The decade of reckoning that lies ahead is rooted first and foremost in the fecklessly incurred mega-debts of the private and public sectors alike. Together they have soared to the staggering sum of $75 trillion.
That’s 5X more than the $14 trillion outstanding three decades ago.
Yet the proceeds from these massive borrowings were not used to invest and provide for tomorrow, but to live high on the hog today. After three decades of such artificial debt-fueled “prosperity”, the very warp and woof of American society has been deformed.
As we indicated above, eighty percent of U.S. households live essentially hand-to-mouth. But that’s not because they are naturally imprudent; it’s because they have been incentivized to borrow and spend, while being punished for saving and setting aside for life’s unforeseen contingencies and setbacks.
Likewise, the C-suites of corporate America have been rewarded for strip-mining their balance sheets and cash flows in order to pump money into Wall Street for stock buybacks and M&A.
But this has caused investment in productive plant, equipment, technology and human resources to be shortchanged. Consequently, the growth capacity of the main street economy has been progressively eviscerated.
And most especially, the public sector has been fiscally ruined.
During the 32-years since Alan Greenspan launched the present era of reckless and relentless monetization of the public debt in 1987, there have been only four balanced budgets sandwiched between 28 years of sheer fiscal promiscuity.
That has already taken the Federal debt from $3 trillion to $23 trillion, and it’s now heading, inexorably, toward $43 trillion by the end of the 2020s. The public debt-to-GDP ratio will then reach a Greek-style 150%.
Worse still, the nation’s political system studiously ignores this obvious fiscal malignancy. That’s because the Fed and other central banks have removed the sting of rising interest rates and the “crowding out” of private investment.
So politicians have succumbed to the latest version of free lunch economics.
This has permitted, in turn, national governance to degenerate into bitter partisan warfare that has festered so long that it now threatens the very future of constitutional government.
Rather than facing tough policy choices, the Dems have retreated into identity politics and sanctimonious racialist moralizing. They’ve abandoned virtuous pursuit of the public good for cheap virtue signaling to their base.
Likewise, the GOP has prioritized building border walls and keeping people out of America’s historic melting pot on the fear they might not vote Republican. But in feeding red meat to their political base, they’ve abandoned the GOP’s real job—functioning as watchdog of the treasury and guardian of sound money.
Beyond the water’s edge, the bipartisan duopoly has immersed itself in the projects of Empire and pretensions to being the world’s indispensable nation and global gendarme. So doing, it has actually undermined homeland security while saddling the nation with trillions of debt to fund Forever Wars that are illegal, immoral and pointless.
These perversions of governance ultimately resulted in the freakish 2016 election in which the GOP accidentally nominated a bombastic outsider—a Great Disrupter who had not been house-trained by the Washington establishment.
Yet the very prospect of a Trump presidency caused the incumbent Dems to baldly and illegally deploy the surveillance tools of the national security apparatus to detour his candidacy. And then to attempt to abort his presidency via the RussiaGate and UkraineGate/Impeachment hoaxes once the voters had spoken.
At the same time, even as the Donald has brashly and pugnaciously fought the unconstitutional coup against his presidency, he, too, has gone about the business of filling the Swamp even deeper, rather than draining it as he promised on the campaign trail.
In fact, the Federal Leviathan—including its national security branch—has never been bigger, fatter and more wasteful than under Trump.
The Donald has increased Federal spending in constant dollars (2019 $) by $180 billion per year during his term to date. That compares to $120 billion per year under George Bush the Younger, $80 billion under Obama and $40 billion per year under Clinton.
So there isn’t anything which resembles MAGA coming down the pike during the 2020s and beyond. Trump has only made the inherited trend of soaring debts and diminishing growth measurably worse with his four-pronged assault on sound economics.
Trade Wars. Border Wars. Fiscal Debauchery. Easy Money attacks on the Fed.
These are not the route to MAGA. They are the path to bigger government in Washington, dangerous bubbles on Wall Street and diminished prosperity, opportunity and liberty on Main Street.
Accordingly, it is now way too late for a stick save from either political party or any state institution bivouacked in the Imperial City. And that especially includes the madcap money printers at the Federal Reserve.
The fact is, the engines of free market capitalism have been corroded and paralyzed by three decades of bad money and bad policy.
What has passed for “recovery” since the Great Recession has been only a temporary debt-fostered reprieve. Likewise, the soaring stock market reflects the greatest monetary deformation in history, not the rational discounting of a beneficent future.
Accordingly, ten malefic trends will dominate national life during the long night of reckoning which lies ahead.
These impending outbreaks of “payback” are listed below. They will be the target of our daily analysis, research, chart-talks and commentary on Contra Corner.
To be sure, other publications cover some of these topics and trends incisively and in depth.
But in all modesty we have very few peers when it comes to Contra Corner’s comprehensive scope of coverage and consistent, integrated diagnosis as to how it all fits together and what it means for the fraught path ahead.
- The spectacular failure of Keynesian central banking;
- A prolonged, painful reversal of the three-decade long hyper-inflation of financial asset prices that has resulted in the Everything Bubble;
- The violent implosion of America’s fiscal accounts;
- An intensified central bank war on savers, fixed income retirees and holders of cash;
- Peak Debt-induced suffocation of domestic economic growth;
- Ferocious global economic headwinds arising from the demise of the Red Ponzi;
- An outbreak of unprecedented partisan acrimony rendering Washington completely dysfunctional and imperiling America’s very constitutional foundation;
- The lapse of Imperial Washington into belligerence, retreat and failure all around the planet;
- The Baby Boom retirement tsunami, which will cause entitlement spending to soar and generational conflict to erupt like never before; and
- A virulent outbreak of class warfare and redistributionist political conflict unprecedented in American history owing to a stagnating economic pie.
Moreover, there is a powerful reason to keep abreast of these Turbulent Ten trends.
To wit, these baleful developments are not just possibilities. They are well nigh certainties!
And they are ultimately rooted in a common cause.
Namely, the three decade long explosion of debt, speculation and financialization that was initiated in October 1987 when Alan Greenspan bailed out Wall Street gamblers and launched what has become a toxic worldwide regime of Keynesian central banking.
Consequently, America’s current $74 trillion mountain of public and private debt has become contagious.
On a worldwide basis, total debt outstanding now totals $255 trillion or a staggering 3X global GDP of $85 trillion. It now constitutes the greatest barrier to continued growth, prosperity and financial stability in all of economic history.
Even more crucially, these brobdingnagian figures did not materialize during the last three decades because everyday people suddenly lost their senses and became addicted to unsustainable levels of debt, leverage and financial speculation.
To the contrary, the people here and abroad were misled, induced and baited into burying themselves under crushing debts by agents of the state—especially its central banking branch.
The tools of deceit were falsified interest rates, artificially inflated asset prices and a hoary theory that debt-fueled “stimulus” injections by the state can create a permanent increase in economic growth and societal wealth.
No they can’t!
These mountains of debt can temporarily goose GDP, of course, because GDP accounting is inherently incomplete: It views the economy as simply a matter of sequential flows—quarter after quarter, year upon year– without regard to balance sheets and the accumulated carry cost of debt over time.
Moreover, this Keynesian blindness to balance sheets and their systematic impairment has gotten far more consequential since Greenspan launched a wholly new form of monetary central planning in October 1987.
Under the latter, the price of debt has been deeply and systematically falsified by the central banks, thereby providing a powerful artificial incentive to borrow and a misleading signal to debtors about its longer-run implications.
Balance sheets have been deeply impaired for households and governments especially because they do not borrow in order to acquire productive assets capable of defraying the accumulating cost of carry. Instead, all the added debt went into living high on the hog today.
Nor has the private business sector escaped the damage caused by deep repression of interest rates. That’s because the cost of benchmark debt (i.e. the 10-year U.S. treasury note) is really the master “cap rate” or valuation multiple for the entire financial system.
Artificial and sustained repression of cap rates, therefore, results in proportionately higher asset prices and increased price/earnings multiples—meaning that cheaper debt and richer share prices are one of the most toxic consequences of Keynesian central banking.
It provides powerful incentives to the corporate C-suites to borrow at sub-economic costs and use the proceeds to fund stock buybacks, thereby increasing per share earnings and goosing the value of top executives’ own ample stock options.
Likewise, cheap debt causes a huge distortion in the M&A market. Acquisitions are made to look “accretive” not because the make business sense or because there are true, sustainable synergies, but because they carry cost of purchase debt is so low.
Needless to say, these forms of financial engineering redistribute financial wealth to the top 1% and 10% of households. The latter own 40% and 85% of the stock, respectively, and they have gained mightily since Greenspan initiated the present era of Keynesian central banking in the late 1980s