Debt & Deficits

Politicians aren’t just content stealing (‘taxing’) your wealth, they like to steal the next generation’s as well thanks to deficit financing.

We like to keep track too of how Australia’s pollies bribe today’s voters with your money. We love dearly to win as much as those tax dollars back as we can for you.We also make sure you’re aware of the escalating debt around the world and how this impacts on interest rates, currencies and share markets.

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deficits and the US economy
Why Deficits ‘Don’t Matter’
Deficits used to draw down the nation’s savings. That’s because the feds had to borrow to fill in the hole. And when you borrowed, you borrowed what someone else had saved. No more. The new dollar and the Fed’s low interest rates made real savings irrelevant. The Fed dropped interest rates to make saving unattractive…and covered the deficits with fake savings — credit it invented ‘out of thin air’; it bought US Treasury bonds itself.
global economic outlook in trouble
No Bang for Our Borrowed Buck
Even with all of this innovation, our economic growth is slowing. The reason for this, Vern argues, is that we have failed to be adaptive in our economic model. And now we are drowning in debt and are struggling to keep our economy stable. Although we are accustomed to our GDP always rising, and our living conditions becoming ever-better, it’s an expectation that we need to rethink.
Australian mortgage application form
The Switch to a Buyer’s Market
The housing market is very different from a few months ago. Back then, buyers were getting into frenzied auctions, spending more than what they had budgeted for and properties were going above the reserve. In other words, we could be seeing the switch from a seller’s to a buyer’s market.
US economy being punched
The Economy Will Lose a Few Teeth…
Guggenheim investment fund’s global chief investment officer Scott Minerd predicts a 40% decline for the Dow…mostly in 2019. He says the US economy is on a ‘collision course with disaster’. He’s right — at least about the ‘collision course’.
House in a hand. Representing falling property prices.
Magnified Expectations and Bloating Debt
Meanwhile, wage growth has been plummeting. It is now just above 2%. So it’s not surprising that in recent years households have been getting into larger mortgages to get into the frenzy...and consequently, higher debt. And we are starting to see an increase in mortgage stress.
US economy illness
The Source of America’s Economic Illness
‘Strong as an ox’ sounds like a good thing. But it does not accurately describe the U.S. economy we see. A strong economy is one in which people earn more money, save it, and invest it in new businesses and new capacity so they can earn even more. None of that is happening. The savings rate recently fell to 2.5%, about as low as it has ever been.
secular markets
What’s a Secular Market?
To prevent the system from going into ‘cardiac arrest’, more and more debt is required each and every year. History clearly tells us this is not sustainable. Within the debt supercycle, there are long-term market cycles. These are called ‘secular markets’. If you haven’t heard this term before, you’re not alone. However, you need to know how secular markets can create or destroy wealth.
debt and deficit
Overheard in a Wall Street Bar…
Households are borrowing 90 cents for every incremental dollar they spend, up from 40 cents four years ago. Household debt service costs are expected to increase by $75 billion this year — almost completely offsetting any gains from the tax cut.
Australian economic news
Surprise Attack
Ever since June 1991 — our last official recession — the textbook approach to generating GDP growth has been to encourage households to borrow to ‘get the economy moving’. Our economic ‘success’ has really been a massive failure…setting households up for an extended period of financial pain and in some cases, ruin.
All Aboard the Bankruptcy Express
Yesterday, we described how the US government has changed over the last three decades. Now, neither party is worried about deficits…or the US federal debt, which hit a new milestone last week at $21 trillion. Instead, they are all onboard the Bankruptcy Express, running wide open and stopping only to pile on more debt.
household debt at an all time high in australia
No Taming the Debt Beast
Wages not growing and property prices at record highs mean that household debt is reaching record highs. And household debt is already becoming a burden that could restrict growth. Australian household debt is at one of the highest in the world, at almost 200% debt to income ratio. Household debt affecting consumption is a big worry for the RBA
debt and deficits highlighted in pink on page
The Kind of Debt
Looking ahead, we predict that US government debt will pass $40 trillion by 2028. The feds are running record peacetime deficits with no emergency in sight. GDP is growing. We have ‘more than full employment’ (whatever that means).
Italian flag with coins representing Italy's debt
Italy Throws a Spanner on EU’s Plans
It’s been over a week since the Italian election. The French President Emmanuel Macron and German Chancellor Angela Merkel, were planning for more integration. They want to continue with a banking union to protect members in case of another financial crisis.