Weimar America, Here We Come! Virus Hysteria Adds $10 Trillion to The National Debt
The comments below are an edited and abridged synopsis of an article by Mike Whitney
The $2.2 trillion CARES bill that President Trump signed into law a couple weeks ago is pretty grim reading. A breakdown:
Working people will get $500 billion, while Wall Street and Corporate America will get three times that sum ($1.7 trillion). That’s a fraction of the total, because the small print says the Fed can lever-up the base capital by 10-to-1 ($450 billion to $4.5 trillion), so it can buy as many toxic bonds and garbage assets as it chooses. The Fed is becoming a hedge fund in order to buy the sludge that has accumulated on the balance sheets of corporations and financial institutions for the last decade. It’s another rip-off that’s being concealed behind the coronavirus hype.
Can the Fed continue to write trillion-dollar cheques on an account that is already $23 trillion overdrawn? Will central banks globally continue to stockpile dollars when the Fed is printing them faster than we can count? How long before China realizes that US Treasuries are grossly overvalued, that US equities markets are unfixable, that the dollar is backed by nothing but red ink, and that Wall Street is the most corrupt cesspit on earth?
This will end in a flash of monetary debasement preceded by a currency crisis. When a nation’s sovereign debt exceeds 100% of GDP, there’s almost no way to service that debt. The US passed that milestone in 2019, before this latest spending spree even began. If it adds the Fed’s bulging balance sheet to the final estimate, America’s debt will be over $33 trillion by year end, which means that it will be the greatest credit risk on earth. Imagine how jaws will drop on the day that Moody’s and Fitch slash the ratings on US Treasuries to Triple B junk status.
In the months to come, the the economy is going to slip into a deflationary period as people get back to work and slowly resume spending. But once demand picks up and the Fed’s liquidity kicks in, the economy will rebound sharply, followed by steadily rising prices. That’s the red flag that will signal a weakening dollar. Similar to 1933, when Roosevelt took the US off the gold standard and printed money like crazy, economic activity picked up, but the value of the dollar dropped by 40%. A similar scenario seems likely here.