The Debt Bomb

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>>> Ray Dalio warns that mounting U.S. debt problems could lead to ‘shocking developments’


CNBC

Mar 12 2025


https://www.cnbc.com/2025/03/12/ray-dalio-warns-growing-us-debt-will-lead-to-shocking-developments.html


Key Points

“The first thing is the debt issue, we have a very severe supply-demand problem,” Bridgewater founder Ray Dalio told CNBC’s Sara Eisen at CONVERGE LIVE in Singapore regarding U.S. debt.

Dalio, who was speaking on the same panel as Salesforce CEO Marc Benioff, said this will require the White House to sell a quantity of debt the world is just not going to want to buy.

“That’s a set of circumstances that is imminent, OK? That is paramount importance,” he said, adding that most people don’t understand the mechanics of debt.

Dalio: The U.S. has a severe supply-demand issue with debt

Bridgewater founder Ray Dalio on Wednesday warned that a significant supply-demand problem regarding U.S. debt could have a profoundly disruptive impact on the global economy.

It is the latest in a series of stark warnings about America’s mounting debt from the U.S. hedge fund billionaire, with the country’s national debt currently standing at more than $36.2 trillion.

“The first thing is the debt issue, we have a very severe supply-demand problem,” Dalio told CNBC’s Sara Eisen at CONVERGE LIVE in Singapore. ”[The U.S. has] to sell a quantity of debt that the world is not going to want to buy.”

He said this was imminent and of “paramount importance.”

The U.S. deficit needs to go from a projected level of 7.2% of gross domestic product to about 3% of GDP, Dalio said.

“That’s a big deal. You are going to see shocking developments in terms of how that’s going to be dealt with,” he added.

Asked whether the U.S. debt problem could lead to a period of austerity, Dalio said the issue could result in a restructuring of the debt, the U.S. applying pressure on other countries to buy the debt, or even cutting off payments to some creditor countries.

“Just as we are seeing political and geopolitical shifts that seem unimaginable to most people, if you just look at history, you will see these things repeating over and over again,” Dalio said. “We will be surprised by some of the developments that will seem equally shocking as those developments that we have seen.”

His comments, made on the same panel as Salesforce

CEO Marc Benioff, come amid a tariff roller coaster ride for markets in recent days.

Trade policy uncertainty has added to a sense of unease on Wall Street, with investors concerned about the impact of a brewing trade war on the global economy.

President Donald Trump’s trade policies, which appear designed to rebalance the economic order in America’s favor, include tariffs against Canada, Mexico and China.

Tariffs ‘to cause fighting between countries’

When asked about the potential consequences of a simmering trade dispute, Dalio described the current state of affairs as “an extension of the patterns of history” — and singled out 1930s Germany as one example.

Dalio said there was a write-down of debt at that time, alongside a hike in tariffs to boost revenue and a buildup of its domestic base. “Be nationalistic, be protectionistic, be militaristic. That is the way these things operate,” he said.

“The issue is really the confrontation of all of this, the fighting of all of this. So, tariffs are going to cause fighting between countries,” Dalio said, adding that he was not necessarily talking about a military confrontation.

“But think about U.S., Canada, Mexico, China, and all of those types of fighting. There will be fighting, and that will have consequences, and I think that’s the main thing to pay attention to,” he said.

Dalio said he was sharing those views as a politically neutral observer, comparing his approach to that of a mechanic or doctor. “I’m not an ideologue,” he added. <<<



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>>> Ray Dalio: Debt crisis could cause 'economic heart attack' for US economy in the next 3 years


Yahoo Finance

by Alexandra Canal

March 3, 2025


https://finance.yahoo.com/news/ray-dalio-debt-crisis-could-cause-economic-heart-attack-for-us-economy-in-the-next-3-years-165939619.html


Billionaire hedge fund manager Ray Dalio has a bearish outlook on the US economy, citing the escalating debt crisis as the Trump administration attempts to wrangle an annual deficit that topped $1.8 trillion in fiscal 2024 alone.

In an interview with Bloomberg's Odd Lots podcast published Monday, Dalio said the US is on the brink of experiencing an "economic heart attack" within the next three years if the administration does not commit to actively reducing the deficit, which now makes up about 7.5% of GDP.

"When debts rise relative to the incomes that are needed to service the debt, it's like plaque building up in the circulatory system," he said, adding the debt crisis has now entered a critical "inflection point" as interest payments pile on top of existing debt.

Since 2000, the national debt has more than tripled to an estimated $36.2 trillion, according to the US Treasury Department.

Dalio, who founded hedge fund giant Bridgewater Associates, suggested reducing the deficit to 3% of GDP through a mix of tax adjustments and spending cuts.

“If you don’t do that, then you own it, OK? You have to take responsibility for the consequences,” he said.

Dalio compared the potential economic situation to the 1971 monetary system crisis, suggesting consequences could include a spike in interest rates and a depreciation of fiat currencies as central banks print more money in the midst of potential debt restructurings.

"If it gets bad, then you could have more extreme things happen," he warned.

The looming debt crisis comes on the heels of greater growth concerns from Wall Street watchers.

Rates have declined as investors worry that President Donald Trump's tariff plans will hurt economic expansion and the labor market, potentially prompting the Federal Reserve to lower the cost of borrowing even as inflation remains elevated.

Recent data has highlighted these growth concerns, marking the return of "bad news for the economy is bad news for stocks." On Monday, ISM Manufacturing prices paid came in at their highest since June 2022 while new orders fell into contraction, suggesting a "stagflationary" environment in which growth slows but price increases remain elevated.

Investors have also taken notice. Consumer confidence plummeted in February, notching its biggest monthly decline in nearly four years as 12-month inflation expectations jumped and recession fears escalated. The latest consumer sentiment reading also highlighted greater concerns around tariffs and the impact those and other policies could have on inflation and the broader economy.

As a result, negative sentiment has rippled through Wall Street. According to new polling by the American Association of Individual Investors (AAII), bearishness surrounding the economic outlook hit a two-year high at over 60% for the week ending Feb. 26.

“The surge in bearish sentiment has been even more dramatic than the collapse in bullish sentiment,” Bespoke Investment Group wrote on Thursday, noting it was the largest weekly increase since August 2019.

And according to the Atlanta Fed's GDPNow, which estimates GDP based on incoming data, growth fell by 2.8% for the first quarter, down from Friday's projection of a 1.5% decline and the weakest level since July 2022.

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>>> The accounting maneuver that could make the cost of extending Trump's tax cuts look like zero

Why Trump’s tax cut bill is a bigger deal than DOGE budget cuts


Yahoo Finance

by Ben Werschkul

March 2, 2025


https://finance.yahoo.com/news/the-accounting-maneuver-that-could-make-the-cost-of-extending-trumps-tax-cuts-look-like-zero-150057205.html


A controversial budget maneuver is gaining steam on Capitol Hill that could help make Donald Trump's first-term tax cuts permanent while also making room for additional tax break pledges he made on the campaign trail.

But it would push up the national debt by trillions of additional dollars beyond what's already planned.

The idea is to essentially make the cost of extending the 2017 Tax Cuts and Jobs Act free, at least for accounting purposes. That can be done by assessing changes using a so-called current policy baseline, a bit of Washington arcana with trillions in potential consequences.

But no matter how you count it, extending Trump's 2017 cuts will add somewhere in the neighborhood of $4 trillion to America's debt, and fiscal hawks are strenuously objecting, calling it "a massive budget gimmick."

The tactic congressional leaders are considering is to count this year's tax rate as "current policy" and therefore make the cost of extending the rate — at least for the purposes of assessing the bill — zero.

The political appeal is obvious in that such a move could potentially help alleviate a giant math problem facing lawmakers looking to cut taxes as deeply as possible.

But in a recent episode of Yahoo Finance's Capitol Gains podcast, the architect of those expiring 2017 cuts made clear that either approach would come with trade-offs.

Kevin Brady, former chair of the House Ways and Means Committee, called the current policy approach "a curious way of Washington thinking" but also pointed out it's clearly a way to more easily make the tax cuts permanent — a key Trump priority.

The political reality is also that there is going to be a need to keep fiscal hawks on board, with Brady predicting a serious deficit reduction number will eventually be needed no matter how it's counted — comparing the dynamic to "two rock climbers tethered together."

He said that serious deficit reduction will ultimately be the deciding factor in how big a tax bill is ultimately possible. It's a balance that Brady's successor atop the tax-writing committee, Rep. Jason Smith of Missouri, also appears to be balancing.

A move that could 'allow trillions of dollars of new borrowing'

The maneuver is clearly under increasing consideration, with House Speaker Mike Johnson appearing to warm to the idea this week after House Republicans had previously pushed a different counting approach.

"The policy makes a lot of sense to me," Johnson told reporters after a meeting at the White House where Trump aides and Senate leaders pushed the tactic.

Johnson said that current policy approach "comports with reality."

The tactic also has a supporter in Johnson's top tax deputy, Rep. Smith, who supports the idea but also raised "huge concerns" this week in an interview with Politico about whether the move would eventually pass muster.

This policy debate appears to be coming to a head after a win this week for House Republicans and Trump's push for "one big, beautiful bill" with a budget resolution that passed in a 217-215 vote.

House Concurrent Resolution 14 lays out a framework and puts aside $4.5 trillion for tax cuts while outlining $1.5 trillion in federal spending cuts to offset at least some of the cost.

If lawmakers adopt the more conservative "current law" approach, that entire $4.5 trillion tax bucket could be filled simply by extending the 2017 law.

But if the tab of that move is counted as zero, then there's plenty of space to extend the cuts permanently, as well as for things like Trump's ideas for eliminating taxes on tips, overtime, and Social Security benefits and lowering the corporate tax rate for domestic manufacturers.

But even the smallest estimates of Trump's overall tax promises — which count well over a dozen distinct ideas — put the deficit impact of his agenda at about $10 billion. The higher-side projections amount to much more: almost $18 trillion in new red ink over the coming decade.

The idea has understandably raised the ire of budget hawks, with one analysis from the nonpartisan Committee for a Responsible Budget calling it "a massive budget gimmick that would justify and allow trillions of dollars of new borrowing."

The analysis finds that the "current policy" approach could mean an extra $3.4 trillion to $4.6 trillion of deficit increases over the coming decade.

There are multiple ways this counting method could falter. Fiscal hawks in the House — of which there are plenty — could balk and sink the nascent effort.

There is also a concern that the Senate parliamentarian could object to the approach, leading to a possible standoff with Senate leaders who are perhaps most strenuously pushing the idea.

But the recent conversation with former Congressman Brady underlined how keenly President Trump is likely to push any maneuver that will get his additional tax ideas into law and how Congress is likely to try to find any way it can to accommodate him.

"I can tell you from experience," Brady said, "I didn't pay so much attention to the president's tweets each day. I paid attention to his campaign promises because that's what he was calling me about."

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>>> Will there be a government shutdown? Congress at impasse as March 14 deadline approaches


by Riley Beggin

USA TODAY

2-28-25


https://www.usatoday.com/story/news/politics/2025/02/28/government-shutdown-congress-deadline-approaches/80702615007/


WASHINGTON – There are just over two weeks until the federal government runs out of funding, and at the moment, there's no clear plan to avoid a government shutdown.

Federal funding dries up at the end of the day on March 14. Lawmakers acknowledge that passing full appropriations bills are unlikely given the time crunch, and they are preparing a funding extension known as a continuing resolution, referred to in Washington as a CR, in the hopes of buying more time.

Republican leaders have floated the idea of a long-term extension that would fund the government at current levels through the end of September while appropriations leaders in both parties are seeking a short-term extension that would give them more time to finish the funding bills. President Donald Trump endorsed the long-term extension in a post on Truth Social Thursday night.

However, politics are likely to complicate either possible extension.

Democrats, who are the minority party in both chambers, have had few options to substantively push back on the new presidential administration that they view as violating the constitutional separation of powers through unilateral moves such as shutting down agencies and mass firings of federal workers. The funding fight is a case in which Democrats have leverage: Any funding bills will need to clear a 60-vote threshold in the Senate, so at least seven Democrats must vote in favor for it to pass.

Democrats have demanded that Republicans give them some reassurance that the spending bill will be implemented as written, a reaction to Trump and Elon Musk's Department of Government Efficiency project that has slashed federal programs funded by Congress. Even though the administration could still ignore that directive, Democrats argue it's important to draw a line defending Congress' power of the purse.

"We have seen this administration disregard a lot of things, absolutely," said Sen. Patty Murray, D-Wash., the top Democrat on the Senate Appropriations Committee. But "Congress needs to weigh in on how we want funding spent."

Republicans have rejected those demands, arguing they're not going to put constraints on the leader of their own party.

"They've asked for what we would consider some unusual restrictions on the power of the president. As I remind my Democrat friends, a Republican Senate and a Republican House aren't going to limit a Republican president, particularly a president that has to sign the bill," said House Appropriations Chair Rep. Tom Cole, R-Okla. "So that's just a nonstarter, it's not going to work. It's politically impossible, whether you agree its right or wrong."

That dynamic was further complicated this week by House Speaker Mike Johnson saying a funding extension could reflect the changes implemented by Musk and DOGE, essentially codifying the changes that Democrats have been arguing are illegal.

"Well, it would not make sense to appropriate funds to divisions of an agency that doesn't exist anymore. So you just have to apply reason to this," Johnson told reporters Thursday morning, adding that the components still have "to be negotiated."

A game of chicken

The disagreement is setting up a likely game of chicken between congressional Republicans and Democrats, as both sides are already preparing to lay the blame for a government shutdown at the others' feet.

Johnson told CNN Wednesday night that the Democrats are "trying to push us into" a funding extension because "they've added these really crazy conditions onto the negotiation over the last week or so."

"Right now, the Democrats are, it looks like, trying to set up a government shut down," he said. "We can't allow that to happen and we won't."

Democrats argue that because Republicans control both chambers and the presidency, they carry the responsibility for keeping the government open.

"Democrats stand ready to support legislation that will prevent a government shutdown. Congressional Republicans, despite their bluster, know full well that governing requires bipartisan negotiation and cooperation," Senate Democratic Leader Chuck Schumer, D-N.Y., wrote in a letter to Democratic senators earlier this month.

"Of course, legislation in the Senate requires 60 votes and Senate Democrats will use our votes to help steady the ship for the American people in these turbulent times. It is incumbent on responsible Republicans to get serious and work in a bipartisan fashion to avoid a Trump Shutdown."

What happens during a government shutdown?

During a government shutdown, all employees and functions that are not considered "essential" stop working.

Federal workers who are considered "nonessential" are furloughed without pay until the government reopens. The longest government shutdown was 35 days, from Dec. 2018 to Jan. 2019, during Trump's first term. There were two other government shutdowns in Trump's first term.

Essential benefits like Social Security, Medicare and Medicaid payments would continue, as would mail delivery under the U.S. Postal Service. Food benefits through the Supplemental Nutrition Assistance Program (SNAP) and military veterans benefits would also continue.

However, national parks would close, security reviews to help defend against hacking would stop, civil litigation in courts would stop, and environmental and permitting reviews would stop. Air traffic controllers would continue to work, though there have been problems with absenteeism during previous shutdowns.

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Rickards - >>> Gold’s Historic Rally


By James Rickards

February 28, 2025


https://dailyreckoning.com/golds-historic-rally/


Gold’s Historic Rally

Even casual observers know that gold has been trading near all-time highs lately. The dollar price of gold has been trading around $2,955 per ounce, quite close to the all-time closing high and near the recent intraday high just below $3,000 per ounce. Since November 1, 2022, gold has rallied from $1,650 per ounce to $2,955 per ounce, an 80% gain in 28 months.

Since the U.S. dollar is also near interim highs based on leading indices, gold’s performance when measured in euros, sterling or Swiss francs is even stronger. We expect this trend to continue and to push gold solidly above the $3,000 per ounce level on its way to even higher levels in the months ahead.

Trump: Show Me The Gold!

That’s news in its own right but there’s a lot more going on in the gold space than just the price action. President Trump and Elon Musk (head of the Department of Government Efficiency, DOGE, and the world’s richest man) are planning to visit Fort Knox in the near future to “audit” the gold stocks and make sure all of the gold is where it’s supposed to be. I’m certain that visit will be the mother of all photo-ops.

Of course, Trump and Musk will not be conducting a real audit in the financial sense. They’ll just look around and show that the gold is actually there. This should lay to rest the rumors and ill-founded theories that the gold is somehow missing or has been shipped to JPMorgan. It hasn’t been.

Make U.S. Assets Great Again

Even this publicity visit has not captured all of the gold news lately. On a more serious note, Scott Bessent the U.S. Treasury Secretary said recently that “within the next twelve months, we’re going to monetize the asset side of the balance sheet for the American people. We’re going to put the assets to work.” There has been so much focus on the liability side of the balance sheet (basically the $38 trillion in national debt) that it’s refreshing to hear a senior official talk about the asset side.

The liberal critics will wail that Bessent plans to sell Yosemite National Park to real estate developers. Nothing like that will happen but the U.S. does have ample assets it can sell, lease or otherwise monetize without invading national parks or wilderness areas. These include mineral and mining rights, intellectual property, airwaves, rights of way, flight paths, and, yes, property development rights and land sales in non-sensitive areas. No one has any idea what all of this is worth, but it’s certainly worth in the trillions of dollars and can be monetized for the benefit of the American people including paying down the national debt.

Gold dealers and gold bugs immediately focused on one particular U.S. asset that could be monetized – gold. The U.S. has 8,133 metric tonnes of gold bullion in three locations – Fort Knox, West Point and the Denver mint – that could be sold. That gold has a current market value of $771 billion. Of course, any effort to sell more than a small fraction of that would drive the price of gold straight down. It would be an immense blunder to sell any of it anyway. The Treasury should be buying gold to maintain confidence in the dollar, not selling it.

Another take on monetizing gold revolves around the fact that the Federal Reserve currently holds a gold certificate issued by the U.S. Treasury in 1934 in compensation for the transfer of gold bullion from the Fed to the Treasury on orders of Franklin Roosevelt (backed up by legislation). That certificate is valued on the Fed’s books at $42.22 per ounce. If the Treasury ordered the Fed to write-up the value to market, that would add $760 billion to the Treasury’s general account, which could be used to finance the U.S. government without adding new debt.

Marked Up Gold: Not A Revenue Stream

Trump definitely wants new revenue streams for the government. I wouldn’t count marking-up the price of gold as a revenue stream. It does produce cash with no addition to the national debt but it’s not really a revenue stream; it’s just an accounting entry. It does produce cash but only on a one-time basis. In principle, you could repeat the process if gold went higher in the future but that’s uncertain and not completely reliable like taxes, leases and tariffs.

Despite the gold bug claims, there is no particular connection between marking up the price of gold (accounting) and selling gold reserves for cash (monetizing). One has nothing to do with the other. The government could sell the gold today at the market price without having to wash the accounting through the Treasury general account at the Fed. There’s nothing about marking up the price of gold on the Fed’s books that affects the government’s ability to sell the gold one way or the other.

Can The U.S. Even Sell Gold?

Still, the issue of monetizing gold has to be put in the context of whether the government can legally sell any gold at all. If you convert the Fed’s gold certificate into Troy ounces of gold (not dollars but ounces), it’s approximately equal to the entire U.S. gold reserve today (8,133 metric tonnes). If the Fed’s gold certificate is intended to be backed by physical gold, it’s possible the government cannot sell any gold without diluting the Fed’s gold certificate.

This is not discussed in economic literature to my knowledge, but it could be a simple derivative of the Fifth Amendment constraint that required the Treasury to give the Fed something of fair value when the gold was confiscated in 1934. This happened when the U.S. was on a gold standard and the weight and value of gold were interchangeable.

That’s not true today. Weight is constant but value fluctuates. It may be the case that the Treasury has to maintain a certain amount of gold by weight regardless of value in order to honor the original deal. If this analysis is correct, that’s extremely bullish for gold. It means the world’s largest single holder of gold (the U.S.) cannot be a seller!

Another idea which has surfaced in the hype surrounding Bessent’s comments about monetizing assets is that the U.S. could sell gold and use the proceeds to buy foreign government bonds that ostensibly produce higher yields than U.S. Treasuries. An alternative is to issue Treasury bonds backed by gold that would (in theory) carry a zero interest rate because they are “inflation proof.” This creates an arbitrage between higher yielding foreign government debt and supposedly zero interest U.S. Treasury debt that produces income for the Treasury.

This idea is nonsense for a long list of reasons.

In the first place, the U.S. already has inflation adjusted Treasury bonds. They’re called TIPS and offer investors a market interest rate plus an adjustment for inflation. An inflation-proof gold-backed bond is therefore redundant. If you like gold, just go buy some. We don’t need to make the Treasury jump through bond market hoops.

The second reason is that gold is not particularly correlated to inflation. In the past two-and-a-half years, gold has gone up 80% and cumulative inflation has been around 10%. Where’s the correlation? The price of gold is driven more by uncertainty, liquidity and geopolitics. Indexing Treasury bonds to gold prices would have resulted in windfalls for investors and a huge loss for the Treasury.

In addition, it’s not clear why selling or monetizing gold reserves has anything to do with buying foreign government bonds. The Fed could just buy them with printed money and the Treasury could just buy them with borrowed money. The gold reserve issue has nothing to do with it.

Finally, the calculation of whether buying foreign sovereign bonds makes sense for the Treasury involves a comparison of U.S. interest rates to German or Italian interest rates. Right now, German interest rates are about two points lower than U.S. rates, so those bonds would have negative carry from the U.S. perspective. That’s a bad deal. You also have to factor in exchange-rate risk. If the euro went down against the U.S. dollar, the Treasury would lose on the exchange rate and the interest rate. That’s a very bad deal.

As mentioned, I recommend gold as an investment asset and own it myself. It’s just not the case that the Treasury has to mess around in gold, bond and currency markets to achieve some opaque goal that can be achieved directly just by leaving the gold in Fort Knox and issuing TIPS.

A U.S. Sovereign Wealth Fund

In the midst of the noise set off by Bessent’s monetization comments was a striking remark by Trump that he would like to establish a U.S. sovereign wealth fund. That’s highly significant.

Right now, official U.S. reserves are about 70% in gold with the rest in a few foreign currencies. The idea of a sovereign wealth fund (SWF) is to allow a country with reserves to diversify into stocks, bonds, natural resources, property and a lot else instead of just holding gold and U.S. Treasuries.

Most countries with SWFs finance it with their trade surplus. Norway, Russia and Saudi Arabia are among the biggest SWF holders in part because of their oil revenue trade surpluses. The U.S. doesn’t have a trade surplus, but we might soon have substantial revenues from tariffs. The U.S. could always borrow money to finance a sovereign wealth fund. Then it would be more like a hedge fund, but that might be Trump’s style. (Scott Bessent was a hedge fund manager for Soros).

I did extensive collections and research on sovereign wealth funds for the Director of National Intelligence when it was a hot topic around 2007-2008. The SWF issue faded after 2009 as it was overshadowed by the global financial crisis. SWFs lost a lot of money in that panic. But they never went away and have recovered their losses since then. Trump may bring SWFs back into style.

Bessent’s asset monetization comment and Trump’s reference to a sovereign wealth fund for the U.S. are critical initiatives that we’ll be watching closely. In the short run, the gold bug and other hype has run far ahead of the reality. In the long run, both initiatives may come to fruition and mark a material reset in the international monetary system.

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>>> Gold Revaluation: Solution Or Desperation?


Zero Hedge

Monday, Feb 24, 2025

Authored by Matthew Piepenburg via VonGreyerz.gold,


https://www.zerohedge.com/precious-metals/gold-revaluation-solution-or-desperation


Topics like bond yields, dollar debates, or yield curves can be admittedly, well, boring.

And things like politics can be, well… emotional at best or divisive at worst.

Shared Concern Among So Much Division?

In the current Zeitgeist, it’s hard to get through the fog of market complexity or the self-censorship of political polarization to arrive at anything even resembling a shared concern.

But we should all be concerned if we are collectively sinking on a global debt ship with not enough lifeboats to save our fiat current’s absolute purchasing power.

And when it comes to the water over-filling the air-tight compartments of the U.S. debt Titanic, we need to look soberly at what the Trump America is facing.

Toward this end, let’s be blunt.

Can’t We All Agree that America is Broke?

Public debt – $37T, unfunded liabilities at $190T. A debt/GDP ratio above 120%, etc.

The USA is in an unprecedented debt trap/spiral, the math, details, history and consequences of which we have been tracking for years.

And history (ignored) tells us an even darker yet simpler truth: debt destroys nations.

Every time and without exception.

Boring Bond Yields

Given that the USA in particular (and the world in general) is witnessing the greatest debt crisis of human history, should we not be equally concerned rather than politically divided when it comes to such boring things like bond yields (which reflect the very cost of debt)?

As for those boring bond yields, let’s just keep it broad and simple.

Yields on the 10-year U.S. Treasury represent the cost of money/debt for nearly everyone on the globe, in general and Uncle Sam in particular.

This means that when those yields start to climb too high, just about everything and everyone (including the country you reside in) starts to fall deeper into “uh-oh.”

And those yields rise when demand (i.e., purchasing) of those bonds starts to fall.
Read that last line again. Let it sink in.

When trust, love and/or demand and price for UST’s falls, pain for just about everything but the USD (and now gold) spikes.

Boring? Yes.

But relevant?

Absolutely.

From Boring Bonds to Just About Everything

So, what does such boring bond/UST talk have to do with your currency, your wealth or your lives?

And what does such boring bond talk have to do with market risk, gold prices, BTC’s direction or the fate of Trump’s America or even world trade and peace?

A lot.

Trump Change

Trump is a disruptor. A political outsider to a DC setting for which the term “swamp” is probably too kind.

He’s making bold statements and directives on everything from tariffs and immigration to JFK’s assassination (no great mystery there…) and DOGE spending cuts.

Love or hate him – he’s certainly busy making change…

And although he may know far more about real estate capitalism than he does about government debt or US history, his Treasury Secretary, Scott Bessent, knows a heck of a lot about the latter – which means he’s dealing with a lot of contradictions coming out of today’s White House.

No Change Without Consequence or Contradiction

Trump’s administration is making headlines, for example, about a stronger USD, ending inflation, optimizing tariff revenues, saving big oil and getting those boring UST yields down.

But there’s just one catch – no one, not even Trump or Santa Clause, can do all that without radically re-shaping the prior notion of American exceptionalism.

And ironically, no one knows this better than Trump’s own Treasury Secretary.

Why?

It’s simple – and even a bit “boring” – but the forces at play will directly impact YOU, so it’s worth a few reality checks and simple fact-reminders here.

It All Starts (and Ends) with the Dollar

If Trump, for example, pushes for a stronger dollar and aggressive tariffs (love or hate em), such a policy would not only create a drag on the global economy (which owes over $14T in USD-denominated debt), it would also be knife wound to Uncle Sam, oil production and the very yields the Trump White House wants to reduce.

That is, a rising dollar forces foreigners (and nations) to sell/dump USTs to get more liquidity to pay debts.

And if USTs continue to sell off, then prices fall, and yields rise; and when yields rise, even Uncle Sam reaches a point where he can’t afford his own bar tab.

See the paradox? The trap? The boring yet incredibly important relationship between bonds, currencies and economic life itself?

The USD: Weaker By Necessity

This relationship between a strong dollar and UST yields is clear and direct, and although the headlines and consensus still see a strong dollar ahead, I’ve long argued the oppositefor the simple reason that America itself can’t afford a strong dollar.

And deep down, Scott Bessent (a private gold buyer) knows this, too.

He’s openly admitted to the “counterparty” risk of a strong USD, but he won’t publicly confess that one of those counterparties at risk is the U.S. itself.

So, what is to be done?

How can Trump afford short-term tariff costs, cut spending/waste in DC (via DOGE), pay for the needed re-shoring of American jobs, or even win the war on inflation without risking debt issuance to the moon and hence bond yields even higher (which recently rose from 4.3% to 4.65% in just three trading days)?

Well, as even his own Treasury Secretary knows under his breath, the answer is simple: he can’t.

Unless…

Unless …an already openly declining, and hence openly desperate, debt-soaked nation does what all desperate individuals or nations do: resort to desperate measures.

Only Desperate Options Left

Bessent knows that for anything Trump wants to enact to grow the American economy; he must first get Uncle Sam’s debt to GDP levels to a place where growth is even mathematically feasible.

At current debt/GDP levels, for example, such growth is mathematically impossible.

So, what can the US do under Trump?

1) Inflate Away Our Debt?

We could end up inflating away our debt.

For that to happen, we’d need years of inflation and negative real rates at well over 15% to even come close to “inflating away” such debt.

This would not only be fatally painful for U.S. citizens but also political suicide for Trump.

2) Play the Yellen Card?

Bessent could try his predecessor’s playbook of just issuing more UST’s (IOUs) from the short end of the yield curve or emptying the reverse repo market and TGA accounts to buy more time/liquidity and create more debt.

But with the world dumping USTs and bracing itself for more tariff and trade wars, there just isn’t enough love, trust or buyers for those American IOUs anymore…

More importantly, such wimpy measures can no longer save a nation whose bar tab (interest expense on outstanding debt, entitlements and defence) is 140% of its tax receipts.

That, folks, is neon-flashing evidence of desperation, which means we are now at an inflection point where the only measures left are entirely emergency measures – and they come with a cost. A serious cost.

3) Create BTC Bubble?

The U.S. could also help pay down some debt by speculating in a politicized BTC bubble, and then use the speculation proceeds (not actual BTC “currency”) to pay down debt in an emerging-market-desperation play akin to El Salvadore?

This is desperation at its highest, yet masquerading as “tech” nirvana to the rescue…

I’ve written and spoken about this option at greater length here and here.

4) Revaluing Gold?

Finally, and perhaps most importantly, the topic of gold revaluation is also ripping through the precious metal pundit circles at a galvanic pace, and for good reason.

Based upon “reported” U.S. gold holdings, if gold were politically re-priced to just $4000 per ounce, that would create an additional $1.2T of instant liquidity (i.e. inflationary M2), which the Treasury Department could then direct deposit into an ever-drying TGA.

(This direct deposit is made legal under Section 2.10 of the Financial Accounting Manual for Federal Reserve Banks.)

Such a gold revaluation policy would take a lot of pressure off Bessent’s Treasury Department and buy the U.S. more time and money for the aforementioned Trump policies to “Make America Great Again.”

But could a potential series of gold revaluations to inject new money into the TGA piggy bank truly make America, well… great?

Or would it just save the U.S. economy from crumbling to the ground?

Kissinger’s Ghost

In the 1970s, Kissinger was very concerned when Europe, which collectively owned more gold than the U.S., wanted to revalue their gold to similarly cover their own debt disasters at home.

This would mean the U.S. would have to do the same, thereby playing its last Trump card (pun intended) of desperation (reverting to its gold vaults) in 1974.

And why was Kissinger so terrified of having to resort to the ultimate “red button” act of desperation in the form of revaluing its last real form of sound money/wealth?

Because Kissinger knew then what many of us know.

That is, if the USA shows its hand and starts revaluing gold to higher and higher levels to pay down higher and higher levels of debt (to keep politicians in power and the masses free of pitchforks), this would mean the end of American supremacy, hegemony and/or the Pax Americana.

Why?

Because he who has the most gold wins, and despite what the World Gold Council reports, it’s an open secret that America does not have the most gold (in a world of central banks stacking gold at record levels and COMEX revolving doors).

The Dilemma: Greatness or Survival?

Trump, Bessent, and the USA itself thus face a debt trap and, hence, a sovereign dilemma of historical import.

Yes, certainly, the U.S. can and may revalue its gold holdings to dig itself partially out of debt and hence spur more growth.

But once/if the U.S. revalues, the rest of the world will naturally follow, and that will make the US just one more economically average nation among many, but certainly not the strongest anymore.

Kissinger knew this.

Do Bessent and Trump?

Either Way, Gold Wins

Regardless of whether such a formal gold revaluation occurs from the top down in DC, the gold price will continue to rise (re-value itself) naturally from the bottom up for the simple reason that debt-soaked nations = debased currencies.

Gold, which only rises because fiat money inevitably suffocates under debt, sits at a different kind of historical moment.

It gets the last laugh because sovereign debt, led by sovereign mismanagement, has killed its sovereign currency in a death by a thousand cuts.

So, yes, gold gets the last laugh – but the circumstances couldn’t be sadder.

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>>> Newman: Why Trump is killing the penny and ransacking the government


Yahoo Finance

Rick Newman

February 10, 2025


https://finance.yahoo.com/news/newman-why-trump-is-killing-the-penny-and-ransacking-the-government-201615375.html


Donald Trump’s early actions as president range from dramatic to trifling. On one hand, he wants to slash billions of dollars in spending on foreign aid, consumer protection, and even healthcare. On the other, he hopes to end production of the penny, which most Americans probably wouldn’t miss.

It might seem like a grab bag of unconnected ideas, but there’s a common thread: financing tax cuts. One of Trump’s top priorities is extending tax cuts due to expire at the end of 2025 while tossing in some new ones. And that will require a lot of budget savings elsewhere.

The last set of Trump tax cuts, in 2017, was an easier lift. Back then, the total national debt was about $20 trillion and the portion held by the public was 74% of GDP. There were congressional limits on how much new legislation could add to the debt, but market concerns about a debt crisis weren’t an issue.

They are now. The national debt has ballooned to $36 trillion and the portion held by the public is close to 100% of GDP. Markets are sending signals that the national debt is too large, most notably through long-term interest rates that are going up even as short-term rates have been coming down. Some Republican budget hawks in Congress warn that Trump’s new tax cuts won’t be possible unless offset by major spending cuts.

Trump stormed into office with an army of hatchet men led by efficiency czar Elon Musk. The template seems to be Musk’s cost-cutting spree at Twitter, which he bought in 2022. Within two years, Musk had slashed the payroll by more than 75% and upended the whole business model.

The rapid downsizing of government would be the sort of techno-libertarian revolution Trump supporters such as tech billionaires Peter Thiel and Marc Andreessen have called for. It would also, conveniently, pave the way for more of the tax cuts that Trump champions.

The tax cuts for individuals that Trump signed in 2017 expire at the end of this year. Extending those for another 10 years would cost the government at least $4 trillion in foregone revenue, adding that much to the national debt if not accompanied by spending cuts. The cost would be higher if the tax cuts become permanent.

Trump has proposed at least a dozen other tax cuts, including his campaign promises to eliminate taxes on tip income, overtime pay, and Social Security benefits. Those tax cuts would add another $1 trillion to the debt, and possibly a lot more, depending on how Congress might structure them.

So Trump needs to come up with a lot of offsetting spending cuts. Killing the penny would bring in chump change, given that the mint spends only about $454 million per year making one-cent coins. That’s just .00006% of all federal spending. Yet Trump is right that minting pennies is a money-loser. Each one-cent piece costs 3.69 cents to produce, so getting rid of them in a cost-cutting sweep would literally show that Trump is looking out for every penny of taxpayer dollars.

There’s more money to be found in Trump’s bigger targets. Trump wants to shutter the US Agency for International Development, which has an annual budget of $40 billion. A cap on health research grants aims to save several billion dollars. Musk and his team are reportedly scouring the budgets of every federal agency, and they’re just getting started. Musk has said his end goal is to identify at least $500 billion in annual spending cuts.

New tax revenue is also part of Trump’s calculus. That’s a big reason he’s pushing for a wide range of tariffs. In 2024, the United States pulled in $83 billion in revenue from customs duties, which was less than 2% of all revenue. Trump is aiming for a lot more tariff revenue, which he describes, wrongly, as taxes paid by foreigners. Trump also said he’s willing to eliminate a tax break for certain professional investors that could bring an extra $15 billion in revenue per year.

The giant asterisk hovering over many of these plans is that they might require congressional authorization, which makes them a dicey proposition. Trump can probably get rid of the penny on his own, and he does have the power to levy tariffs. But cutting any agency’s budget is up to Congress, not Trump, and it may be illegal for Trump to withhold spending that Congress has authorized through legislation. Many lawsuits have already been filed challenging Trump’s executive orders, and more seem certain.

Musk’s efficiency work is clearly creating a template for congressional Republicans to follow, if they choose. Some Republicans won’t need the nudge, since low taxes and smaller government have been a GOP mantra for decades. There may be some holdouts, however, who favor a skeleton government in theory but aren’t quite willing to cut services or benefits for their constituents. Libertarianism is getting a tryout, with the verdict yet to come.

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Dumb A$$ Donald - >>> New Trump tariffs on Mexico, Canada and China set to start Tuesday


Yahoo Finance

by Ben Werschku

February 1, 2025


https://finance.yahoo.com/news/new-trump-tariffs-on-mexico-canada-and-china-set-to-start-tuesday-221835200.html


President Donald Trump moved forward Saturday with his plans for tariffs on Canada, Mexico and China, ending a guessing game about how aggressively he would move to penalize America's three largest trading partners.

The tariffs — as Trump has promised since after his election win — will be 25% duties on Canada and Mexico and 10% on China over issues of fentanyl and illegal migration.

The duties on all three countries will be fully in force by Tuesday, February 4th, according to the order signed by Trump Saturday afternoon in Florida.

But duties on crucial energy imports from Canada will be lower initially at 10% on those products. The carveout was an acknowledgment of US and Canadian energy interdependence.

Trump is declaring a national economic emergency under the 1977 International Emergency Economic Powers Act (IEEPA), which will allow him to impose the duties.

Canada, Mexico, and China are expected to quickly announce retaliatory measures across a range of goods.

Canada in particular is promising an aggressive action.

"Canada’s ready with a forceful and immediate response," Prime Minister Justin Trudeau posted on Friday. Canada says it has a plan in place and has floated a range of ideas like retaliatory tariffs on goods from Florida orange juice to Tennessee whiskey.

Trump's executive order also include a retaliation clause which could allow the US tariffs to rise further in response to any retaliatory measures.

A range of likely economic effects

Indeed, the economic effects of the duties could be significant on all economies involved, especially if they are kept in place for an extended duration.

Yale’s Budget Lab has offered an estimate of the adjusted duties, suggesting that these new tariffs could translate in a decline of about $1,250 in annual purchasing power for a middle class family.

EY chief economist Greg Daco has taken a macroeconomic look and estimated that US GDP would contract by 1.5% in 2025 and 2.1% in 2026 if the tariffs kick in.

On the other side of the ledger, the nonpartisan Committee for a Responsible Federal Budget estimates that the duties are likely to raise up to $1.5 trillion over the coming decade if they are made permanent.

Economists and markets are set to work overtime in the days ahead to try and get more precision. The stock market fell on Friday at the tariff debate reached a crescendo in a sign of anxiety among investors as they awaited final confirmation of this weekend’s moves.

The White House has meanwhile tried to downplay possible economic effects while disputing any link between inflation and price increases. (!)

White House Press Secretary Karoline Leavitt on Friday avoided a question about whether the administration would reverse tariffs if they do increase prices.

"That's a hypothetical question," she said and then accused the media of looking at the issue "in a microscope rather than looking at the whole of government economic approach that this president is taking."

Other voices on Saturday offered praise for the move. A Trump ally on Capitol Hill, House Agriculture committee chair Glenn Thompson, offered that "President Trump’s tariff policy has been an effective tool in leveling the global playing field and ensuring fair trade for American producers."

But other Trump’s allies were critical of the move.

“Tariffs are simply taxes,” wrote Sen. Rand Paul, a vocal Trump advocate on other fronts, on Saturday. “Taxing trade will mean less trade and higher prices,” he added.

Technical details of the duties

Trump imposed those duties using a presidential authority granted in a 1977 law that allows them to be in place quickly. It’s one of the few authorities that experts say will grant him the authority to have the duties in place as quickly as he hopes.

The use of the International Emergency Economic Powers Act does give Trump considerable latitude to move quickly and on tariffs but could open him to legal challenges.

The law grants the president wide authorities including the possible implementation of tariffs within hours once an emergency is invoked but only asks for consultation with Congress “in every possible instance.”

The White House previously confirmed that tariffs using IEEPA authority were drafted to implement duties on another front — against Colombia — but those duties are now being held in reserve.

Overall, Saturday The move is a restarting of trade wars that marked Trump 1.0 with the president now promising to go much further.

Trump’s actions between 2017 and 2020 were often wide-ranging — covering well over half of Chinese imports for example — but often focused on specific sectors like steel and aluminum.

This time around, Trump has acted first on large umbrella tariffs.

But sector specific tariffs could be in the offing soon and Trump himself listed a wide array of goods on Friday that could be in store for additional duties in the months ahead.

It was a sizable list of industries from semiconductors to steels to copper to pharmaceuticals. He also outlined a plan to "absolutely" impose tariffs on the European Union in the future.

"Eventually we are going to put tariffs on chips," he added at one point. The semiconductor comments came after a meeting with Nvidia (NVDA) CEO Jensen Huang.

It was emblematic of Trump's deep feelings on the issue as Trump has also repeatedly waved away concerns from colleagues and economists and business leaders saying Friday “tariffs don’t cause inflation, they cause success.”

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Donald the '4 times bankrupt' idiot


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Looks like Tillerson was right to call Trump a moron. These mega tariffs will be a disaster since % rates will stay high, and thus bring the US Debt Bomb to a crescendo sooner. Trump sees the tariffs as a way to encourage the re-industrialization of the US, but that process would take many years, and the US will be broke long before then.

The interest on the debt component is now bigger than the Defense budget and bigger than Medicare (!) In addition to cutting spending, the only way to slow down this process is to get % rates back down ASAP. These tarrifs will prevent that by generating immediate inflation, and the Fed will be forced to keep % rates high. It doesn't take a genius to figure this out, so what is Trump thinking?

The US no longer has the luxury of time. Here are the projections for the official US national debt (below). At what level does global confidence in the dollar 'crack'? Countries are already de-dollarizing their trade and central bank reserves, and will soon have the gold-linked BRICS currency as an alternative to the dollar. Global buyers will no longer be showing up for US Treasury auctions, which has already been happening.

Trump's tariffs could initially increase global demand for dollars, but over time these countries can avoid the tariffs by just shifting their export trade away from the US and toward the BRICS countries. The tariffs are going to accelerate BRICS expansion --> the exact opposite of what we need, and the USS Titanic sinks even faster.


Dec 2024 -- 36 Tril
Dec 2025 -- 37.6 Tril
Dec 2026 -- 39.9 Tril
Dec 2027 -- 42.1 Tril
Dec 2028 -- 44.4 Tril
Dec 2029 -- 46.7 Tril

Tipping point -- 50 Tril (?)


https://www.statista.com/statistics/262893/national-debt-in-the-united-states/




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Check out this Debt / GDP chart (below). It's clear that a mega train wreck is approaching, although reducing the deficit and expanding the economy would at least help postpone the inevitable. While military spending is a big chunk of the budget, the biggest has been Social Security and Medicare, so those will also need to be reduced.

But the interest on the debt is the killer, and it recently passed both defense spending and Medicare in size (chart below), so will eventually swamp everything else in the budget. But before that happens, there will likely be a dollar crisis, where global confidence in the dollar is lost. So massive dollar dumping and US hyperinflation. Therefore, investors need to start moving more into hard asset areas.












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The coming 'two tiered' dollar system?

When the Bretton Woods system was put in place after WW 2, the US dollar essentially became a '2 tiered' system. For the next 25 years, the dollar was fully backed by gold internationally, but unbacked / fiat for domestic use within the US. Other countries could freely convert their dollars into gold, which provided full trust in the global dollar reserve system.

Today we find the US dollar system heading into big trouble due to the parabolic US domestic debt, and the rise of rival China-Russia-BRICS and their new gold-linked currency. So what options are there to avert the looming disaster? In addition to slowing down the rise of BRICS (see last posts), one possibility might be to create a 2 tier dollar system that somehow separates the domestic US debt problem from the dollar's key role as the world's reserve currency. Could this be where the crypto / CBDC / Bitcoin Strategic Reserve idea is heading? In Category A would be dollars held by the world's central banks, and in Category B would be the domestic US debt bomb problem, which could then be somehow neutralized, vaporized without affecting the dollar's all important global reserve role. Probably won't work, but desperate times require desperate measures.

Countries all over the world are working on their own domestic CBDCs, but the US situation is different due to the dollar's world reserve currency role. After the collapse of Bretton Woods in 1971, Kissinger & Co saved the day for the teetering dollar system by coming up with the Petrodollar system. Let's hope the current finance oligarchy is up to the task, but options are dwindling with current US Debt / GDP a staggering 123%, compared to 32% in 1981. So objectively, even a Kissinger couldn't get us out of this mess.




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>>> Trump’s first year will be filled with fiscal follies


Yahoo Finance

Rick Newman

December 24, 2024


https://finance.yahoo.com/news/trumps-first-year-will-be-filled-with-fiscal-follies-155611389.html


Relief swept Washington, D.C., after Congress ended a budget standoff and passed a short-term spending bill on Dec. 21, averting a government shutdown. But that year-end legislative battle may foretell further fiscal chaos in 2025, including the risk of another downgrade of US debt.

Donald Trump will take office on Jan. 20 with his fellow Republicans running both houses of Congress. That Republican “trifecta”— full control of the legislative and executive branches — has boosted hopes that Trump will be able to extend a huge set of tax cuts due to expire at the end of 2025 and perhaps rein in government spending.

The Trump agenda, however, now looks a lot shakier, and the recent funding battle demonstrates why.

Though Republicans control the House, the party is split into factions, including a group of budget hawks that numbers more than 30. Those Republicans are dead set against tax cuts or spending hikes that add substantially to the national debt, now more than $36 trillion.

The Dec. 21 spending bill passed the House by a comfortable 366-34 margin, but that’s because every Democrat voted for it. Democrats were willing to join most Republicans in voting for the bill so President Biden doesn’t have to manage an unpopular shutdown during his final days in office. Once the House voted, the Senate passed the funding bill without any problem.

But minority Democrats aren’t likely to vote for Republican priorities once Trump takes office. And once the next Congress convenes on Jan. 3, Republicans will have just a five-seat majority, which is even thinner than the current GOP breakdown. That means partisan legislation will require virtually every Republican vote, a feat that has become notoriously difficult in the fractious GOP during the last several years.

Republican lawmakers are already working on a huge set of tax cuts meant to be the capstone for the first year of Trump’s second term. That includes an extension of all the individual tax cuts enacted in 2017, which expire at the end of 2025. Republicans also hope to include new measures Trump has proposed, such as eliminating the income tax on tips.

But the latest revenue fight raises fresh doubts about whether Republicans can get it done.

“Our discussions with Republican staff on Capitol Hill have increasingly suggested that a partisan bill that addresses the expiring [tax cuts] will be inordinately difficult, if not impossible, to pass next year,” Henrietta Treyz, co-founder of Veda Partners, wrote in a recent analysis. “The government funding debate neatly illustrates why Republican staff is feeling anxious about their prospects next year.”

The basic problem is that extending the 2017 tax cuts would add about $4 trillion to the national debt, with the bill even higher if Congress lards in additional tax breaks. Republicans will try to cut spending to offset some of that, but most spending goes toward defense, which most Republicans support, plus politically popular programs such as Medicare and Social Security. Major spending cuts would outrage voters, including many Republicans, which means there’s no real way to prevent tax cuts from ballooning the debt even more.

When Congress first passed the Trump tax cuts in 2017, 12 House Republicans voted against the bill. But Republicans had a far larger majority then and could afford to lose some internal support. In 2025, just two or three defections will be enough to sink GOP legislation. And there seem to be more than two renegade Republicans.

The most telling moment in the recent funding dispute wasn’t the vote tally on the final bill but the vote on an earlier bill Trump urged all Republicans to vote for. Thirty-eight Republicans bucked Trump, dooming that bill. Their main objection was that the bill would have suspended the debt limit, the law that limits the total amount of money the US government can borrow.

The bill Congress finally passed on Dec. 21 did not address the debt limit, which means Trump is going to have to tangle with that, which he was hoping to avoid. During the last big spending fight in 2023, Congress suspended the debt limit, but only until Jan. 1, 2025. That means it will have to raise the debt limit again next year, saddling Trump with what has routinely become an ugly political fight.

The next 12 months, in fact, are going to be filled with fiscal fireworks. There will be another funding fight in March, which is when the current temporary spending expires. Around that time, the deadline may be drawing near for when Congress has to raise the borrowing limit. Then there will be another spending battle in September, which is when the government’s fiscal year ends and Congress needs to approve the next year’s funding.

Markets usually survive government shutdowns without much bruising. But debt ceiling fights can get harrowing because there’s an implicit threat that the US will default on some payments if Congress doesn’t raise the limit.

S&P downgraded the US debt rating for the first time ever in 2011 following a congressional standoff that left the Treasury days away from a default. Fitch cut the US debt rating after the 2023 showdown, while Moody’s changed its US outlook from stable to negative. All three agencies cite political dysfunction as their main concern.

Since the US fiscal situation gets progressively worse, those concerns are likely intensifying. In 2023, when Fitch cut the US rating, the national debt was $32 trillion. Eighteen months later, it’s $4 trillion higher. Plus, there have been some signs that endless US borrowing is beginning to rattle bond markets, which is how a US debt crisis would likely begin.

Trump may still get his tax cuts. But the political brawls it will take to get there will leave the United States in even shakier fiscal shape than it's in now.

Somebody, at some point, is going to have to say no more.

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US budget and spending charts -

(both charts are 2022)











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Atlantic Council / IMF - >>> Going for gold: Does the dollar’s declining share in global reserves matter?


Econographics

By Hung Tran

August 27, 2024


https://www.atlanticcouncil.org/blogs/econographics/going-for-gold-does-the-dollars-declining-share-in-global-reserves-matter/#:~:text=Its%20latest%20COFER%20report%20shows,been%20reported%20to%20the%20IMF.


Going for gold: Does the dollar’s declining share in global reserves matter?

Over the past twenty-three years, the US dollar (USD) has declined gradually as a share of global foreign exchange reserves, according to the International Monetary Fund (IMF). The shift has not benefited any other major currency viewed as a potential competitor to the USD, like the Euro, the Great British pound (GBP), or the yen. It has instead favored a group of lesser-used currencies, including the Canadian dollar, the Australian dollar, the Renminbi, the South Korean won, the Singaporean dollar, and the Nordic currencies. If gold—which has recently experienced a surge in purchases by many central banks, as well as the general public—is included in reserve asset portfolios, the share of the USD is smaller than what the IMF has highlighted. As geopolitical confrontations deepen, the share of the USD in global reserves is likely to continue declining in the future, eventually diminishing the dominant role of the dollar and the US in the international financial system.

The declining share of the USD in global reserves

The IMF conducts a regular survey of Currency Composition of Official Foreign Exchange Reserves (COFER). Its latest COFER report shows that in the first quarter of 2024, the share of USD sits at $6.77 trillion—54.8 percent of the total official foreign exchange (FX) reserves of $12.35 trillion, or 58.9 percent of allocated FX reserves where currency breakdowns having been reported to the IMF. This is a noticeable fall from the 71 percent share for USD in 2001. Basically, the decline in the USD share has been driven by efforts by central banks to diversify their reserves into a wider range of currencies—a move facilitated by improvements in financial markets and payment infrastructures in many countries. It is important to note that the share of USD would be lower if gold were included in global reserves.

Since the global financial crisis in 2008, the world’s central banks have increased their gold purchases in an attempt to manage heightened financial system uncertainty. Doing so has pushed gold prices up by 138 percent over the past sixteen years to reach the current record highs of over $2,600 per ounce. Gold buying has accelerated further in recent years as part of a growing popular demand. In 2022 and 2023, central banks purchased more than one thousand tons of gold per year, more than doubling the annual volume of the previous ten years. Purchases have been spearheaded by the central banks of China and Russia, followed by several emerging market countries including Turkey, India, Kazakhstan, Uzbekistan, and Thailand. In particular, the People’s Bank of China has raised the share of gold in its reserves from 1.8 percent in 2015 to a record 4.9 percent at present. At the same time, it has cut its holding of US Treasuries from $1.3 trillion in the early 2010s to $780 billion in June 2024.

Gold holdings, valued at market prices, account for 15 percent of global reserves. As a consequence, the share of the USD in total global reserves including gold would fall to 48.2 percent—instead of 54.8 percent of global foreign exchange reserves. The declining USD share suggests that while the USD is still the preferred currency most used by central banks for their reserves, it has been losing market share. It is not as dominant in the global reserves arrangement as it still is in trade invoicing, international financing, and FX transactions, according to the Atlantic Council’s Dollar Dominance Monitor.

Implications of the declining share of the USD in global reserves

Several reasons have been advanced to explain the growing demand for gold. For the general public, factors including hedging against inflation and/or against political and geopolitical risks, as well as positioning for expected US Federal Reserve rates cuts, appear reasonable. The central banks buying gold have also mentioned their desires to diversify their reserves portfolios, de-risking from vulnerability to sanctions risk from the United States and Europe. This sense of vulnerability has become acute for some countries in conflict or potential conflict with the US/Europe, after the West imposed substantial sanctions on Russia following its invasion of Ukraine. Decisions to immobilize overseas reserve assets of the Bank of Russia, subsequently appropriate the interest earnings of those assets, and threats to seize assets outright to help pay compensation to Ukraine proved especially unsettling.

In response, central banks have moved into gold in a way to diminish sanction risks. They can take physical possession of the gold they have bought and kept it in domestic vaults—instead of leaving it at Western financial institutions such as the US Federal Reserve, the Swiss National Bank, or the Bank for International Settlements, where gold is subject to Western jurisdiction. If the likelihood of geopolitical confrontation heightens, it follows that the declining trend in the share of the USD in global reserves will persist. This is consistent with the de-dollarization trend whereby a growing number of countries have developed ways to settle their cross-border trade and investment transactions in local currencies. Doing so chips away at the USD’s dominant role in the international payment system, as well as motivating countries to hold some reserves in each other’s currencies.

While the declining share of the USD in global reserves could continue to unfold gradually, as in the past two decades, central banks’ demand for USD for their reserves would eventually fall to a critical threshold. The US national saving rate is also likely to stay low and remain insufficient to cover domestic investment, leading to persistent US current account deficits. The combined effect of these trends in addition to falling foreign central bank demand for USD would constrain the US government’s ability to issue debt to finance its budgetary needs.

This constraint could become binding, a turning point heralded by sharp reductions in foreign official demand for US Treasuries. In that case, USD exchange rates would have to fall and interest rates to rise, simultaneously and in sufficient magnitude, to improve the risk-return prospects of US government debt and attract international investors. Any increase in US interest rates would be very problematic as interest payments on government debt have already become a burden, and are estimated to take up more than 20 percent of government revenue by 2025. They are threatening to crowd out other necessary public priorities including national defense, dealing with climate change, infrastructure, and human services. These developments would make the political fight over budgetary resources for competing needs even more antagonistic, and the important task of getting government deficits and debt under control more intractable. Both factors would ultimately put the US fiscal trajectory on an unsustainable path and threaten global financial stability—a risk not easily addressed given the deepening geopolitical contention.

Hung Tran is a nonresident senior fellow at the Atlantic Council GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

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Update on Trump's cabinet and other key appointments -


>>> Trump taps Linda McMahon for education secretary: Here's who else he's picked for his incoming administration


MSN

by Dylan Stableford

11-20-24


https://www.msn.com/en-us/news/other/trump-taps-linda-mcmahon-for-education-secretary-here-s-who-else-he-s-picked-for-his-incoming-administration/ar-AA1ur819?ocid=TobArticle


It’s been a little more than two weeks since the 2024 election, and the administration of President-elect Donald Trump is taking shape. Trump has already named more than a dozen people who will play key roles, including former WWE CEO Linda McMahon (education secretary), TV personality Dr. Mehmet Oz (Centers for Medicare and Medicaid Services) and billionaire megadonor Howard Lutnick (commerce secretary). Other picks for his Cabinet and West Wing are said to be imminent.

Here is what Trump’s incoming administration looks like so far:

Secretary of education

Responsibilities: The secretary is responsible for the overall direction, supervision and coordination of the U.S. Department of Education.

Trump’s pick: Linda McMahon

McMahon, the former chief executive of the WWE, served as administrator of the Small Business Administration in the first Trump administration. She briefly served on the Connecticut state Board of Education.

Trump has said he wants to eliminate federal oversight of education.

“We will send Education BACK TO THE STATES, and Linda will spearhead that effort,” Trump said in a statement announcing her nomination.

Centers for Medicare and Medicaid Services (CMS) administrator

Responsibilities: The administrator leads a federal agency "dedicated to advancing health equity, expanding coverage, and improving health outcomes,” according to its website. This position requires Senate approval.

Trump’s pick: Dr. Mehmet Oz

Oz, a television personality who was a frequent guest on Oprah Winfrey’s show before hosting his own, lost in Pennsylvania’s 2022 U.S. Senate race to John Fetterman — despite being endorsed by Trump.

In a statement, Trump said Oz would work closely with Robert F. Kennedy Jr., his health secretary nominee, to “to take on the illness industrial complex, and all the horrible chronic diseases left in its wake.”

"I have known Dr. Oz for many years," Trump added, "and I am confident he will fight to ensure everyone in America receives the best possible Healthcare, so our Country can be Great and Healthy Again!”

Secretary of commerce

Responsibilities: The commerce secretary oversees a broad array of federal trade policies, and is responsible for helping carry out the president's economic agenda with a focus on job creation and growth. This position requires Senate confirmation.

Trump's pick: Howard Lutnick

Lutnick, a billionaire megadonor to Trump’s campaign and the co-chair of Trump’s transition team, is the chairman and longtime chief executive of the financial services firm Cantor Fitzgerald. The company’s World Trade Center offices were destroyed during the Sept. 11, 2001, terrorist attacks, which killed 658 of Lutnick’s employees, including his 36-year-old brother.

Secretary of transportation

Responsibilities: The secretary of transportation oversees all aviation, automotive, rail and transit policies in the United States. This position requires Senate confirmation.

Trump's pick: Sean Duffy

Duffy, a former reality television star on MTV’s “Real World: Boston” turned Wisconsin congressman, is a host on the Fox Business channel. He is Trump’s second cabinet pick to come from Fox following Pete Hegseth, a Fox & Friends co-host and the president-elect’s pick for defense secretary.

In a statement, Trump said Duffy “will prioritize Excellence, Competence, Competitiveness and Beauty when rebuilding America's highways, tunnels, bridges and airports" and “greatly elevate the Travel Experience for all Americans.”

FCC commissioner

Responsibilities: The Federal Communications Commission chairman is tasked with regulating broadcasting, telecommunications and broadband in the United States.

Trump's pick: Brendan Carr

Carr is a longtime member of the commission who was previously nominated by Trump and President Biden to the panel. Carr wrote a section devoted to the FCC for Project 2025, the controversial 922-page document crafted by the Heritage Foundation as a blueprint for the next Republican administration that would radically reshape how the American government works. During the campaign, Trump distanced himself from the project.

“Commissioner Carr is a warrior for Free Speech, and has fought against the regulatory Lawfare that has stifled Americans’ Freedoms, and held back our Economy,” Trump said in a statement. “He will end the regulatory onslaught that has been crippling America’s Job Creators and Innovators, and ensure that the FCC delivers for rural America.”

Secretary of energy

Responsibilities: The secretary of energy oversees all energy supply and production — including oil and gas — in the United States. This position requires Senate confirmation.

Trump's pick: Chris Wright

Wright, chief executive and chairman of oil and natural gas services company Liberty Energy, is a champion of fracking and a noted climate change skeptic. Wright will also serve on Trump’s newly created National Energy Council.

"As Secretary of Energy, Chris will be a key leader, driving innovation, cutting red tape, and ushering in a new 'Golden Age of American Prosperity and Global Peace,'" Trump said in a statement.

Secretary of state

Responsibilities: The secretary of state is the nation’s top diplomat who serves the interests of the United States and U.S. citizens around the world. This position requires Senate confirmation.

Trump's pick: Sen. Marco Rubio

Rubio — a former Trump critic who was once dubbed “Little Marco” when he ran against Trump for the 2016 GOP nomination — has become a fierce defender of the president-elect. And the longtime Florida senator was on the shortlist of candidates to serve as Trump’s 2024 running mate.

Director of national intelligence

Responsibilities: The director of national intelligence (or DNI) traditionally serves as the head of the U.S. intelligence community and acts as the principal advisor to the president, National Security Council and the Homeland Security Council. This position requires Senate confirmation.

Trump's pick: Former Rep. Tulsi Gabbard

Gabbard, a former Democratic congresswoman and 2020 presidential candidate who served Iraq and Kuwait as a member of the Army National Guard, became a Trump supporter after leaving the Democratic party for the GOP.

“As a former Candidate for the Democrat Presidential Nomination, she has broad support in both Parties - She is now a proud Republican!” Trump said in a statement. “I know Tulsi will bring the fearless spirit that has defined her illustrious career to our Intelligence Community, championing our Constitutional Rights, and securing Peace through Strength. Tulsi will make us all proud!”

Attorney general

Responsibilities: The attorney generalI is the nation's chief law enforcement officer, guiding the Department of Justice and all of its agencies (including the FBI) in enforcing federal laws and advising the president on legal matters related to them. This position requires Senate confirmation.

Trump's pick: Rep. Matt Gaetz

The far-right Florida congressman has for years been one of Trump’s most vocal defenders on Capitol Hill, and one of the leaders of the so-called MAGA-movement. Gaetz has been sharply critical of the Justice Department itself, and has even floated the idea of abolishing the FBI.

In a post on Truth Social announcing the pick, Trump said that Gaetz “has distinguished himself in Congress through his focus on achieving desperately needed reform at the Department of Justice.”

Gaetz, who resigned from Congress after the announcement, had been the subject of a three-year investigation by the House Ethic Committee into allegations of sexual misconduct and illicit drug use. The panel was set to meet last week to decide whether to release its findings, but Gaetz’s abrupt departure from the House ended the probe. Gaetz was also the subject of a Justice Department probe into allegations that he had sex with a 17-year-old girl and broke sex-trafficking laws. He denied any wrongdoing, and it concluded last year without charges.

Deputy attorney general

Responsibilities: The deputy attorney general serves as the no. 2 official at the Justice Department and is responsible for supervising its day-to-day operations. This position requires Senate confirmation.

Trump's pick: Todd Blanche

Blanche, a former supervising federal prosecutor in Manhattan, served as Trump's defense attorney in three of his four criminal cases, including his hush money trial in Manhattan. Trump was convicted on all 34 counts of falsifying business records in that case. But sentencing was postponed following Trump's election victory, and the other three cases have been put on indefinite hold.

“Todd is an excellent attorney who will be a crucial leader in the Justice Department, fixing what has been a broken System of Justice for far too long,” Trump said in a statement announcing his appointment.

Secretary of the interior

Responsibilities: The interior secretary is a steward for the nation's lands, including national parks and wildlife refuges, overseeing the development of conventional and renewable energy on roughly 500 million acres of federal land and more than a billion more offshore. This position requires Senate confirmation.

Trump's pick: North Dakota Gov. Doug Burgum

Burgum was on the shortlist of names Trump considered for running mate before he selected JD Vance after the North Dakota governor dropped his own longshot bid for the 2024 Republican presidential nomination. Burgum has close ties to the oil industry and has advocated against President Biden's climate policies and for drilling on public lands.

Health and Human Services secretary

Responsibilities: The HHS secretary takes action to prepare for public health emergencies such as the coronavirus pandemic and is tasked with responding to them. The secretary also monitors the Food and Drug Administration, manages policies for Medicaid and Medicare, oversees the Centers for Disease Control and Prevention and oversees the Indian Health Service. This is a Cabinet-level position that requires Senate confirmation.

Trump's pick: Robert Kennedy, Jr.

A noted vaccine skeptic who has promoted misinformation about ingredients in vaccines and the risks they pose to human health, Kennedy is a former environmental lawyer who has vowed to "Make America Healthy Again" by removing fluoride from drinking water and by doing away with processed foods in school lunches.

White House chief of staff

Responsibilities: Often considered the president’s gatekeeper, the chief of staff is traditionally the president’s closest adviser in the White House, overseeing such things as his daily schedule and access to the Oval Office. This Cabinet-level position does not require Senate confirmation.

Trump’s pick: Susie Wiles

Wiles, who served as the de facto manager of Trump’s 2024 presidential campaign, was credited with guiding his successful bid. (In his election night speech, Trump referred to Wiles as “the ice maiden.”) Trump went through a record four chiefs of staff during his first administration. Wiles will be the first woman ever to serve in the position.

Read more about her via Reuters here: In Susie Wiles, Trump picks quiet competence for chief of staff

Deputy chief of staff

Responsibilities: The deputy chief of staff usually assists the president and chief of staff on staffing as well as implementing key policies. This position also does not require Senate confirmation.

Trump's pick: Dan Scavino

Once Trump's golf caddy, Scavino is a long-time ally to the president-elect and served as a communications adviser during Trump's first term. The House voted to hold Scavino in contempt of Congress after refusing to cooperate with a probe following the Jan. 6 attack on the Capitol, but the Justice Department declined to indict him.

Deputy chief of staff for policy

Responsibilities: The deputy chief of staff for policy is one of multiple deputy roles, and assists the president and chief of staff on staffing as well as implementing key policies. This position also does not require Senate confirmation.

Trump’s pick: Stephen Miller

An immigration hardliner who served as a senior adviser during the first Trump administration, Miller was a central figure in crafting some of its controversial immigration policies, including a travel ban targeting people from majority-Muslim countries and the separation of migrant children from their parents at the southern border. Trump has yet to formally announce Miller for the position, which does not require Senate confirmation, but Vice President-elect JD Vance appeared to confirm his selection in a post on X.

Miller, who was among Trump’s most visible surrogates during the 2024 campaign, is also the lead architect of Trump’s plan for mass deportations of undocumented immigrants. In an interview with Fox News, Miller said that the deportations would “begin on Inauguration Day, as soon as he takes the oath of office.”

Press secretary

Responsibilities: The White House press secretary is the public face of the West Wing, providing daily briefings for the media on the president's activities and agenda. This position does not require Senate confirmation.

Trump's pick: Karoline Leavitt

At 27, Leavitt, who served as press secretary for Trump’s 2024 presidential campaign, will be the youngest White House press secretary in history.

“Karoline Leavitt did a phenomenal job as the National Press Secretary on my Historic Campaign,” Trump said in a statement. “Karoline is smart, tough, and has proven to be a highly effective communicator. I have the utmost confidence she will excel at the podium, and help deliver our message to the American People as we Make America Great Again.”

‘Border czar’

Responsibilities: In a Truth Social post, Trump said the “border czar” will be in charge of “policing and controlling” the nation’s borders as well as the “Deportation of Illegal Aliens back to their Country of Origin.” This role does not require Senate confirmation.

Trump’s pick: Tom Homan

Homan, who served as director of Immigration and Customs Enforcement during the first Trump administration, has long been a vocal supporter of its immigration policies — including the controversial "zero tolerance" program that separated parents from their children at the border.

In July, Homan said he was willing to help run the “biggest deportation operation this country’s ever seen.”

U.S. ambassador to the United Nations

Responsibilities: The ambassador serves as the senior U.S. diplomat at the United Nations and is in charge of advancing U.S. interests on the world stage. This Cabinet-level position requires Senate confirmation.

Trump’s pick: Rep. Elise Stefanik

Stefanik, a congresswoman from New York, serves as chairwoman of the House Republican Conference and is one of Trump's fiercest supporters on Capitol Hill. But Stefanik has relatively little foreign policy experience.

She has also been sharply critical of the United Nations itself, calling it a "cesspool of antisemitism" for passing a resolution demanding that Israel ends its war in Gaza. Stefanik even proposed that the United States withdraw its membership from the United Nations if it does not enact unspecified reforms sought by Trump.

Read more about Stefanik via NBC News here: Trump chooses Rep. Elise Stefanik to serve as U.S. ambassador to the United Nations

U.S. ambassador to Israel

Responsibilities: The job of the ambassador to advance the interests of the United States and to serve and protect U.S. citizens in Israel.

Trump's pick: Mike Huckabee

Huckabee, the former Arkansas governor and two-time Republican presidential candidate, has been a staunch defender of Israel amid its ongoing war in Gaza.

“Mike has been a great public servant, Governor, and Leader in Faith for many years,” Trump said in a statement. “He loves Israel, and the people of Israel, and likewise, the people of Israel love him. Mike will work tirelessly to bring about Peace in the Middle East!”

Environmental Protection Agency administrator

Responsibilities: The administrator oversees all environmental regulations, including those protecting clean air and water. Trump has said his administration will focus on deregulation, including plans for the U.S. to withdraw, once again, from the Paris climate accord. The Cabinet-level post requires Senate confirmation.

Trump’s pick: Former Rep. Lee Zeldin

Zeldin, a former New York congressman, is a longtime Trump backer with little experience in environmental policy.

"We will restore US energy dominance, revitalize our auto industry to bring back American jobs, and make the US the global leader of AI," Zeldin said in a post on X after Trump announced his appointment overseeing the EPA. "We will do so while protecting access to clean air and water."

Secretary of Veterans Affairs

Responsibilities: "The Secretary of Veteran Affairs oversees the U.S. Department of Veterans Affairs in its mission to provide health, education, disability, funerary, and financial benefits earned by Veterans of the United States Armed Forces," the U.S. Department of Veterans Affairs states on its website. This Cabinet position requires Senate confirmation.

Trump's pick: Doug Collins

A former member of the U.S. House of Representatives from Georgia, Collins was one of Trump's staunchest defenders in Congress during Trump's first term. Collins unsuccessfully ran for U.S. Senate in Georgia in 2020, and has served as legal counsel to Trump ever since.

National security adviser

Responsibilities: The national security adviser is a senior aide who typically serves as the principal adviser to the president on all issues related to national security, often coordinating with the secretaries of state and defense on strategies that are then presented to the president. This position does not require Senate confirmation.

Trump’s pick: Rep. Mike Waltz

Waltz is a three-term Florida Republican congressman and Trump loyalist who served as a Green Beret in Afghanistan, the Middle East and Africa. Waltz previously worked in the Pentagon as a policy adviser during the George W. Bush administration. Like many congressional Republicans, Waltz has criticized U.S. aid to Ukraine in its war against Russia. He was also among the Trump supporters who publicly defended the president-elect outside his criminal hush money trial in New York earlier this year.

CIA director

Responsibilities: "The role of the Director of the CIA (D/CIA) is to manage the Agency's intelligence collection, analysis, covert action, counterintelligence, and liaison relationships with foreign services," the U.S. spy agency says on its website. This position requires Senate confirmation.

Trump's pick: John Ratcliffe

Ratcliffe, a former House member from Texas, served in the Trump administration as director of national intelligence. During his tenure, he was criticized for ignoring assessments generated by his own agency in favor of promoting positions favored by the president.

Special envoy to the Middle East

Responsibilities: Typically, the duties of the special envoy to the Middle East focus on helping to normalize relations between Israel and its Arab neighbors, as well as to promote a peace agreement between the Israeli government and Palestinian leadership

Trump's pick: Steven Witkoff

Witkoff is a Trump donor and a real estate investor with "no known expertise in diplomacy or the Middle East," the Times of Israel reported. In a statement posted to X, Trump called Witkoff "a Highly Respected Leader in Business and Philanthropy," and said he would be "an unrelenting Voice for PEACE."

Secretary of defense

Responsibilities: "The secretary of defense oversees the Defense Department and acts as the principal defense policymaker and adviser," according to the U.S. Department of Defense website. This position requires Senate confirmation.

Trump's pick: Pete Hegseth

For the past 10 years, Hegseth has worked as a host and commentator on Fox News, often espousing his support for Trump's policy stances. A staunch conservative and the author of four books, Hesgeth was also a reserve officer in the U.S. National Guard, serving a tour at Guantanamo Bay, Cuba, in Iraq and Afghanistan, the latter two deployments for which he was twice awarded the Bronze Star.

Homeland security secretary

Responsibilities: The homeland security secretary oversees that department's "efforts to counter terrorism and enhance security, secure and manage our borders while facilitating trade and travel, enforce and administer our immigration laws, safeguard and secure cyberspace, build resilience to disasters, and provide essential support for national and economic security — in coordination with federal, state, local, international and private sector partners," according to the DHS website. This position requires Senate confirmation.

Trump's pick: Kristi Noem

The governor of South Dakota since 2019, Noem previously served as a member of the U.S. House of Representatives from 2011 to 2019 and as a state representative in her home state from 2007 to 2011. She will be tasked with overseeing an enormous agency that includes U.S. Customs and Border Protection, Immigration and Customs Enforcement, the Federal Emergency Management Agency and the U.S. Secret Service.

White House counsel

Responsibilities: The White House counsel advises the president on legal aspects of foreign policy, signing or vetoing legislation, financial disclosures and potential conflicts of interest, among other duties.

Trump's pick: William McGinley

A lawyer who worked in the first Trump administration, serving as White House Cabinet secretary, McGinley also served as general counsel for the National Republican Senatorial Committee. In a statement posted to social media, Trump called McGinley "a smart and tenacious lawyer who will help me advance our America First agenda while fighting for election integrity and against the weaponization of law enforcement."

Co-leaders of the Department of Government Efficiency

Responsibilities: Because this is a newly formed agency, it remains to be seen what the responsibilities will entail. But in a statement posted to social media, Trump said the role "will provide advice and guidance from outside the Government, and will partner with the White House and Office of Management & Budget to drive large scale structural reform, and create an entrepreneurial approach to Government never seen before." The position does not currently require Senate approval and it is unclear whether it will draw a government salary.

Trump's picks: Elon Musk and Vivek Ramaswamy

The co-founder and CEO of Tesla Motors and Space X, and the owner of the social media platform X, Musk threw his support behind Trump in the 2024 presidential campaign. His business ties with China could complicate an official government role. Ramaswamy founded the pharmaceutical company Roivant Sciences and ran for president in 2024 before endorsing Trump.

Other Cabinet positions

Trump has reportedly made picks for at least one other prominent post, choosing Sen. Marco Rubio of Florida for secretary of state. His selections are expected to be formally announced in the coming days.

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>>> Republicans will regret Elon Musk’s efficiency project


Yahoo Finance

by Rick Newman

November 15, 2024


https://finance.yahoo.com/news/republicans-will-regret-elon-musks-efficiency-project-163157563.html


An enduring myth of Washington, D.C., is that Republicans want to slash government spending. In reality, they’re happy to trim here and there, but this is mostly a smoke screen to justify keeping taxes as low as possible. They also back huge amounts of defense outlays and want to keep all the pork flowing to hundreds of congressional districts and the patrons who fund their campaigns.

Elon Musk is about to call their bluff.

President-elect Donald Trump’s new ally is set to run an outside commission on government efficiency to identify ways to slash government bloat, axe hundreds of thousands of bureaucratic jobs, and cut trillions in spending. Then he will present his findings to Congress, which will find all the usual reasons to do nothing and look the other way.

Musk, of course, performed the same type of bariatric surgery at Twitter, the social media network he bought in 2022 for $44 billion. He executed mass firings, changed the name to X, alienated users and advertisers, and hacked nearly 80% off the company’s value. That’s not a great model for a business turnaround. But the government isn’t a business, and it doesn’t need to turn a profit. So Musk seems like the perfect guy.

Joining him will be Vivek Ramaswamy, the biotech entrepreneur who’s adept at lecturing libs and normies about everything they don’t know. Their project will be called the Dept. of Government Efficiency, which is supposed to be funny because the acronym is DOGE, which is also the ticker symbol for Elon Musk’s favorite meme coin.

Two software engineers created dogecoin in 2013 as a kind of spoof of crypto products drawing buyers and investors despite having no inherent purpose or value. Dogecoin should be worth nothing, but it’s actually worth some $50 billion, in large part because of Musk’s promotion. The joke seems to be that Musk’s fix-government project evokes one of the most hyper-inflated assets in financial history, akin to the government, hahaha.

But it could end up being that Musk’s DOGE, the Dept. of Government Efficiency, will have no inherent value, either.

Musk and Ramaswamy seem to think they’re the first people to try to streamline the US government. They’re not even close. The Congressional Budget Office has a longstanding list of “options for reducing the deficit” that Congress routinely ignores. Dozens of think tanks have blueprints for streamlining government, including one from Manhattan Institute budget expert Brian Riedl that we discussed in detail recently on the Yahoo Finance Capital Gains podcast.

President Barack Obama appointed a bunch of experts to produce the 2010 “Bowles-Simpson report,” one of the most earnestly overlooked documents in American history. President Bill Clinton launched the “reinventing government” initiative, doomed to obscurity once ardent budget geeks tried branding it as ReGo. The 1986 Packard Commission actually led to some changes in defense procurement, but critics argued that it created more problems than it solved.

Musk, Ramaswamy, and their patron Trump think they’ll apply entrepreneurial moxie to succeed where so many others have failed. No doubt they’ll highlight massive inefficiencies and probably hundreds of billions of dollars in federal expenditures that could be better spent on something else or simply returned to taxpayers.

If the US government were a private-sector company, McKinsey or some other slasher consultancy could probably downsize it by 50% with no impact on output. Duplicate agencies could be consolidated or killed, bureaucrats replaced with automation, and outdated processes whiz-banged up to speed with artificial intelligence.

What Batman and Robin are bound to discover, however, is that the US government is nothing like the for-profit enterprises they’re used to manhandling. Uncle Sam has a board of directors with 535 members, each member of Congress having claim to some piece of turf in the executive branch and the funding that comes with it.

They’ll also discover that voters didn’t really ask for more government efficiency. It’s wildly inefficient to have a post office in every town, live humans to answer inane questions at the Social Security office, and federal land agents riding around on horses. But taxpayers want these services. A cardinal rule of politics is that you’ll pay a heavy price if you take something from your constituents that they’re accustomed to having.

Musk and Ramaswamy aren’t elected politicians and they won’t pay any price if Congress enacts their plan. But members of Congress will, and from their perspective, the government is actually very efficient. That's because it provides every member with a little fiefdom, and sometimes a big one, which they oversee and fund. Oversight and funding are the source of power in the US political system, and Congress built the massive executive branch in a way that optimizes the power of each member.

In a corporation, the CEO can exercise unbridled power to shape the organization as he or she wishes, as long as shareholders are on board. In the US government, Congress is the source of all funding, and the power of the purse is broadly dispersed. So when Team Musk presents its plan to X-ify the federal bureaucracy, it will basically be telling many members of Congress they need to cede power. Good luck, guys!

The DOGE master plan is due by July 4, 2026. Trump says it will be “the perfect gift to America on the 250th anniversary of the Declaration of Independence.” That will also be three months before the midterm elections, so Trump’s fellow Republicans will be able to tell voters how they plan to follow Musk’s lead and cut dozens, maybe hundreds, of federal agencies. Then they’ll have to do it.

Don't Overly Get Excited.

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>>> BlackRock Authored the Bailout Plan Before There Was a Crisis – Now It’s Been Hired by three Central Banks to Implement the Plan

BlackRock Authors of “Going Direct.” Top, left to right: Stanley Fischer, Philipp Hildebrand. Bottom, left to right: Jean Boivin, Elga Bartsch.





Wall Street On Parade

by Pam Martens and Russ Martens:

June 5, 2020 ~


https://wallstreetonparade.com/2020/06/blackrock-authored-the-bailout-plan-before-there-was-a-crisis-now-its-been-hired-by-three-central-banks-to-implement-the-plan/


It’s called “Going Direct.” That’s the financial bailout plan designed and authored by former central bankers now on the payroll at BlackRock, an investment manager of $7 trillion in stock and bond funds. The plan was rolled out in August 2019 at the G7 summit of central bankers in Jackson Hole, Wyoming – months before the public was aware of any financial crisis. One month later, on September 17, 2019, the U.S. Federal Reserve would begin an emergency repo loan bailout program, making hundreds of billions of dollars a week in loans by “going direct” to the trading houses on Wall Street.

The BlackRock plan calls for blurring the lines between government fiscal policy and central bank monetary policy – exactly what the U.S. Treasury and the Federal Reserve are doing today in the United States. BlackRock has now been hired by the Federal Reserve, the Bank of Canada, and Sweden’s central bank, Riksbank, to implement key features of the plan. Three of the authors of the BlackRock plan previously worked as central bankers in the U.S., Canada and Switzerland, respectively.

The authors wrote in the white paper that “in a downturn the only solution is for a more formal – and historically unusual – coordination of monetary and fiscal policy to provide effective stimulus.”

We now understand why, for the first time in history, the U.S. Congress handed over $454 billion of taxpayers’ money to the Fed, without any meaningful debate, to eat losses on toxic assets produced by the Wall Street banks it supervises. The Fed plans to leverage the $454 billion into a $4.54 trillion bailout plan, “going direct” with bailouts to the commercial paper market, money market funds, and a host of other markets.

The BlackRock plan further explains why, for the first time in history, the Fed has hired BlackRock to “go direct” and buy up $750 billion in both primary and secondary corporate bonds and bond ETFs (Exchange Traded Funds), a product of which BlackRock is one of the largest purveyors in the world. Adding further outrage, the BlackRock-run program will get $75 billion of the $454 billion in taxpayers’ money to eat the losses on its corporate bond purchases, which will include its own ETFs, which the Fed is allowing it to buy in the program.

Helicopter money is also spelled out in the BlackRock plan, which explains why simultaneously with the $454 billion Congress carved out for the Fed under the CARES Act, fiscal stimulus was also “going direct” with $1200 checks and direct deposits to the little people of America and Paycheck Protection Program loans and grants “going direct” to small businesses.

One feature of the BlackRock plan that is certain to get wide public pushback in the U.S. is the proposal for central banks to buy stocks (equities). The authors write this:

“Any additional measures to stimulate economic growth will have to go beyond the interest rate channel and ‘go direct’ – [with] a central bank crediting private or public sector accounts directly with money. One way or another, this will mean subsidizing spending – and such a measure would be fiscal rather than monetary by design. This can be done directly through fiscal policy or by expanding the monetary policy toolkit with an instrument that will be fiscal in nature, such as credit easing by way of buying equities. This implies that an effective stimulus would require coordination between monetary and fiscal policy –be it implicitly or explicitly.”

In the United States, approximately 85 percent of the stock market is owned by the richest 10 percent of Americans. Buying stocks would simply expand and accelerate the wealth and income inequality which is already at the highest levels since the 1920s – a time when Wall Street also owned large deposit-taking banks.

The Swiss National Bank, the central bank of Switzerland, where one of the BlackRock authors previously worked, already has massive holdings of individual stocks, including $94 billion in publicly traded stocks in the U.S. according to its March 31, 2020 report that was filed with the Securities and Exchange Commission.

The BlackRock authors of the “Going Direct” plan are the following:

Stanley Fischer: Fischer was Vice Chairman of Citigroup from 2002 to 2005. Citigroup received the largest bailout in global banking history, getting $2.5 trillion cumulatively in revolving loans from the Fed and billions more from taxpayers in the financial crisis of 2007 to 2010. Fischer went from Citigroup to serve as Governor of the central bank of Israel (Bank of Israel) from 2005 to 2013. (He holds dual citizenship in Israel and the U.S.) One year later, Fischer became a Governor on the U.S. Federal Reserve Board, advancing to Vice Chairman on June 16, 2014. He resigned his position at the Fed October 13, 2017 and joined BlackRock as a Senior Advisor in January 2019.

Philipp Hildebrand: Hildebrand was Chairman of the Governing Board of the Swiss National Bank from 2010 until he abruptly resigned in early 2012. (There was a scandal over his wife, a former hedge fund trader, making trades in currencies while he had inside information on interest rates.) Hildebrand is now Vice Chairman of BlackRock and a member of the firm’s Global Executive Committee.

Jean Boivin: Boivin is the Head of the BlackRock Investment Institute. He joined BlackRock in 2014. Prior to joining BlackRock, Boivin was appointed Deputy Governor of the Bank of Canada in March 2010 where he served for two years. Boivin left the Bank of Canada in October 2012 to become Associate Deputy Minister at the Department of Finance, and to serve as Canada’s Finance Deputy at the G-7, G-20 and the Financial Stability Board.

Elga Bartsch: Bartsch heads up economic and markets research at the Blackrock Investment Institute. Prior to joining BlackRock, Bartsch was Global Co-Head of Economics and Chief European Economist at Morgan Stanley in London. According to the government audit of the Fed’s bailout programs during the 2007-2010 financial crisis, Morgan Stanley was the second largest recipient of the Fed’s bailout programs, behind Citigroup, receiving $2.04 trillion cumulatively in revolving, below-market rate loans.

On May 15, the central bank of Sweden, the Riksbank, announced that it would be using BlackRock to conduct “an analysis of the Swedish corporate bonds market and an assessment of possible design options for a potential corporate bonds asset purchase programme.”

The Bank of Canada announced in April that BlackRock has been hired as an adviser for its commercial paper, provincial bond, and corporate bond buying programs.

The Federal Reserve has given a no-bid contract to BlackRock to manage all of its corporate bond programs.

Peter Ewart, a writer based in Prince George, British Columbia, wrote the following in the Prince George Daily News about BlackRock’s role in herding central bank actions:

“The situation also shows how the economic system in both Canada and the U.S. is not classical capitalism but rather state monopoly capitalism, where giant enterprises are regularly backstopped with public funds and the boundaries between the state and the financial oligarchy are virtually non-existent.”

In the U.S., 30 nonprofits, including Friends of the Earth, U.S. Greenpeace, Public Citizen, Rainforest Action Network, the Sierra Club and Take On Wall Street, wrote a letter to Fed Chairman Jerome Powell on March 27 regarding BlackRock’s role in the bailout. The groups called out the Fed on the following:

“By giving BlackRock full control of this debt buyout program, the Fed is further entwining the roles of government and private actors. In doing so, it makes BlackRock even more systemically important to the financial system. Yet BlackRock is not subject to the regulatory scrutiny of even smaller systemically important financial institutions.”

The groups also assailed the Fed for its “no strings attached” oversight of how BlackRock was spending the money, writing:

“As far as is known publicly, there are no conditions or restrictions on what debt is purchased or what companies must do to qualify for debt purchases outside of their credit rating. This could mean that those companies could engage in stock buybacks or provide enormous CEO compensation packages, despite these practices exacerbating imbalances in corporate balance sheets and being a significant reason why these companies are so susceptible to the current crisis. This also means that industries that actively harm the climate – and by extension the financial system – could get unconditional support…”

BlackRock is not only a major marketer of corporate bond products. Its iShares brand includes a giant roster of stock-based ETFs. The Chairman and CEO of BlackRock is Laurence (Larry) Fink. Reuters reported last July that Fink was lecturing the European Central bank that it “will need to purchase equities to stimulate Europe’s economy, and that leaders should find ways to have investors embrace an ‘equity culture’ there.”

The “equity culture” is code for what Senator Bernie Sanders calls “socialism for the rich, and rugged, you’re on-your-own individualism for everyone else.”

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>>> Surging US repo activity likely exacerbating funding pressure


Reuters

by Gertrude Chavez-Dreyfuss

October 11, 2024


https://www.reuters.com/markets/us/surging-us-repo-activity-likely-exacerbating-funding-pressure-2024-10-11/


NEW YORK, Oct 11 (Reuters) - A sharp steady rise in overnight repurchase agreements is overwhelming banks that serve as middlemen for such short-term borrowings in U.S. government securities, threatening to fuel major funding pressure at the end of every quarter and year.

The market for so-called repos allows banks to borrow money quickly and cheaply when they need cash, and lend with little risk. Hedge funds and Wall Street financial firms rely on the roughly $4 trillion repo market to finance daily trades, and any disruption could force them to cut holdings of bonds, stocks and other securities.

Borrowers use Treasuries or other debt securities as collateral, agreeing to repurchase them in the future at a pre-determined price. A typical repo transaction involves a dealer borrowing cash from a money market fund and lending the cash to a client such as a hedge fund.

Repo demand has always been high because these transactions are more efficient in mobilizing cheaper and deeper funding for financial intermediaries and borrowers as they reduce dependence on commercial banks. Its volume has surged even higher as trading strategies that depend on them have become more popular, while primary dealers are reluctant to boost capital reserves required to handle more trades.

Repo rates jump when banks pull away from acting as middlemen at quarter- and year-ends due to higher balance sheet costs required at those times for reporting purposes.

That happened at the end of the third quarter on Sept. 30. The secured overnight financing rate (SOFR), the cost of borrowing short-term cash, soared 13 basis points (bps) over the effective federal funds rate of 4.83%. It was 22 bps higher on Oct. 1.

That squeeze harkened back to September 2019 when funding costs soared due to a large drop in bank reserves as corporations tried to meet a tax deadline and make payments for Treasury debt settlements.

"It is absolutely the kind of hiccup that needs attention," said Lou Crandall, chief economist at Wrightson ICAP, to a point where the Federal Reserve could address it at one of its meetings.

Funding conditions have stabilized, with SOFR at 4.83% and the broad general collateral rate, another repo rate, at 4.82%. But analysts believe this could end up being a systemic issue that creates more volatility in the overnight market, keeping short-term rates elevated.

"There is an inelastic demand for repo that exists on a daily basis and that doesn't change whether it's quarter-end, or it's year end," said Jan Nevruzi, U.S. rates strategist at TD Securities. "But when dealers pull away from intermediation like it does during those periods, it creates issues like that."

What happened at the end of September was mostly about dealers' inability to meet demand for repo financing, Wrightson's Crandall said.

"There was not enough intermediation capacity to ... finance all repo positions. We have been seeing signs ... of the explosive growth of certain segments of the repo market that has been creating congestion on dealer balance sheets and the market in general," Crandall said.

SOARING VOLUME, BASIS TRADES

Fed data showed SOFR volume soared to a record $2.5 trillion on Sept. 30. from $2.07 trillion the day before. Treasury repos cleared through another platform called the Delivery-versus-Payment (DVP) service also jumped to $1.7 trillion on Sept. 30 and have been in the trillions of dollars the last couple of months.

Analysts said one reason for the jump in repo volume was the surge in so-called basis trades, a trading strategy which takes advantage of the difference in price between cash Treasuries and futures. These are financed in the repo market and their size has exploded with record bets against Treasury futures amassed by leveraged funds.

Since the Fed launched its hiking cycle in 2022, hedge funds have been buyers of Treasuries, hedging that position by selling futures to asset managers who use these instruments to meet benchmark needs in their portfolios.

"There are clear signs of money market sensitivity to shifts in the amount of cash in the system and the amount of collateral in the system, and to dealer balance sheet constraints," said Mark Cabana, head of U.S. rates strategy, at BofA Securities.

One sign of primary dealers' balance sheet stress is their record holdings of Treasuries seen a few weeks ago following a global sell-off in risk assets that pushed investors to buy safer U.S. government debt. Their Treasuries positions have eased, but remained elevated.

Dealers would rather hold less Treasury debt. As middlemen, primary dealers buy and sell bonds, making money on the difference, or so-called bid-ask spread. The bigger the trading volume, the higher the profits.

While repo financing accounts for a large share of dealers' overall balance sheet, analysts said it is not as profitable for them to do it these days, with the SOFR below the interest on reserve balances (IORB) currently at 4.90%, or the rate paid on bank reserves held at the Fed. Dealers would much rather have their funds sit as reserves at a higher rate than lend to hedge funds.

Overall, primary dealers have no desire to expand their balance sheet because it entails higher leverage charges that would require more capital, TD's Nevruzi said.

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BRICS currency - >>> Biggest Monetary Shock in 50 Years


By James Rickards

September 30, 2024


https://dailyreckoning.com/biggest-monetary-shock-in-50-years/


Biggest Monetary Shock in 50 Years

I’d like to start today’s issue by extending my thoughts and prayers to those impacted by Hurricane Helene, which has devastated significant portions of the southeast with massive flooding.

The death toll is over 100 and may increase significantly. Let’s all hope the affected areas will recover.

Moving on, with so much attention focused on the U.S. presidential election, the war in Ukraine and the war in Gaza, which is spreading to Lebanon, it’s easy to lose sight of other geopolitical developments that may be even more significant in the long run.

One of these developments is the rise of the new BRICS currency and its potential role in the global monetary system.

I’ve been warning readers about the collapse of the dollar for years and I was one of the first people to alert you to the rise of BRICS.

It’s a monetary shock about to hit the global financial system, and something I consider the most significant development in international finance in over half a century.

The annual leaders’ summit of BRICS nations is being held in Kazan, Russia from Oct. 22–24, and will include announcements moving the BRICS currency plans forward in material ways.

The Power of BRICS

The original BRICs membership from 2009 consisted of Brazil, Russia, India and China. South Africa was added in 2010 when the group’s name was changed to BRICS.

That group expanded significantly at the 2023 leaders’ summit in South Africa when Egypt, Ethiopia, Iran and the United Arab Emirates (UAE) were added. (Argentina and Saudi Arabia were also permitted to enter but Argentina withdrew its application, and Saudi Arabia deferred its membership saying it was still considering the matter.)

BRICS has been active over the years in institutionalizing its initiatives. In 2014, the BRICS created the New Development Bank (NDB), which functions along the lines of the World Bank to promote infrastructure development in emerging economies.

The NDB was capitalized with over $100 billion from its members and currently has 53 projects underway with commitments of over $15 billion to those projects.

Beyond the nine current members, there is a waiting list of over 20 aspiring members including economic powers such as Nigeria, Venezuela, Indonesia, Malaysia, Turkey, Thailand and Vietnam.

The BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.

The BRICS Currency Defined

The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. We’ll call the potential currency a BRIC for convenience, although no formal name has been announced.

The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value (which can be fixed to another currency, floating or pegged to a weight of gold), secure payments channels (basically high-speed, encrypted digital pipes for authenticated message traffic), digital ledgers and an agreed issuer (the NDB based in Shanghai may be suitable for this purpose, but another institution could be created).

The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.

This last point is where most alternative currency payment arrangements fall down. Russia can sell oil to China for CNY (which they are currently doing), but they are constrained in terms of where they can spend the CNY (basically limited to Chinese manufactured goods and semiconductors).

The same issue arises when Russia sells oil to India (for rupees) or weapons to Iran (for rials). The seller is limited in terms of what they can buy with the trading partner’s currency.

This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircrafts from Brazil or semiconductors from Malaysia.

For that matter, the use of a payment currency in a multi-member currency union is not limited to members. With access to the payment channels, non-members can nevertheless agree to receive the BRICS currency in payment, confident in their ability to spend it among the other BRICS members who are trading partners.

The proof of this is the eurozone, which is currently a 20-member currency union with a single central bank and worldwide acceptance of the euro.

New Developments to Watch

There are several interesting developments taking place. The first is that the U.S. is squandering its rule-of-law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.

Given this rogue behavior by the U.S., countries are becoming more cautious about large U.S. Treasury note reserves. This may account in part for the recent rally in the price of gold.

The second is that the BRICS summit in Kazan, Russia in late October will announce significant progress in building out secure payment channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.

None of this happens overnight. It’s helpful to recall that the euro took almost 10 years to launch from the Maastricht Treaty in 1992 to the actual creation of the euro in 2000.

I worked closely with Alberto Giovannini in the late 1990s. He was one of the leading economists and scholars who helped create the euro. I was quite familiar with the technical hurdles to creating a new currency, especially the determination of the exchange rates at which Deutsche marks, lira, francs and other member currencies would be converted to euros.

A Linkage to Gold

It will take years to develop a BRICs-denominated bond market, although the process could be accelerated if BRICS members offered bonds directly to their own citizens as retail investors.

There is a short path to making the BRICs a viable reserve currency — gold. Members of the BRICS currency union could use surplus BRICs to buy gold bullion to hold in their reserves.

Russia, China and South Africa are all major gold producers and China has an extensive network of refineries so there should be ample gold available for purchase. When needed for purchases or settlements, the gold could be easily sold for BRICS currency. The common thread in these and other solutions is that they obviate U.S. dollar transactions.

It will still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.

Even as a payment currency, the BRICS unit could be used in a material percentage of global trade giving the dollar a run for its money. The BRICS unit does not mark the end of the dollar as a widely accepted currency.

Still, in conjunction with the badly misguided weaponization of the dollar, it could mark the beginning of the end.

Slowly, then suddenly, said Hemingway about how men go bankrupt. The same could apply to the dollar.

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>>> A Record $1.2 Trillion Interest Payments Are Blowing Up The Federal Budget


Investopedia

by Diccon Hyatt

September 13, 2024


https://finance.yahoo.com/news/record-1-2-trillion-interest-194844790.html


Key Takeaways

The U.S. government will spend a record $1.2 trillion on interest payments in 2024, the highest amount ever recorded.

Interest payments are driven by a combination of deficit spending, especially during the pandemic, and the Federal Reserve's campaign of anti-inflation interest rate hikes.

The trajectory of the deficit could be influenced by the election.

While both Democrats and Republicans propose new tax cuts and spending that could push up the deficit, Vice President Kamala Harris has proposed tax increases on the wealthy and corporations, to offset them.

The U.S. government is on track to spend more than $1 trillion on interest payments this year, surpassing military spending for the first time in history.

Interest payments on the national debt (held by the public in the form of Treasury securities) will cost the government $1.2 trillion in the government's fiscal year ending in October, the Treasury Department said in a monthly report on the budget. Net interest outlays are the third costliest item in the budget behind Social Security and Medicare benefits.

Economists have grown increasingly concerned about the potential impact of those payments on the U.S. economy. Interest payments took up 2.4% of the entire U.S. gross domestic product in 2023, and The Congressional Budget Office estimates that could swell to 3.9% over the next 10 years.

Why Is The Government Paying So Much Interest?

Two major factors have driven those payments skyward. First, the government spent trillions to support households and the economy during the pandemic, paying for it by borrowing rather than raising taxes. Second, the Federal Reserve raised interest rates starting in 2022 to fight inflation, which pushed up how much the government owes for that debt.

Although the Fed is set to gradually lower those interest rates starting next week, the pressure on the budget is likely to keep ratcheting up in the years to come.

The results of the presidential election could have a major impact on the trajectory of the budget deficit. Both former President Donald Trump and Vice President Kamala Harris have proposed tax cuts and new spending that could push up the budget deficit. Harris has also proposed offsetting those new costs with tax increases on the wealthy and corporations. Trump has proposed heavy tariffs on foreign goods, but mainstream economists are skeptical those would bring in much revenue compared to the impact of the tax cuts.

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>>> The US national debt just surpassed another milestone: $35 trillion


Yahoo Finance

by Ben Werschkul

Jul 30, 2024


https://finance.yahoo.com/news/the-us-national-debt-just-surpassed-another-milestone-35-trillion-140318585.html


The US national debt topped a psychologically important milestone of $35 trillion in recent days and has risen by $1 trillion since January — mounting by nearly $5 billion every day so far in 2025.

This latest barrier was formally pierced last Friday. That's when a daily Treasury Department tabulation, which was then compiled and released late Monday, showed a gross debt level of $35.001278 trillion.

“This is crazy,” Tesla (TSLA) CEO Elon Musk noted in a post on X in one quick response to the news.

America’s red ink has now jumped by more than 75% during the Trump and Biden administrations, and yet the issue has been relegated to the back burner during the 2024 campaign season.

Not only that, deficit hawks warn, it's often been pushed aside in favor of ideas that could increase debt even further.

"The borrowing just keeps marching along, reckless and unyielding," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement.

"Despite all the risks and warning signs, these alarm bells seem to be falling on deaf ears," she added.

At the Republican National Convention earlier this month, the issue came up sparingly. It's expected to be similar in a few weeks' time when Democrats gather in Chicago.

Washington policymakers have taken some action to limit deficits in recent years, with the debt now representing 120% of GDP after a peak of over 125% during 2020 — a period that marked the height of COVID-era spending.

But a ratio of over 120% of GDP represents a debt level not seen since the end of World War II, with the Congressional Budget Office projecting high interest costs that could grow the debt to represent 166% of America's GDP by 2054.

Earlier this year, the cost of debt interest payments alone surpassed the cost of America’s defense spending.

Limited election year conversation

A few lawmakers did react this week to the passing of the $35 trillion threshold. Retiring Sen. Mitt Romney of Utah marked the milestone, as did Sen. Cynthia Lummis of Wyoming.

Lummis, coming on the heels of an appearance last weekend at a Bitcoin 2024 conference alongside other politicians, is also touting her idea for a "strategic bitcoin reserve" (lol) that she says could help the debt problem.

Her proposal would have the government acquire 1 million bitcoins using existing funds from the Federal Reserve System and US Treasury Department.

But it's an idea that faces an uphill climb in Congress and would require the price of the cryptocurrency to go up faster than borrowing costs for that money.

The debt rose by nearly $8 trillion during former President Donald Trump's time in the Oval Office. President Joe Biden is on pace to oversee a similar rise. In total, the national debt has ballooned because of new spending as well as these obligations stretching back decades.

In a statement, White House Spokesperson Jeremy M. Edwards said the Trump administration "didn’t sign a single law to reduce the deficit" and touted Biden's deficit reduction efforts adding "President Biden’s budget would lower the deficit by $3 trillion by making billionaires and the biggest corporations pay their fair share and cutting spending on special interests.”

A looming tax debate that could make it worse

Indeed, Washington has made some limited moves in recent years to gain at least some level of control over the debt.

The 2023 Fiscal Responsibility Act, which ended that year's debt limit standoff, was negotiated between Biden and then-House Speaker Kevin McCarthy.

It imposed spending caps that have helped prod government deficits to at least level out, though budget hawks often talk of many more steps required to get a full handle on the problem.

But a looming tax debate coming in 2025 could increase the political pressure to push deficits even higher.

Major individual provisions of the 2017 Trump tax cuts are set to expire at the end of next year, meaning taxpayers could face an effective tax hike if Washington doesn't act.

But averting that effective hike could mean trillions more debt in the years ahead.

Trump has repeatedly promised to extend the tax cuts across the board. That could add between $4 trillion and $5 trillion if not offset, estimates the Committee for a Responsible Federal Budget.

The Democratic plan, first articulated by Biden but recently underlined by presumptive Democratic nominee Vice President Kamala Harris, would extend the cuts for those making under $400,000 a year. Even that could still cost over $2 trillion if it’s not offset.

Democrats have offered plans to pay for at least some of it through tax increases elsewhere, such as an effort to put a minimum tax of 25% on billionaires (lol).

Trump has offered far less detail when confronted with questions about the national debt. He often responds by saying he could take care of it with drilling for oil — which he calls "liquid gold" — without elaborating on exactly how that would work.

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>>> 'Project 2025' is a top debate on sidelines of GOP convention: What it could mean for your taxes.


Yahoo Finance

by Ben Werschkul

Jul 17, 2024


https://finance.yahoo.com/news/project-2025-is-a-top-debate-on-sidelines-of-gop-convention-what-it-could-mean-for-your-taxes-151007706.html


"Project 2025" is not being featured on the main stage of the Republican convention this week, but an active debate about it on the sidelines could still shape the GOP approach to taxes.

That, in turn, could influence how much you and America’s biggest companies pay to Washington in the years ahead.

The sprawling 922-page "Project 2025" was developed by the influential Heritage Foundation and includes a range of plans, including ideas that would dramatically pare back America’s progressive income tax system and shift some of the tax burden onto lower-income Americans.

The document also outlines novel ideas that could gain attention and move beyond conservative tax circles in the months ahead, including a plan for tax-sheltered "universal savings accounts."

At their convention this week, many Republicans sought to focus on their much shorter party platform. That 16-page document promises to make the 2017 Trump-era tax cuts permanent but offers few additional policy details.

But Heritage's efforts were also very much in evidence in Milwaukee and have been a keen focus of political observers after a calamitous debate performance from President Joe Biden and other recent developments seemed to increase the odds of a second Trump term.

Republicans are also seeing their chances improve when it comes to gaining seats on Capitol Hill, which would be crucial to implementing their agenda.

Paul Dans is the executive director of Project 2025. He has also been a prominent presence this week and helped lead a six and a hour hour "Policy Fest" put on by Heritage on Monday.

The goal of the Project 2025 is to "bring our movement together," Dans said as the gathering kicked off.

Blueprint for 'a new conservative President'

The project began two and a half years ago as an ambitious effort to both outline detailed policy plans and also compile pre-vetted lists of conservative loyalists ready to quickly staff "a new conservative President," as the Project 2025 book puts it.

The plan is also being eagerly promoted by Biden and his allies for what they call "dangerous" ideas it contains on a range of issues from abortion to reshaping the workforce of the federal government.

"The last thing we need is a president who spent four years in office putting corporations first and the rest of us last, getting back into office to repeat the process on steroids," Wisconsin Democratic Party Chair Ben Wikler told reporters this week, also on the sidelines of the GOP convention.

Trump has distanced himself from the effort and called some of the ideas "absolutely ridiculous." However, the effort is run by close allies of the former president who could have prominent roles in a second Trump administration.

On the campaign trail, Trump has been silent on many of these tax ideas. But the proposals are top of mind among many in the party, including Stephen Moore, a top Trump confidant who co-authored the tax section.

In an appearance this week on Yahoo Finance's Opening Bid podcast, Moore focused mostly on criticizing Biden plans when the subject turned to taxes.

"We vastly simplified the tax code," he added of the Trump-era tax cuts he helped get enacted in 2017, saying he felt the move had positive economic effects.

"I'd like to see some further cuts," he said of his own preferences.

Moore offers a much more detailed plan in the Project 2025, where he proposes taking things much further both in terms of GOP efforts to simplify and further cut.

A critical eye to America’s progressive income tax system

The plan was first published as a book back in 2023, and the section on tax policy that begins on page 695 was authored by Moore, William Walton, and David Burton.

It puts forth an overall case that the tax code needs to be simplified and taxes lowered to promote economic prosperity and fund a "limited" government.

Moore is a particularly influential figure in Trump’s orbit. He advised Trump throughout his presidency and was nominated in 2019 to serve as a governor of the Federal Reserve, but his candidacy was stalled by bipartisan resistance in the Senate.

Perhaps the most far-reaching idea in the Project 2025 proposal would dramatically scale back America’s progressive income tax system.

America currently has seven tax brackets and a complex web of deductions and individual credits. That would be replaced by just two rates in this plan — 15% and 30% — as well as a rewritten tax code "that eliminates most deductions, credits and exclusions."

The 30% rate would kick in at $168,000 — to coincide with the point when payroll taxes for Social Security and Medicare stop. The idea is to create essentially a flat tax: 15% plus payroll taxes for wages under $168,000 — and then 30% for those above.

The effect of such a change would clearly be a simpler April filing season for everyone.

But it would also mean a tax increase for less well-to-do Americans who often pay well below 15% and benefit from many existing deductions. The richest Americans currently pay a rate of 37% and so would be likely to see their tax bill decrease.

The left-leaning Center for American Progress has analyzed the plan and estimated that a middle-class family with two children and an annual income of $100,000 would pay $2,600 in additional federal income tax under the plan.

On the other side of the income spectrum, a married couple with two children and earnings of $5 million would enjoy a $325,000 tax cut, the group estimates.

The plan would also implement a tax cut for corporations with a repeal of Biden-era taxes on stock buybacks and financial statement income.

It would also reduce the corporate tax rate — which it describes as America’s "most damaging tax" — to 18% from its current level of 21%.

Trump has offered similar ideas from a recent proposal of a 20% rate when speaking to CEOs to a 15% rate in a Bloomberg interview published this week, while acknowledging of that lower rate "I think that would be, you know, that’d be hard."

A novel new idea: Universal savings accounts

Project 2025 also includes an array of lesser-publicized but nonetheless intriguing ideas that could reshape America’s relationship with taxes and savings.

One such idea would allow taxpayers to put aside money in an account that would then grow tax-free and could be withdrawn at any time.

"The tax treatment of these accounts would be comparable to Roth IRAs," reads the plan.

In a recent conversation with Yahoo Finance, Heritage Foundation budget expert Richard Stern brought up the savings account idea as one that is actively under discussion within the group and could perhaps be a backup plan of sorts if there isn’t an appetite for other higher-profile tax efforts.

If other ideas don't prove politically palatable, Stern asked rhetorically, "can we channel some of that into getting these investment accounts?"

Stern notes that the savings idea might be more popular than cutting corporate taxes and is "a way of alleviating some of this pressure where it really helps low- and middle-income families to save."

'A hot topic'

Project 2025 has plenty of other concepts clearly top of mind among many Trump allies who could be in a position this time next year to make policy.

There are business-friendly ideas to make temporary business tax credits signed into law by Trump in 2017 permanent, as well as to limit taxes on business losses.

There are also ideas to lessen the "tax bias against wages" and implement a cap on what benefits employers can offer without taxes.

The plan also mentions an idea that has been floating around conservative circles for years: a national sales tax.

The document also takes aim at the Internal Revenue Service, calling it an "increasingly politicized agency."

Tax collectors have been the target of GOP ire for years, especially after Joe Biden signed into law a wave of new funding for the agency to go after tax cheats.

Without calling for the abolishment of the IRS — as some conservatives have done — the plan calls for cultural and management changes while revoking that $80 billion in additional funding.

Which of these ideas will advance beyond the pages of this document very much remains to be seen.

For now, Stern said, "I wouldn't necessarily bet" on things like universal savings accounts "being a hot topic" at the remainder of this week's convention or in the campaign to follow.

But the ideas are clearly positioned for a close look in the months ahead if there is indeed a second term for Trump.

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Rickards - >>> Did the Saudis Just Kill the Dollar?


BY JAMES RICKARDS

JUNE 17, 2024


https://dailyreckoning.com/did-the-saudis-just-kill-the-dollar/


Did the Saudis Just Kill the Dollar?

There’s been a lot of talk over the past several days that Saudi Arabia is ending the petrodollar deal it’s had with the U.S. for 50 years. This story has been highly exaggerated. Today I want to address the misinformation you’re seeing right now, and show you what really happened.

News services of dubious accuracy reported that Saudi Arabia had ended the petrodollar deal on June 9, after 50 years. This report was quickly followed by claims that oil would now be priced in everything from Chinese yuan to Indian rupees, Russian rubles and other currencies without strong claims to being reserve currencies.

The implication of these stories was that the U.S. dollar’s long reign as the leading global reserve currency was over. New reserve currencies would come to the fore, most prominently the BRICS planned currency.

The crypto crowd wasn’t far behind shouting that the demise of the dollar proved that cryptocurrencies were the way of the future. The internet was on fire with these and other histrionic claims.

Don’t Buy It

In fact, almost everything you just read is nonsense. There have been some very important developments in international finance and monetary policy in recent days but they’re far more nuanced and ultimately more important than stories grabbing the headlines.

As the saying goes, it’s complicated. Let’s deconstruct what’s actually going on.

The petrodollar deal was concluded in June 1974 under the Nixon administration. It was a tense time following the 1973 Yom Kippur War and the Saudi oil embargo of exports to the U.S.

I played a role in the run-up to the deal when I went to the White House to meet with Helmut Sonnenfeldt, Henry Kissinger’s most trusted aide. We discussed a plan to invade Saudi Arabia in case the Saudis didn’t agree to what the Nixon administration had put on the table.

The deal had four main parts.

The Petrodollar Deal

Saudi Arabia would price oil in U.S. dollars. Saudi Arabia would take the dollars it earned through oil sales and invest them in U.S. Treasury securities or in large bank CDs. The Treasury and the banks would lend those dollars to developing economies that would purchase equipment and agricultural products from the U.S. Finally, the U.S. offered Saudi Arabia military protections against the Soviets and regional rivals. The security agreements and the financial agreements were put into writing but have never been revealed.

The petrodollar deal was a win-win for the participants and the world. The U.S. found a reliable prop for the dollar’s reserve currency status (since other countries would need dollars to buy their own oil) and Saudi Arabia enhanced its national security.

Recycling the Saudi dollars to developing country buyers was a boost to world trade and commodity prices and helped pull the world out of the severe 1974 recession. At the Saudi’s request, the U.S. kept a veil of secrecy over the exact amount of Treasuries owned by Saudi Arabia; their holdings were lumped in with other OPEC members from the region and were not reported separately.

Did the Saudis just end the petrodollar deal as reported? Not exactly.

Less Than Meets the Eye

The deal was never a formal treaty ratified by the Senate, which would rise to the level of law. It was a non-binding executive agreement; not much more than a written handshake. It contained annual renewal provisions and could be terminated at any time by either party.

The Saudis held up their end by pricing oil in dollars and buying U.S. Treasuries. The U.S. held up its end by sending troops and repelling Iraq’s invasion of Kuwait in Operations Desert Shield and Desert Storm in 1990–91. The agreement suited both sides and so it continued.

The agreement never had an explicit “expiration date” so reports that the deal has expired are overstated. The Saudis have notified the U.S. that they’re not extending the deal, but that decision has to be put in the context of other U.S.-Saudi discussions.

The U.S. and Saudi Arabia are currently in negotiations on a new financial and security arrangement that would supersede the old petrodollar deal. The new agreement will provide that Saudi Arabia will recognize Israel as part of the broader Abraham Accords initiated during the Trump administration.

The U.S. will continue to offer security protections to the Saudis, but those will be expanded to include uranium enrichment technology. Ostensibly this technology would be used to fuel nuclear reactors but might later be used to build nuclear weapons. Saudi Arabia wants this technology because it feels threatened by Iran’s own uranium enrichment capability.

Not Much Is Different

On the financial side, Saudi Arabia would continue to price oil in dollars but could agree to be paid in other currencies, primarily euros, as is the case today. The Saudis would continue to purchase Treasury securities alongside its holdings of gold.

In short, not much would change from the current petrodollar deal except for the enhanced security guarantees.

The reason Saudi Arabia allowed the existing deal to lapse was to gain leverage in the new negotiations and because the old deal would be replaced by the new deal in all events.

The new deal will not be completed for six months, perhaps longer. It’ll be handed off from the Biden administration to the new Trump administration in January 2025 if Trump wins the election, which I believe he will.

The reason for the delay is that Saudi Arabia cannot recognize Israel until the Gaza War is over. That’ll take a few more months at least. There’s an irony there because the Trump administration created the Abraham Accords and may be the one to complete the process by including Saudi Arabia under that umbrella.

That’s a summary of what’s going on. Here’s what’s not going on…

Not a Dollar Death Blow

Oil will not be priced in rupees, rubles, yuan or other emerging-market currencies except in very small quantities. About 20% of oil purchases today are in euros and that can be expected to continue.

The new arrangement between Saudi Arabia and the U.S. doesn’t mark the end of the dollar as the world’s leading reserve currency. It doesn’t imply the collapse of the global market in U.S. Treasury securities, which a lot of people have been claiming in recent days.

The oil and dollar markets will be business as usual. Ties between the Saudis and the U.S. will be even closer because of the nuclear enrichment aspect of the new deal.

None of which is to say that there have not been important developments in international financial and monetary markets away from the Saudi situation. There have.

In particular, there were major policy initiatives announced at the St. Petersburg International Economic Forum (SPIEF) hosted by Vladimir Putin from June 5–8.

Incremental Steps

Russia announced they were working with other BRICS+ members to develop a global payments system completely independent of existing Western systems including SWIFT, Fedwire and other clearinghouses.

That’s critical because payments through Western systems are subject to seizure and interdiction, whereas payments through an independent system should be safe from Western interference.

Putin also met with Dilma Rousseff, former president of Brazil and current president of the New Development Bank, which is a de facto central bank and development lender to the BRICS+ and associated members.

That meeting was to discuss the roll-out of the new BRICS currency. It will be called the Unit and its value will be based on a weight of gold (40%) and a basket of BRICS+ currencies (60%).

The key to implementation of the BRICS currency plan is an expansion of the membership. A bilateral currency arrangement between two weak emerging markets will never be successful because there’s not much for the seller of goods to buy once it receives the currency.

But a currency union with 20 members or more using the Unit can be successful because the seller of goods can “go shopping” in many other markets and is likely to find goods or services that meet its needs. The success of the euro with 20 members and worldwide acceptance is the model for this.

The Unit won’t be launched for another year or longer although some formal announcements may come at the BRICS leaders’ summit in Kazan, Russia, this October. It’ll still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.

Not a Reserve Currency

Importantly, the BRICS Unit will initially be a payment currency, not a reserve currency. Payment currency arrangements are fairly straightforward. Reserve currency status is far more difficult because it requires a large, liquid bond market; good rule of law; and an infrastructure of dealers, hedging tools, repurchase agreements, auctions and settlement procedures.

That can take 10 years or longer to put in place with rule of law perhaps being the most difficult element.

Even as a payment currency, the BRICS Unit could be used in a material percentage of global trade, giving the dollar a run for its money. The BRICS Unit doesn’t mark the end of the dollar as a widely accepted currency.

Still, in conjunction with the badly misguided weaponization of the dollar by Joe Biden and Janet Yellen it could mark the beginning of the end.

The latest Saudi action won’t destroy the dollar. The Biden administration seems determined to accomplish that all by itself.

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>>> De-Dollarization Is Happening at a ‘Stunning’ Pace, Jen Says


Bloomberg

by Matthew Burgess

April 18, 2023


https://finance.yahoo.com/news/dollarization-happening-stunning-pace-jen-082144378.html


(Bloomberg) -- The dollar is losing its reserve status at a faster pace than generally accepted as many analysts have failed to account for last year’s wild exchange rate moves, according to Stephen Jen.

The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions, Jen and his Eurizon SLJ Capital Ltd. colleague Joana Freire wrote in a note. Adjusting for exchange rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008, they said.

“The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions,” Jen and Freire wrote. “Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries,” most of which are emerging economies from the so-called Global South, they said.

Jen is the former Morgan Stanley currency guru who coined the dollar smile theory.

Last year, Bloomberg’s gauge of the greenback surged as much as 16% as the conflict helped fuel a rise in global inflation that triggered widespread interest rate hikes which sank bond and currency markets alike. It finished the year up 6%.

Biden’s Dollar Weaponization Supercharges Hunt for Alternatives

Smaller nations are experimenting with de-dollarization while China and India are pushing to internationalize their currencies for trade settlement after the US and Europe cut Russian banks from the global financial messaging system known as SWIFT. There’s also concern the dollar may become a permanent political tool, or be used as a form of economic statecraft to put extra pressure on countries to enforce sanctions that they may disagree with.

The US currency now represents about 58% of total global official reserves, down from 73% in 2001 when it was the “indisputable hegemonic reserve,” the Eurizon pair said.

That said, the dollar’s role as an international currency won’t be challenged anytime soon as developing countries don’t yet have the ability to divest from the greenback for transactions due to its large, liquid and well-functioning financial markets, Jen and Freire wrote.

Still, the persistence of those conditions “is not preordained” and there may come a time when the rest of the world actively avoids using the dollar, they wrote.

“The prevailing view of ‘nothing-to-see-here’ on the US dollar as a reserve currency seems too innocuous and complacent,” the two wrote. “What needs to be appreciated by investors is that, while the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so.”

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Rickards - >>> Goodbye, King Dollar


BY JAMES RICKARDS

APRIL 10, 2023


https://dailyreckoning.com/goodbye-king-dollar/


Goodbye, King Dollar

I’ve written for years about different nations’ persistent efforts to dethrone the U.S. dollar as the leading global reserve currency and the main medium of exchange.

At the same time, I’ve said that such processes don’t happen overnight; instead, they happen slowly and incrementally over decades.

While that’s true, the process is accelerating in ways no one could have anticipated just over a year ago.

The extreme economic sanctions against Russia, including its ejection from the SWIFT global messaging system, have revealed to other nations that the U.S. can do something similar to them if the U.S. disapproves of their conduct.

None of the sanctions would be effective or even possible without the use of the dollar and the dollar payments system.

So, after 79 years under the Bretton Woods arrangements, 52 years since Nixon closed the gold window, and 49 years since the petrodollar agreement with Saudi Arabia, the reign of King Dollar as the world’s leading payment currency is rapidly coming to an end.

The building de-dollarization movement represents a global sea change, which will only accelerate in the coming years. This should come as no surprise since global monetary arrangements usually change every 40 years or so.

We’re long overdue.

The Trend Is Not the Dollar’s Friend

Announcements of bilateral and multilateral agreements among countries to trade for goods and services in currencies other than the U.S. dollar are coming thick and fast. One key arrangement has taken place, in which China and Brazil have agreed to accept each other’s currency for goods and services traded between them.

China is now Brazil’s largest trading partner. China buys enormous amounts of soybeans from Brazil along with aircraft, sugar, beef, and oil. Brazil buys manufactured goods from China as well as rare earths, semiconductors, and solar panels. Meanwhile, both countries offer extensive travel and leisure venues to citizens of the other.

This is one of many such bilateral trading arrangements springing up in which one party or the other will pay or accept currencies other than the U.S. dollar.

For example, Dubai has a deal with China whereby it accepts yuan for oil. Saudi Arabia is discussing a similar deal with China. The BRICS+ (Brazil, Russia, India, China, South Africa and about 20 other invited countries) are developing a new currency, possibly backed by a basket of commodities to be used on a multilateral basis for trade among participating members.

Russia and China are far down the road in terms of using their respective currencies for bilateral trade. Russia can buy Chinese manufactured goods and technology using rubles, and China can buy Russian oil and natural gas as well as wheat, weapons, and strategic metals using yuan.

Do you think this is all unrelated?

Even the Smaller Economies Want a Dollar Alternative

The desire to abandon U.S. dollars for use in many forms is not limited to those large trading relationships. Even relatively small economies such as Kenya have now joined the anti-dollar crusade.

In the past, Kenya valued the dollar as a means of payment for Kenyan exports such as coffee, and in its valuable tourism sector. As a result, many Kenyan individuals and enterprises have hoarded dollars, often in physical form as $100 bills, because of their perceived value and as a hedge against the devaluation of the local currency, the Kenyan shilling.

Now the government is declaring war on the hoarders and the dollar itself. The government has announced plans to allow oil importers to use shillings to pay for the oil. These new arrangements will eliminate the need for dollars in much of the economy, since the oil sector represents 30% of Kenyan imports.

At the same time, the government is trying to flush out hoarders. For the time being, this is being done on a voluntary basis. The government is saying since the economy will need fewer dollars as a result of the new shilling arrangements, there is less reason for the private sector to hoard dollars.

Beyond the invitation to the hoarders to cash in their dollars is an implied threat that the government will either seize the dollars or make them non-convertible in the near future.

The president of Kenya said, “I am giving you free advice that those of you who are hoarding dollars, you shortly might go into losses. You better do what you must do because this market is going to be different in a couple of weeks.”

The president did not define what he meant by “different”, but the threat of confiscation is a reasonable inference. The move away from dollars is visible everywhere, even in the backstreets of Nairobi.

Don’t Confuse a Payment Currency With a Reserve Currency

It’s important to note that these developments in the use of new payment currencies for trade are not the same as changes in the world of reserve currencies, which perform a different role. There’s a difference between a payment currency and a reserve currency.

A reserve currency refers to the unit of denomination of securities held in reserve by countries. It’s something like your savings account but it’s controlled by the treasury or finance ministry of each country.

These reserves are not actual currency deposits. They’re securities such as US Treasury notes or German government notes (bunds). They’re denominated in Dollars or Euros but they’re securities, not cash. That’s the key.

If you don’t have a large, liquid government securities market with a good rule of law then you can’t qualify as a reserve currency. The US Treasury market is the only market in the world large enough to absorb the savings of major trading powers such as China, Japan and Taiwan, so the dollar is the leading reserve currency.

That won’t change in the near future. When the dollar replaced Sterling, it took 30 years from 1914 to 1944 to complete the process.

A payment currency is different. It’s the unit of account for paying for imports and exports, but it’s really just a way of keeping score. Periodically the trading partners settle the score with a transfer of assets that can include commodities, dollars, euros or gold.

It’s much easier to launch a new payment currency than a new reserve currency because you don’t need a large securities market. You just need a reliable ledger system and willing partners.

I want to draw the distinction between a payment currency and a reserve currency because many people confuse them, while there are important differences.

Still, the world is saying to the U.S.: “Dollars? We don’t need no stinking dollars.” Indeed.

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>>> Global public debt hits record $92 trillion - UN report


by Jorgelina do Rosario

Reuters

July 12, 2023


https://www.msn.com/en-us/money/companies/global-public-debt-hits-record-92-trillion-un-report/ar-AA1dLyzw?OCID=ansmsnnews11


LONDON (Reuters) - Global public debt surged to a record $92 trillion in 2022 as governments borrowed to counter crises such as the COVID-19 pandemic, with the burden being felt acutely by developing countries, a United Nations report said.

Domestic and external debt worldwide has increased more than five times in the last two decades, outstripping the rate of economic growth, with gross domestic product only tripling since 2002, according to the Wednesday report, released in the run up to a G20 finance ministers and central bank governors' meeting July 14-18.

Developing countries owe almost 30% of the global public debt, of which 70% is represented by China, India and Brazil. Fifty-nine developing countries face a debt-to-GDP ratio above 60% - a threshold indicating high levels of debt. (US debt/GDP is 130%!!)

"Debt has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth," the UN report added.

Furthermore, the international financial architecture made access to financing for developing countries both inadequate and expensive, the UN said, pointing to net interest debt payments exceeding 10% of revenues for 50 emerging economies worldwide.

"In Africa, the amount spent on interest payments is higher than spending on either education or health," the report found with 3.3 billion people living in countries that spend more on debt interest payments than on health or education.

"Countries are facing the impossible choice of servicing their debt or serving their people."

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Rickards - >>> $27,000 Gold


BY JAMES RICKARDS

MAY 13, 2024


https://dailyreckoning.com/27000-gold/


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https://investorshub.advfn.com/boards/read_msg.aspx?message_id=174446462



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>>> US federal budget crosses grim milestone as interest payments overtake defense spending


Yahoo Finance

by Rick Newman

May 22, 2024


https://finance.yahoo.com/news/us-federal-budget-crosses-grim-milestone-as-interest-payments-overtake-defense-spending-155521072.html


The United States has long had the world’s biggest defense budget, with spending this year set to approach $900 billion.

Yet this spending is rapidly being eclipsed by the fastest-growing portion of federal outflows: interest payments on the national debt.

For the first seven months of fiscal year 2024, which began last October, net interest payments totaled $514 billion, outpacing defense by $20 billion. Budget analysts think that trend will continue, making 2024 the first year ever that the United States will spend more on interest payments than on national defense.

Just two years ago, interest payments were the seventh-largest federal spending category, behind Social Security, health programs other than Medicare, income assistance, national defense, Medicare, and education.

Interest is now the third-biggest expenditure after Social Security and health. And not because any of the other programs are shrinking. While most government expenditures grow modestly from year to year, interest expenses in 2024 are running 41% higher than in 2023.

Interest payments are ballooning for two obvious reasons.

The first is that annual deficits have exploded, leaving the nation with a gargantuan $34.6 trillion in total federal debt, 156% higher than the national debt at the end of 2010.

In the 1990s, the average federal deficit was $138 billion per year. In the 2000s, it was $318 billion. In the 2010s, it was $829 billion. Since 2020, the annual deficit has swelled to $2.24 trillion, largely due to pandemic-related stimulus measures in 2020 and 2021. The projection for 2024 is a $1.5 trillion shortfall.

As a percentage of GDP, the annual deficit has nearly doubled in just 10 years, from 2.8% in 2014 to a projected 5.3% in 2024. So there's just a lot more borrowing to pay interest on.

The government is also paying more to borrow as interest rates have shot up over the last two years. Like consumers buying homes and cars, Uncle Sam benefits from cheap money when rates are low and bears a heavier burden when rates are high.

From 2010 through 2021, the average interest rate on all Treasury securities sold to the public was just 2.1%, which helped keep total interest payments manageable.

But in 2022, the Federal Reserve started jacking up rates to tame inflation, and the government now pays an average interest rate of 3.3%. So, the amount of borrowed money keeps going up, and the cost of borrowing that money is rising too.

More taxpayer money going to interest expenses will eventually leave less money for everything else, and at some point, the Treasury won’t be able to borrow its way out of the problem anymore.

It's an unsustainable situation, which could lead investors to lose faith in the government’s creditworthiness and demand even higher rates to buy Treasurys.

The urgency of the problem, however, is open to debate.

At the recent Milken Institute conference in Los Angeles, luminaries such as billionaire investor Ken Griffin and former House Speaker Paul Ryan warned of a looming debt crisis if the government’s interest costs continue to mushroom. But many prominent financiers also touted the United States as the best destination in the world for investment, despite all its problems.

And many predictions of a debt crisis when interest expenses were a lot lower have so far turned out to be wrong.

Two people who seem unperturbed by America’s debt burden are President Joe Biden and former President Donald Trump, the two leading candidates in this year’s race for the White House. Neither is making deficit reduction a focus of his presidential campaign.

Biden does have a plan of sorts. He’d raise taxes on businesses and the wealthy and use some of that revenue to trim annual deficits. But Biden also wants to spend more on social programs, which could offset any savings.

Trump says he’d encourage more oil and natural gas drilling, which would somehow produce a windfall of tax revenue that would pay down the debt. But there’s no obvious way that would happen, no matter how much drilling takes place.

Besides, both men have presided over a huge run-up in the national debt.

The national debt rose by $7.8 trillion during Trump’s four years as president and $6.8 trillion during Biden’s first three years and four months.

Earlier this year, the Committee for a Responsible Federal Budget helped Yahoo Finance analyze who’s responsible for the national debt, and the blame falls more or less equally on administrations of both parties borrowing to finance wars, tax cuts, spending programs, and stimulus measures during recessions.

When the time does arrive to fix the debt, the inevitable solution will be a mix of spending cuts and tax hikes that will make a lot of people unhappy.

Which reveals the real reason no politician wants to address the problem — everyone hopes it'll be the guy after them.

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