America's debt crisis breeds bleak future - Spear's Magazine

America's debt crisis breeds bleak future

What’s up in America? Answer: not much, economically, apart from the debt levels. Here are the headline numbers

What's Up in America? Answer: not much, economically, apart from the debt levels. Here are the headline numbers at 1/11/13 (courtesy of usdebtclock.org).

GDP: $16.0 trillion and stagnating
Federal Debt: $17.2 trillion and climbing
Debt to GDP Ratio: 106 per cent and rising
Population: 317 million
Income tax payers: 115 million
Debt per taxpayer: $150,000
Interest pa per citizen: $8,800
Workforce: 145 million
Not in labour force: 91 million
Retirees and disabled: 61 million
Official unemployed: 11 million
Actual unemployed: 21 million
Households on food stamps: 20.2 per cent

These figures tell a story, and it ain't a good one. Debt-to-GDP is through 100 per cent with no prospect of its rise even being reversed under this administration. And if the bureaucrats can get the Unaffordable Healthcare Act actually to work on the ground, it will only increase the curve.

Read more on the problems of QE tapering from Spear's

The official figure is wrong because those who automatically fall off the jobseekers' escalator after six months no longer have a bureaucratic existence – but look at the grotesque percentage of households on food stamps. The reality is that Old Economy Brawn is being replaced by New Economy Brain, as the digital revolution becomes entrenched. Those jobseekers out of work don't have the skills demanded by the market.

It gets worse: the economy is stagnating; the recovery in the Spring in housing is faltering; large corporations are still not investing as they do not have the confidence to do so under this administration; and then there's the possible tapering of the Fed's QE policy soon. Growth, what with sequestration cuts and shutdowns, is nowhere near escape velocity.

And Ben Bernanke will be saying his goodbyes, just like he has been to $85 billion per month of Goodbye Bonds, as Janet Yeller tries to begin to sort out the alphabet soup of silos at the Fed from which emanate the trillions flying out the front-door. But she has promised to link monetary policy and QE more tightly to her unemployment figures, despite the fact that QE clearly does nothing to increase aggregate demand in the real economy.

Read more about US debt from Spear's

But there is something important everyone has either lost sight of or is pretending not to notice: the Fed is working with inflation figures of less than 2 per cent, as you cannot do any more QE if inflation is rising without pouring fuel on the inflation fire. Real inflation, however, is nearer 5 per cent, and 9 per cent two years ago – see www.shadowstats.com – but the governments of both the US and the UK have cleverly spun the issue into a middle-class cost-of-living debate, as though it was somehow a different issue.

The idea that QE is causing asset and housing bubbles is under discussion. Assets and houses aren't rising in real terms but are just a measure of uncontrolled inflation. When this fact becomes obvious, the great interest rate con will have to turn into sharply higher rates. Then the bubbles will pop as the printing presses are switched off. God, what a treadmill the Fed and all the other central bankers have got themselves on, and what a mess we are all getting into, or are irretrievably in, already.



 

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