(International Man)—Contrary to conventional wisdom, higher interest rates mean more inflation in the environment today.
That’s because the federal interest expense increases as interest rates rise. As the federal interest expense rises, so does the budget deficit. As the budget deficit increases, so does the currency debasement needed to finance it. Skyrocketing interest expense will have an enormous impact on the US budget.
Even according to the US government’s rosy projections, the interest expense on the federal debt will exceed $1 trillion for the first time in 2024… and it shows no sign of slowing down. On the contrary, it’s growing exponentially.
First, it’s essential to understand the basics of the US federal budget. Let’s zoom out and look at the largest components of the US federal budget from the latest available data in the chart below.
The biggest expenditures for the US government are so-called entitlements. It’s not likely any politician will cut these. On the contrary, I expect them to continue to grow.
With the most precarious geopolitical situation since World War 2, so-called “National Defense” seems unlikely to be cut. Instead, military spending is all but certain to increase. Income Security is a catch-all category for different types of welfare. That’s unlikely to be cut too.
Unless it becomes politically acceptable to cut things like Social Security, military spending, and welfare, efforts to make a dent in expenditures won’t be meaningful. Further, interest expense (Net Interest above) is set to explode higher.
The US government projects that the federal interest expense will exceed $1 trillion in 2024 for the first time. That means the interest expense will exceed defense and everything else in the budget except for Social Security, which it will also likely exceed soon.
As the cost of debt service is taking up a larger portion of the budget, there is less for other expenditures. That means the government has to borrow increasingly larger amounts to maintain basic functions. However, it’s worse than issuing more debt to cover Social Security and the military.
The US government is now borrowing money to pay interest on the federal debt, which has a compounding effect as the federal debt and interest expense grow exponentially.
I suspect we are close to the inflection point where it gets out of control. 2024 could be the year that it becomes evident the US is trapped in a debt spiral.
Here’s the bottom line with the budget. The most significant expenditures have nowhere to go but up. But don’t count on increased revenue to offset these increases. Even if tax rates went to 100%, it would not be enough to stop the deficits—and the debt needed to finance them—from growing.
The US government is out of options. Therefore, the question is not whether it will default but how. When faced with a choice, politicians always choose the most expedient option. In this case, that means issuing more debt rather than making tough budget decisions or explicitly defaulting.
There is a big problem with that, though. As the amount of debt skyrockets, the interest rate rises to entice buyers and holders.
Allowing interest rates to rise high enough to entice natural buyers would bankrupt the US government because of the higher interest costs, which are set to become the largest item in the budget.
So, I would not expect the Fed to raise interest rates much more. In fact, they have already paused the rate hikes and are signaling a pivot to easing again, likely for this exact reason.
That means the Fed has effectively given up on bringing price inflation down even though the year-over-year change in the CPI remains above 4%, more than double the Fed’s target of 2%.
In other words, even with their own crooked statistics and rigged game, the Fed has failed even to come close to their inflation target. It’s a massive failure. Bloomberg is already hailing it “The Great Monetary Pivot of 2024.”
It’s crucial to understand that by surrendering to inflation, the Fed is returning to the same policies that caused prices to rise in the first place.
So, if higher interest rates are off the table and cannot entice more natural buyers, who will finance these growing multi-trillion dollar budget deficits? The only entity capable is the Federal Reserve, which buys Treasuries with dollars it creates out of thin air.
That’s why I am convinced extreme currency debasement is the inevitable outcome.
All the rest is noise.
The US government’s only practical option is ever-increasing currency debasement… and it could devastate most people.
I suspect it will all go down soon… and it won’t be pretty.
It will result in an enormous wealth transfer from savers and regular people to the parasitic class—politicians, central bankers, and those connected to them.
Countless millions throughout history were wiped out financially—or worse—because they failed to see the correct Big Picture as their governments went bankrupt.
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Over time, the value of those entitlement checks are being inflated away. A social security check, for example, buys half to two thirds what it bought three years ago. That should have a balancing effect, and be fairly self-correcting. It’s partly, in addition to changing inflation calculation methods, how Clinton and Gingrich had a projected balanced budget, which never materialized. Other factors, such as the addition of more people to the system via immigration as well as more citizens driven into it, nullify that correction mechanism.
You don’t have to cut entitlements if you implement policies that increase economic activity, and get the economic engine going, which in turn pulls people up out of the safety net, such that more are paying into it rather than taking from it.
I’m no expert but it seems to me, when it comes to monetary policy, if you have to err you should err on the side of lower interest rates, because of the dynamics involved. This is why Trump pressured them to keep interest rates down. As much as people don’t like him, and I don’t like him either, particularly his embrace of the porneia agenda, he does understand the simple dynamics.
It’s clear to me that what is most working to constrain economic activity is environmentalism and the climate change agenda. It’s the war on “stuff”. It’s the war on waste. It’s the notion that we all must have and do the least possible required to survive. It’s the idea that increased economic activity is a bad thing. The constraining effect is tremendous. And of course, on a deep level, that is rooted in a belief in atheistic origins, the rejection of the Creator, and the notion that this planet and all life upon it is just a weak, fragile, accident that would all cease to exist at the touch of a feather. Rather than being good stewards of nature, as God commands, people are afraid that barely touching that fragile accident will lead to destruction and the end of all life on Earth. Of all “forces” constraining economic activity, that has to be the foremost, by far, in my opinion. Second would be all the porneia mess. People are rightly fed up with it. People are afraid of that also. it’s not entirely quantifiable, but I’d wager millions have set aside plans to start businesses, or engage in other economic activity, for fear of being targeted and sued into poverty by the porneia mafia. I know I have avoided certain business endeavors, waiting for the courts to make final decisions as to whether or not matters of conscience will be respected. Another is crime. The more crime that goes unpunished, the less economic activity there will be in those areas. Businesses will close the doors and leave.
And you have certain billionaires pushing a lot of it because they’re gaining wealth as a result. The transfer of wealth is not dependent on economic activity, and is not always measured in dollars and cents. In many ways they gain more from slower economies.
Republicans need to do a better job of explaining these dynamics. Don’t just say you’re against it. Explain why you’re against it. And explain how you’re not against the little guy. If you look like a bunch of establishment, blue-blood rich people, who got rich off the backs of the poor, just out there bellyaching about having to pay taxes, that won’t work. And this is why Trump resonates. He understands all those dynamics, and he’s not out there treating the poor and middle class like they’re his enemy, based on a static snapshot.
And to point at both sides, politics itself is a major constraining force. Baseball is no longer America’s game. It’s politics. The more divisive things get, the more constricting that is on the economy, especially when the agendas of each side are as extremely divergent as they are now. In addition to wasting time, reducing productivity, reducing quality, getting caught up in the fight, businesses also sit on their hands waiting to see which side is going to call the shots for the next four years. We can’t ignore the negative influence of politics itself.
Then there’s abortion. Slaughtering 70 million of our offspring certainly hasn’t been good for the economy.
There are many factors. But when you boil it down, it’s mostly the consequences of sin.
We look back and say things were better back in the 40’s and 50’s, up into the 60’s.
Well no kidding. By and large, they were better people.
And they had incentive to work toward their own vision for the future for themselves and their posterity, with reasonable expectations that they would be able to keep and enjoy the fruits of their labor, rather than working, as slaves, for and toward the Utopian, collectivist vision of someone else. Which is what the WEF idiots don’t understand. It wouldn’t matter if they were right about every issue in existence, it’s still not their call. It’s not their place. People want to work toward their own vision for the future, not the vision of bill gates and klaus schwab.