On Wednesday, as expected and as we were warned dozens if not hundreds of times, the Fed raised interest rates. While we here at TPOL don’t pretend to understand the reasoning – or even why the Fed should have any power to establish interest rates – we do understand why people are worried and confused. We do not know if the increasingly panic-sounding warnings are legit or not. (We’ve heard it before.)
The confusion was seen stock markets, oil markets, and other indicators bounce all over the place. To add to the confusion, our dear Uncle Joe is spouting nonsense almost constantly regarding the economy. People still refuse to accept that political figures know as little about economics, the economy, and markets as the latest popular Hollywood displayer of cleavage or hypertrophied muscles. And as of Friday the 23rd of September 2022, the American (and overseas) stock markets are tumbling, courtesy of the Fed (according to most of the “expert” talking heads).
But even we here at TPOL don’t understand the complexities, we DO understand when prices go up and up and up – and when quantities in packaging of consumer products go down and down. And when more and more shelves – especially at grocery stores – get more and more empty. Even while prices climb.
And we understand why governments love inflation. Most governments, at least. Because in 2022, governments – national and most State governments – fund their madness by borrowing money. What TPOL often refers to as “taxing the future” and probably should be called “enslaving the future.”
The US Treasury tells us that the FedGov’s debt in 2021 is/was $28.4 trillion. They lie: they use legalities and games and doubletalk to tap dance. What is the truth? This table may be:
Truth in Accounting also has a “real-time” chart that points out the lies of the US Treasury on the same webpage: the amount of “published” FedGov debt is claimed to be nearly $32 trillion (as I write this) and increasing by hundreds of millions of dollars (FRNs) per minute. And the real debt? Almost $144 trillion, increasing by billions per minute. That, the same website tells us, is equal to over $900,000 per taxpayer.
And that does NOT include State debt and local government debt – it may not even include the debt of federal entities and bogus corporations (like the US Postal Service or the Fed itself). (The US Census claims that in 2019 (latest data available) the State/Local debt was a mere $3.17 T: 63% local and 37% State. Figure it is really at least 5 times that amount.)
It is obvious that such a debt is impossible to pay. It not only beggars the mind, I really believe it is inconceivable: that we can talk all we want about stacks of hundred-dollar bills (or one-ounce gold coins) reaching the money – but we cannot really comprehend it.
Note that in the chart (going back to our old economics, bookkeeping, and accounting classes) the FedGov assets are less than $6 trillion. That is less than 1/5 of the published debt of $32 T. And only 4% of the claimed real debt – just of the FedGov. Assets? Everything the FedGov owes: from the land and building of the local Post Office and Federal Courthouse (if they aren’t actually leased) to the Capitol Building and White House in DC itself: every park, every monument, every acre of National Forest System land and other public land (Bureau of Land Management managed). AND every piece of equipment: every desk and chair, every firearm, every sedan and panzer, every ship and satellite. Oh, and gold.
There is where inflation comes in: first (and admittedly very minor), the more the price of land, of materials, of tools and furniture rises, the bigger that asset number grows. And the better the balance sheet looks.
But more to the point: Every percent of inflation (officially running between 8-10 this year, year-to-year by month) makes it easier to pay off the debt – at least as bookkeeping entries. Because the value of the dollar is constantly being reduced. All the debt is denominated in old dollars: there is no inflation factor built in, as we understand it, to increase the amount of debt already in existence because the FedGov borrowed the money five or ten or twenty years ago.
Confused? You should be – and we are. Which is also part of the reason governments love inflation and push for it. That $900K per taxpayer? Impossible to pay off if the average taxpayer income is $100K/year in 2022 and the income tax rate is 25%: even if every dollar of that $25K the FedGov extorts goes to pay the debt, it will take 36 years to pay that off – even if the FedGov didn’t borrow another dollar and paid no interest. That is 90% of a taxpayer’s economic lifespan. BUT if inflation of 10% over ten years means that the average income in 2032 is $200K/year? That’s $50K in taxes, so only 18 years. And if (ala Weimar Germany or Zimbabwe) hyperinflation takes off, and in 2032 the average taxpayer income is (a conservative) $1,000,000 per year, and the tax rate is still 25%? It takes less than four years to retire that 2022 debt.
Of course, like most government schemes, it really won’t pay off the FedGov debt to zero, because in that same 10 years, it will have tripled the borrowing. But that just shows the moral bankruptcy, as well as the financial bankruptcy and the lack of education/knowledge/real understanding of the world on the part of government and its politicians and bureaucrats. At least the APPLICATION of that knowledge.
But government wins anyway, doesn’t it? At least until the peasants revolt.
Reblogged this on Calculus of Decay .
I’m no longer convinced the Fed sets rates any more than the weatherman causes the rain tomorrow. I think they both just respond to what reality decrees.
They can depress the interest rate, sure, by flooding Phony Phiats into the market. Historically, since these Bogus Bux have gone first to the rich, the ones trading on the FOMC, price inflation manifests in the kinds of goods the rich buy — stocks, jets, yachts, politicians, etc.
This last round of COVID Cash has had a huge flow to the less affluent, those getting rent abatements, student loan deferrals and eventual transfer, and Funemployment Funding. So not only do we have supply problems, we have excess cash ready to be spent on the kinds of things we hoi polloi buy — food, energy, etc.
At this point, though, unless the Fed offers to pay something closer to what inflation is doing, the smart money is buying elevators of grain, stockpiles of commodities, etc. Stuff that will be more dear when the PPI eventually forces the CPI up.
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