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Posts Tagged ‘biden’

Biden Administration Faced With Looming Sovereign Debt Trap

December 13th, 2020 Comments off

In the 2-year period between 2008 and 2010 something peculiar happened to the U.S. Federal Budget. In 2008 the Federal Government in the United States spent $253 billion on interest  incurred by the national debt, representing  8.5 % of all federal outlays. Over the next two years federal budget deficits skyrocketed due to stimulus  and other fiscal programs undertaken in the wake of the Global Financial Crisis. Obviously, massive deficit spending  greatly increased the national debt. However, instead of the expected increase in annual interest payments, the amount allocated for debt interest payments by the Federal Government actually declined to $196 billion, representing  only 5.7% of the Federal budget, a sharp decline from only two years previously.

How was this seemingly impossible mathematical trick accomplished? The answer is surreal in its simplicity. The Federal Reserve, by monetizing the debt and exercising other monetary levers at  its disposals, sharply reduced interest rates across the board. In the case of short term interest rates, they were in some cases reduced to virtually zero ; in essence, free money.  It is only for that reason that interest paid on the national debt plunged while the overall debt ballooned due to continuous  and massive deficit spending.

Will the incoming Biden administration be so lucky? Unlikely. After massive deficit spending in President Trump’s final year in office, primarily due to a Coronavirus relief bill  that increased borrowing by more than $2 trillion dollars on top of the already large structural deficit, a President Biden is set to add a new and even larger Covid stimulus  relief package during his first year in office. So clearly, the national debt will continue to grow at a rapid rate.

What about interest rates? If it could, the Fed would keep interest rates at zero almost forever. But it  can’t. On the horizon are warning signs of high inflation. In the period after the Global Financial Crisis low inflation enabled central banks worldwide to prime the pump and run the printing presses. This time there is decoupling of major trading relationships: U.S. and China; U.K. and Eurozone. As  supply chains fragment, costs will be driven  upwards. Furthermore, there exist geopolitical tensions that threaten to drive up commodity prices, should they worsen. Political instability within  the United States itself creates elevated risks, which in turn stimulate inflationary pressures.

Any meaningful uptick in the  rate of inflation will compel central banks, including the Federal Reserve, to begin raising interest  rates. Once that happens, the massive deficit spending of the Biden administration that is now projected will unleash a sovereign debt trap, condemning the American and other economies, large and small, to stagflation, meaning higher inflation and a highly depressed economy. The handwriting is on the wall. In a worst case scenario, the U.S. government will default on its national debt, with seismic repercussions. Alternatively, the Biden administration could attempt to reduce the national debt through hyperinflation, which will  induce it s own calamitous impact on the nation’s social stability.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Incoming Biden Administration: A President Biden Makes Global Economic Depression A Greater Short Term Risk

November 8th, 2020 Comments off

The corporate media and social media complex, America’s new power center, has declared that former Vice President Biden is now President-elect Biden. Though Trump is pursuing a last ditch, scorched-earth policy of legal challenges, with no concession in sight, the odds are virtually certain that Biden will be inaugurated as the 46th president of the United States. What are the global economic implications  of this?

The Covid-19 pandemic has unshed in the worst economic downturn since the Great Depression of the 1930s.The  Q3 uptick is now likely to be followed by a double dip recession, as a second wave of coronavirus ravages a advanced economies, including the United States. Though the Biden policy team is committed to a more aggressive stance on combating Covid-19 and offering large fiscal stimulus packages. the economic prognosis is not bright.

Biden will enter the presidency with a divided electorate, including 70 million Trump voters, who are largely convinced that the election was a fraud, meaning the incoming presidency is illegitimate. Instead of the expected Blue Wave, the Democratic majority in the House of Representatives is reduced, and the GOP may very well retain control of the Senate. Divided government, and a divided people  will create instability in what is still the world’s largest economy,  possessing the strongest military power.  That does not portend well towards an economic recovery.

Continued economic shutdowns due to the pandemic, ineffective fiscal stimulus programs combined with growing sovereign debt along with the political and social instability in the U.S. lead to the conclusion that the trajectory towards an economic depression, already baked into the cake, will accelerate. It is likely to happen during the incoming administration’s four-year term.

 

 

Election 2020 Fallout: Political Disarray in United States Threatens Global Economy

September 21st, 2020 Comments off

A global economy already  in fragile condition  due to  the contraction in  GDP and exploding sovereign debt levels due to the Covid-19 pandemic, is now in  danger of being further weakened by political strife in the United States. With about six-weeks to go before the 2020 presidential election, there are already numerous indicators of looming political and social chaos looming in the USA.

Even before the death of Supreme Court justice Ruth Bader Ginsburg, there were already claims by both the Democratic and Republican parties that their opponent was out to undermine presidential voting. The incumbent, President Donald Trump and his supporters allege that mail-in ballots, favored by Democratic-run states, will unleash massive voter fraud. Trump’s challenger, former vice-president Joe Biden, and his Democratic supporters, have allegations of their own; Russia is supposedly working in tandem with Trump to undermine the true results of the pending election. Either way, both sides have set up voting day, November 3, as not decision-day, but rather the beginning of a bitter fight by armies of lawyers for who will be the legitimate winner of the upcoming presidential election.

Added to the above, there is a ferocious fight looming over the prerogative of the current president to select a replacement for the now-vacant seat on the U.S. Supreme Court. The fact that Trump has the constitutional legality to do this is irrelevant; this all about massively polarizing fault lines within the American body politic, adding to severe social tension and propensity for violence linked to the upcoming election.

All the above factors, occurring in what is still the world’s largest economy (though China is on the verge of overtaking that position) are destabilizing; not only politically but perhaps even more in terms of the global economy. In the post-coronavirus world we all now inhabit, the political storm brewing in the U.S. may be the final element that brings about a total economic depression, thus ensuring that the Global Economic Crisis is deeper and of longer duration than the pundits and analysts are currently predicting.