Economist Joseph T. Salerno, Phd addresses the concept of deflation, and the myth surrounding the concerns related to it.
What does it mean for the markets that the government now spends the proceeds from debt sales last spring that the Fed had monetized back then?
It finally happened, that glorious moment, when, after teetering on the verge for weeks – for reasons we’ll get into shortly – the incredibly spiking US gross national debt, after kissing the line a couple of times for a moment, finally, and suddenly by a big leap, jumped over the $28-trillion mark, with a $143-billion leap in one day on Wednesday, March 31, following some big Treasury sales. It gave some of that up on Thursday as some bonds matured. And it now amounts to $28.08 trillion, as per US Treasury Department on Friday.
The US gross national debt has now spiked by $4.7 trillion in 13 months since the end of February 2020, in the days before this show started.
The flat spots in the chart are the visual depictions of a charade unique to American politics, the periods when the debt bounced into the Debt Ceiling. Those were the days when everyone in Congress was still trying to hijack the Debt Ceiling law to get their favorite spending priorities!
If it looks like the trillions have been whizzing by a little less fast in recent months, that the growth of the debt has somehow slowed, that is correct.
The chart below magnifies the daily debt levels since December. On March 3, the debt level touched $28 trillion but only barely and just for one day, before backing off, and then kissed it again on March 17, only to back off again and remain tantalizingly close, but no cigar, until Wednesday, when it did the deed with one huge $148-billion leap:
The reason for this slowdown in borrowing is that the government sold a gigantic amount of debt last spring, adding $3 trillion to its debt in a few months, and then didn’t spend all of it, but kept the unspent amounts in its checking account – the General Treasury Account or GTA — which ballooned to $1.8 trillion by July, from the pre-crisis range between $100 billion and $400 billion.
During the final months of the Mnuchin Treasury, it was decided to start spending down the balance in the checking account by borrowing a little less, and by early January, the GTA had dropped to $1.6 trillion.
Early on in the Yellen Treasury, the drawdown was formalized. In early February, a schedule was announced: the balance would be brought down by $1.1 trillion to $500 billion by June. And they’re now well into it.
The drawdown has the effect that the government spends money it doesn’t have to borrow at the moment because it already borrowed it last spring when the Fed was still monetizing essentially all of the borrowing. This has some implications for the markets.
The government’s TGA is at the Federal Reserve Bank of New York and is reported weekly on the Fed’s balance sheet as a liability (banks report deposit accounts as liabilities) because this is money the Fed owes the government.
In the two months since early February, the balance has plunged by $480 billion to $1.12 trillion. Over the next three months, it will plunge by another $620 billion:
During the six months through June, the government will spend $1.1 trillion that it doesn’t have to borrow because it already borrowed it a year ago and that the Fed monetized at the time. But this ends in June.
What does this mean?
Not having to borrow this $1.1 trillion of spending during the first half of 2021 is taking pressure off the Treasury market. And yet, despite that relief, the 10-year Treasury yield has surged to 1.72%.
By June, this pressure valve will close, and the government will borrow more, and the market will have to digest it, and there is a huge amount of new borrowing being lined up to fund the added spending. This will put further upward pressure on long-term yields.
The fact that the government is now spending the proceeds from debt sales a year ago that the Fed monetized a year ago has been adding liquidity to the economy and the markets – liquidity that had been stuck in the TGA – possibly adding to the craziness of the markets in recent months. But that will end in June.
Robert Kioysaki discusses the different types of money, gold, silver and Bitcoin. He also mentions why individual savers are losing money by saving fiat currency in their bank account.
Many economists in the past have written about the ills of fiat currency. Robert’s points are supported by well respected economists such as, Murray Rothbard, Phd, Ludwig Von Mises, and many more. Both Rothbard and Mises(Mises was Rothbard’s mentor) wrote extensively regarding the social ills of the use of fiat currency.
This video covers some of the reasons why individuals should use Gold, Silver, and Bitcoin to save money for the future.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.”—Alan Greenspan “Gold and Economic Freedom
As I scan the various media outlets and listen to the financial experts discuss personal finance; the message is similar. The message of needing to beat inflation is a common theme. While on the surface this seems to be a sage and insightful thing to address, however, one must understand why inflation occurs in order to beat it.
When the monetary base is expanded, via the central bank, it is done mainly based upon deficit spending by the central government. The central government deficit spending occurs due to the fictional the tax revenues are unable to meet the expenses for a certain budgetary time period. When this short fall occurs, the central bank purchases government securities, primarily debt instruments, which gives the central government the cash to balance the budget. Over time, this process expands the money supply and causing inflation. Of course, the interest on the deb continues to grow, adding more of an expense to the citizens.
How does gold factor into this model? How is gold the solution in mitigating the effects of inflation? The answer can be found from an essay written by Alan Greenspan “Gold and Economic Freedom”(1966). The use of gold, as a medium of exchange, helps reduce the impact of governments overspending.Read more here: https://www.constitution.org/mon/greenspan_gold.htm