Thursday, March 30, 2017

CBO Warns Of Fiscal Catastrophe As A Result Of Exponential Debt Growth In The U.S.

In a just released report from the CBO looking at the long-term US budget outlook, the budget office forecasts that both government debt and deficits are expected to soar in the coming 30 years, with debt/GDP expected to hit 150% by 2047 if the current government spending picture remains unchanged.

The CBO's revision from the last, 2016 projection, shows a marked deterioration in both total debt and budget deficits, with the former increasing by 5% to 146%, while the latter rising by almost 1% from 8.8% of GDP to 9.6% by 2017.

According to the CBO, "at 77 percent of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would reach 150 percent of GDP in 2047."
In addition to the booming debts, the office expects the deficit to more than triple from the projected 2.9% of GDP in 2017 to 9.8% in 2047. The deficit at the end of fiscal year 2016 stood at $587 billion.
A comaprison of government spending and revenues in 2017 vs 2047 shows the following picture:

The CBO also mentions rising rates as another key reason for the increasing debt burden. The Federal Reserve has kept rates low since the financial crisis but is on track to gradually hike rates in the coming year.
On the growth side, the CBO expects 2% or less GDP growth over the next three decades, far below the number proposed by the Trump administration.

The budget office breaks down the primary causes of projected growth in US spending as follows: not surprisingly, it is all about unsustainable social security and health care program outlays.

The CBO's troubling conclusion:

Greater Chance of a Fiscal Crisis. A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing
unless they were compensated with high returns. If so,
interest rates on federal debt would rise abruptly, dramatically
increasing the cost of government borrowing.
That
increase would reduce the market value of outstanding
government securities, and investors could lose money.
The resulting losses for mutual funds, pension funds,
insurance companies, banks, and other holders of government
debt might be large enough to cause some financial
institutions to fail, creating a fiscal crisis. An additional
result would be a higher cost for private-sector borrowing
because uncertainty about the government’s responses
could reduce confidence in the viability of private-sector
enterprises.

It is impossible for anyone to accurately predict whether
or when such a fiscal crisis might occur in the United
States. In particular, the debt-to-GDP ratio has no
identifiable tipping point to indicate that a crisis is likely
or imminent. All else being equal, however, the larger a
government’s debt, the greater the risk of a fiscal crisis.

The likelihood of such a crisis also depends on conditions
in the economy. If investors expect continued growth,
they are generally less concerned about the government’s
debt burden. Conversely, substantial debt can reinforce
more generalized concern about an economy. Thus, fiscal
crises around the world often have begun during
recessions and, in turn, have exacerbated them.

If a fiscal crisis occurred in the United States, policymakers
would have only limited—and unattractive—options for
responding. The government would need to undertake
some combination of three approaches: restructure the
debt (that is, seek to modify the contractual terms of
existing obligations), use monetary policy to raise inflation
above expectations, or adopt large and abrupt spending
cuts or tax increases.

Then again, as the past 8 years have shown, only debt cures more debt, so expect nothing to change.

You Know It's A Global Debt Bubble When...

With analysts noting that markets are "taking the Fed's tightening policy in their stride," demand for emerging-markets debt is so strong that Bloomberg reports one of Asia's poorest nations is mulling a debut dollar-bond sale... Papua New Guinea.

Source: BBC
The southwest Pacific nation plans to raise $500 million in five-year bonds, central bank governor Loi Martin Bakani said Tuesday at the Credit Suisse Asian Investment Conference in Hong Kong. The country would join Mongolia among sub-investment grade issuers in 2017. Sales of high-yield bonds total almost $15 billion so far this year, according to data compiled by Bloomberg.
“There is strong appetite for frontier issues -- and markets have taken the Federal Reserve tightening policy in their stride,” Stuart Culverhouse, chief economist at Exotix Partners LLP in London, said by phone. Issuers in the single-B tier -- the second-highest in the junk rating scale -- have found yields “are not prohibitively high for their financing needs,” he said.

Papua New Guinea aims to woo buyers from Asia, Europe and the U.S. for its bond sale in the second half of the year. This isn’t the country’s first attempt, after it hired banks in 2013 for an issue of dollar-denominated securities that didn’t pan out, despite the same confidence from bankers...

“Increasing signs of improvement in the global economy have made investor appetite for riskier assets resilient,” said Rees Kam, a strategist at SJS Markets Ltd., a Hong Kong-based financial services company that specializes in fixed income.

“There’s demand from yield-seeking investors and they have to move to a lower credit rating to pick up some extra yield. Countries going to the market are trying to benefit from the rising demand for lower-credit products.”

Success this time would follow several years of current-account surpluses for the natural-resource dominated economy -- though the period has seen slower growth and wider fiscal deficits.

Mongolia, which has been struggling with a shrinking economy, ballooning budget deficit and debt downgrades, benefited from a rebound in copper and the prospect of an International Monetary Fund rescue package to pull off its sale of $600 million seven-year debt earlier this month.
Sri Lanka is also planning a $1.5 billion bond sale.
The big question now is - when does North Korea come to the market? Think of all that uranium collateral?

The Dollar Dump Begins: “China, Japan, Belgium, Switzerland and Saudi Arabia Have All Become Big Sellers”

As global financial markets teeter on the edge of collapse, a report published this morning suggests that the run up in the U.S. dollar may be over. As of today, some 80% of post-Trump election gains have been wiped out and as noted in the special video report from Future Money Trends below, it appears that things are only going to get worse:

China sold more U.S. Treasuries last year than any country has ever sold in a single year… $188 billion worth… Japan is also making an exit, selling nearly $30 billion since election day… Belgium, Switzerland and Saudi Arabia have all become big sellers too…
Official national debt is $20 Trillion… the real debt has been calculated to be $200 Trillion… what’s not included in the official numbers is social security, Medicaid and Medicare obligations… Think about it… every penny spent on the military, welfare programs, foreign aid and even your Congressman’s paycheck… it’s all borrowed money…

As explained in the video report, our creditors know this and they are in the process of dumping their holdings before the whole system collapses in on itself.
Watch:

While President Trump may have the best intentions, Future Money Trends warns that the debt ceiling debate is just getting started, and chances are that neither Republicans or Democrats will make it easy on the new administration. In fact, it’s quite possible that, as we highlighted previously, the Deep State will make their move to overthrow Trump in June, because on June 1st the United States will literally run out of money unless the debt ceiling is raised.

While Congress would normally just take a vote and push the limit higher, the current political environment is such that the debt ceiling itself could be used to attack the Trump administration and potentially even crash the U.S. economy.

The U.S. is borrowing money to pay for it all… the largest debtor in history is flat broke…

Without borrowing it won’t even be able to pay for social security recipients or the interest on our debt… the same debt and creditors who have been selling Treasuries… Democrats will see this as the perfect political opportunity to do permanent damage to the Trump Presidency… and frankly, so will establishment Republicans who hate him, along with many of the Tea Party representatives who were elected to stop the reckless spending in D.C.

The debt ceiling will be a vote that no one wants to give, but has to happen…. otherwise the United States… the holder of the world’s reserve currency… will experience a real national default.

This year is anything but normal with President Trump at the helm, so the debt ceiling may well be used to crush his administration.

With our creditors dumping dollars at an unprecedented rate, coupled with the possibility of Deep State operatives and politicians using the debt ceiling as a financial weapon of mass destruction, one could certainly see the potential for serious problems going forward.

Moreover, and perhaps the most important takeaway from the video above, even if a debt ceiling vote does take place, it is clear to our creditors that there is no paying back any of the money we’ve borrowed, which may explain the mass exodus out of U.S. Treasuries over the last several months.