation in the U.S. today… I told you last week that $1.3 Trillion in the last year and we’re now over $23 Trillion in current Debt with another $126.8 Trillion in Unfunded Liabilities… And if you really want to get down and dirty with debt numbers check this one out… It’s a category called “Unfunded Interest Debt”… That’s the interest that will need to be paid on our existing Treasuries, and that total is $74.187 Trillion… So, when you add them all up… you get nearly $224 Trillion in debt that the U.S. is in… So, if we really compared apples to apples… the U.S. actual debt to GDP ratio would be much larger than the 1.06% they show now…

Well, that was an interesting discussion on debt, now wasn’t it? And to think that when I was a young lad, we were a creditor nation! Ah, that was long before Johnson’s “great society”, Social Security, Medicare, the war debts of Vietnam, And then along came a long line of presidents that didn’t see to it that the deficit spending stopped… Oh, they all talked about a balanced budget, but then they would use “future earnings” in the calcs, which didn’t balance a pile of dookie! OK, I’ve got to stop I almost went down a very deep rabbit hole there…

OK, well, so the currencies are drifting, and so is Gold… On Tuesday Gold saw a 70-cent gain… On Wednesday, it saw a drop of -40 cents… I’d call that drifting… The euro started the week at 1.1060, and on Tuesday saw it trade at 1.1077, and yesterday 1.1078, and this morning it’s 1.1085… I’d call that drifting… Afloat on the sea, with no sense of direction, other than by the sun… And now it’s getting lower in the sky because of the change of seasons, what will be used for direction when the sun is only out for a short period, and not out at all up north? The main tool for currencies and metals to use as direction will be…. Drum roll please…. The U.S. economy…

And will it enter 2020 with the 4th QTR of 2019 holding a negative GDP quarter? Then all the attention will be on the 1st QTR GDP, which in my humble opinion, is going to be even more negative than the 4th QTR, and then we’ll finally have the official call from the NBER (National Bureau of Economic Research) that the U.S. is in recession… Until then, we may all know it, feel it, sense it to be a recession, but the official rhetoric will be that’s it’s not official until the NBER says so…

Funny thing about the NBER… lots of times in the past, when a recession if finally called by them the recession is over… But I have this sneaky feeling this time that it’s not going to be over so quickly… You know how I always have talked about markets going back and filling in gaps? Well, that’s what the U.S. recession needs to do… go back and fill in gaps that were missed in previous recessions because the Fed wouldn’t allow the recession to go on, and clean out the excesses… I’m just saying…

The Fed Heads and the boys and girls over at the Treasury Dept., will do their very best (the opposite in my opinion) to keep the recession from happening, but it’s like a cold you feel coming on… You begin to drink large glasses of orange juice, you start to take some home remedy that’s supposed to limit the time you have a cold, and then before you know it your head feels like a concrete block and you’re coughing instead of breathing…

So, what’s it going to be folks, in regards to whether inflation takes hold or deflation returns? One of my fave economists, Dave Rosenberg, had this to say on Twitter yesterday, “So the ISM shows that in October, the grand total of 5 of 18 industries posted any growth. Fully 25% saw deflation and 16% saw inflation. What an economy!” So, see what I’m talking or asking about here? What’s it gonna be boy? Inflation or deflation?

On a personal note I would hope for deflation, while it doesn’t help the economy it does help consumers to buy cheaper goods while they can, not that most consumers are already up to their eyeballs in debt, and can’t scrape together money to get their car fixed, but that’s another discussion…

On a general note, I believe we’ll see runaway inflation, it’s been down far too long, and the monster needs to breathe again! Besides this is the tool the U.S. Gov’t needs to have going (inflation) to inflate their debts to workable numbers… If you owe $20 and inflation takes that $20 down to $5, aren’t you better off (loan wise that is?)

The U.S. Data Cupboard had the Fed’s FOMC meeting minutes yesterday and in them the markets got what they didn’t want… A strong confirmation that the Fed is taking a break with rate cuts, and that the Fed’s worries about the economy had subsided… Of course that was before we had Manufacturing show a deeper slide below 50, Factory Orders, and Durables along with Capital Goods all print negative… So, maybe by now they’ve changed their minds? I doubt it… Think of the Fed FOMC unit as a Big cruise ship, making an about turn in the ocean… That’s how slowly the FOMC will come around to seeing the economy for what it really is… Slowing to a halt…

To recap… Well, the currencies and Gold have been drifting all this week so far… A little upward movement in the currencies, and a less than one dollar back and forth in Gold… Traders know in their heart of hearts that they need to sell dollars, but just can’t find a currency to buy instead… Chuck points them to rubles… We’ll see what they do… The slowdown in China continues to worsen, and that’s playing bad games with commodities and the Commodity currencies. And Chuck talks debt… You know how he goes all in when it comes to talking about debt!

For What It’s Worth… Since I wrote so much about the U.S. Debt today, I thought this would be a good follow up on that discussion… It’s about the debt runup in the past 12 months, and who’s buying this debt, and it can be found here: https://wolfstreet.com/2019/11/18/us-national-debt-spiked-by-1-3-trillion-in-12-months-to-23-trillion-but-who-bought-this-pile-of-treasury-securities/

Or, here’s your snippet: “The U.S. Gross National Debt has jumped by $1.28 trillion as of today, compared to 12 months ago, to $23.04 trillion. And these are the good times. The economy is rocking and rolling, we’re told. How will this debt balloon during the next economic downturn? Yes, that was a rhetorical question. It’s better to not even think about it. And no one is thinking about it:

Every dollar of this debt exists in form of Treasury securities that someone must have bought and must own. In terms of foreign holders, we got some answers in the Treasury Department’s TIC data today, which shows how much of this debt was held, bought, or dumped by foreign investors through the end of September. And we can glue the other pieces together from the Fed’s balance sheet and from the Treasury Department’s disclosures.3.04 trillion. And these are the good times. The economy is rocking and rolling, we’re told. How will this debt balloon during the next economic downturn? Yes, that was a rhetorical question. It’s better to not even think about it. And no one is thinking about it:

Every dollar of this debt exists in form of Treasury securities that someone must have bought and must own. In terms of foreign holders, we got some answers in the Treasury Department’s TIC data today, which shows how much of this debt was held, bought, or dumped by foreign investors through the end of September. And we can glue the other pieces together from the Fed’s balance sheet and from the Treasury Department’s disclosures.

All foreign investors combined – “foreign official” holders such as central banks and foreign private-sector investors of all stripes – dumped $84 billion in U.S. Treasury securities in September. But compared to September 2018, their holdings were up by a massive $551 billion.
In the prior month, August, foreign holders had set a record with $6.86 trillion in Treasuries! September was just tick-down from that record — and remains the second highest ever.

Japan, which had become the largest US creditor once again in June, bypassing China, shed $29 billion of its Treasury holdings in September, but its holdings still surged by $118 billion over the past 12 months, to $1.15 trillion, which remains below the peak in 2014 of $1.24 trillion.
China has kept its Treasury holdings roughly flat over the past two months, at $1.10 trillion, but has shed $49 billion over the past 12 months”

Chuck Again… We as a country can always depend on the kindness of strangers, right? Oh, but when we go around ticking off even our allies, how far will this kindness of strangers go? Well, I’m hoping it goes on forever, but then trees don’t grow to the moon, and anything saying you want to throw in is ok… But you get my drift…

Currencies today 11/21/19 American Style: A$.6809, kiwi .6433, C$ .7512, euro 1.1085, sterling 1.2953, Swiss $1.0084, European Style: rand 14.7110, krone 9.1100, SEK 9.6088, forint 300.95, zloty 3.8754, koruna 23.0050, RUB 63.88, yen 108.58, sing 1.3613, HKD 7.8208, INR 71.57, China 7.0321, peso 19.46, BRL 4.1931, Dollar Index 97.82, Oil $57.06, 10-year 1.75%, Silver $17.11, Platinum $914.11, Palladium $1,764.46, and Gold… $1,470.48

That’s it for today, and tomorrow… Next week will be really shortened, as there obviously won’t be a Pfennig on Thursday next week, as it will be Thanksgiving! Our Blues get back on the ice again tonight at home VS Calgary… Let’s Go Blues! They did stop their winless streak on Tuesday night, so let start a new win streak! I’m getting wound up about getting to see my darling granddaughter, Delaney Grace, in the Gateway Production of Matilda on Saturday night… Crosby Stills and Nash take us to the finish line today with their iconic rock classic: Suite Judy Blue Eyes… I just watched a documentary on the full CSNY group on Amazon, and it was pretty good, told me some things about the guys that I didn’t know… And with that I hope you have a Tub Thumpin’ Thursday, and Fantastico Friday tomorrow, and Please Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

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