You don’t know where the hell it leads, but you borrow money, and when you have to pay it back, they pay you. This is one that I like very much.

—Donald Trump on negative interest rates


Two reports have emerged that will help us answer the president’s implied question.

The first came from The Wall Street Journal:

U.S. National Debt Will Rise to 98% of GDP by 2030, CBO Projects

Sustained federal budget deficits and debt will hit the highest levels since World War II over the next decade, according to a Congressional Budget Office (CBO) report released Tuesday.

As to the ‘sustained federal budget deficits,’ the CBO is right on the money. They can add and subtract as well as we can. But as to the guess about where we’ll end up in 10 years, the CBO might need more than a calculator…

What’s wrong with debt?

The number crunchers imagine that we will have neither a financial crisis nor a recession in the entire decade ahead. How likely is that? (Our own Tom Dyson predicts as many as three.)

Even a mild recession would lower the government’s tax receipts while increasing its expenses. Deficits would grow larger as GDP sinks.

In 2019, the official deficit was $984 billion, or 4.6% of GDP. The economy grew at only 2.3%, or $460 billion. In other words, debt is growing twice as fast as GDP…even while we’re still in a business expansion.

Throw in a recession, and you are quickly at total debt of $40 trillion…with an economy of only $26 trillion and a debt-to-GDP ratio closer to 150% than 100%.

‘What’s wrong with deficits?’ asks a Dear Reader. What’s wrong is that all debts have to be paid.

Someone pays, either the lender, the borrower, or the innocent public. ‘Inflation’ is the way the biggest borrowers in the world — the feds — make sure it’s not them.

Noxious consequences

Meanwhile comes news from Atlanta’s major newspaper, The Atlanta Journal-Constitution (AJC), of a new trade deal:

President Donald Trump took a victory lap at a White House ceremony on Wednesday as he signed implementing legislation into law for a new trade agreement involving the U.S., Mexico, and Canada, a deal which the President predicted would boost American economic growth across a wide range of the nation.

‘Today we are finally ending the NAFTA nightmare,’ Mr. Trump added, referring to the North American Free Trade Agreement, which was the precursor to the USMCA deal. ‘This is a colossal victory for our farmers, ranchers, energy workers, factory workers, and American workers in all fifty states,’ the President said.

These two stories may seem to have as little in common as Donald Trump and Elizabeth Warren, but like the two politicians, they are both among the noxious consequences of the fake-money system.

Deficits are out of control because they can be. The low rates that Donald Trump likes so much made it possible. Fake-money-printing allows the feds to spend without raising taxes.

And now, the government no longer even needs to borrow to fill the gaps. When ‘repo’ interest rates soared on September 17, 2019, the Federal Reserve jumped to print money. From here on out, it will cover U.S. deficits with the kind of money the Germans used for wallpaper in 1923.

Meanwhile, where does the trade deal come from? Ah…that is a little more complicated. But it is a story worth telling…

Trenton takes, the world makes

From 1890 to 1971, the U.S. was the world’s largest exporter, with not a single trade deficit in 81 years. As it says on the Trenton bridge in New Jersey: ‘Trenton makes; the world takes.’

But almost on the day the Nixon administration jolted the fake-money monster alive, Trenton stopped making and began taking. The first trade deficit in eight decades appeared in 1971. And in only one year since then has the trade balance been positive.

What happened?

Prior to the fake-money system, trade imbalances were settled in gold. The U.S., for example, gained huge quantities of gold as it sold war supplies to Europe in WWI and WWII. England and France ran big trade deficits. America ran surpluses.

Since 1971, countries no longer settled up in gold…so there was no further fear of trade deficits.

China took in dollars from selling goods to the U.S. Previously, it would have taken the dollars to the U.S. Treasury, and exchanged them for gold. This would have reduced America’s base money supply…raising interest rates, slowing the economy, and bringing trade back into balance.

But post-1971 the fake-money inflation twisted the feedback loop into a perverse new shape.

China simply lent the dollars back to the U.S. (buying U.S. Treasury bonds)…allowing Americans to borrow and spend even more. Turn over any lamp in America…look behind any TV…and you now found ‘Made in China.’

Ripped off by the Feds for debt

America’s trade deficit hit 6% of GDP in 2005. And then, with more and more dollars coming its way, China built factories, towns, roads, airports — infrastructure and capital improvements that made it more and more competitive on the world markets.

The result was a disaster for U.S. manufacturing towns and the U.S. working class. Real, high-wage jobs declined. From Project Syndicate:

In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million.

U.S. wages stopped growing in 1975. An average American man actually earns less today than he did 45 years ago.

As the good jobs disappeared, grumbling in the industrial zip codes increased.

People knew something was wrong. Few realized that it was their own feds and central bankers who were ripping them off.

Instead, they were told ‘bad trade deals’ were to blame. Or the Chinese. Or the Mexicans. And so, yesterday, they applauded Donald Trump’s ‘victory lap’.

No one seemed to realize what the hell was going on — that the real problem was fake-money inflation…that inflation is always and everywhere a rip-off…and that they were the rippees.



Bill Bonner