Heading Down For The Count

Here are two shocking numbers that both ends of the Acela Corridor devoutly pretend to not matter:

  • June 30, 2019………………………………….$16.188 trillion;
  • September 30, 2019………………………….$16.809 trillion

The difference is $621 billion and it represents the amount by which the publicly-held Federal debt increased during Q4 of the fiscal year just ended. That’s about $7 billion of new borrowing per day including holidays and Sundays and amounted to 12% of the GDP generated during the quarter.

Even if you allow for the fact that this massive increase in the publicly-held debt went in part ($78 billion) to rebuild the US Treasury’s depleted cash balance after the debt ceiling was raised last March, the net increase is still $543 billion.

Folks, that’s Uncle Sam’s operating deficit for the quarter, the bottom line difference between the inflow and the outflow.

So the question recurs: What in the world are Washington’s geniuses—stable and otherwise— thinking?

The fiscal quarter just ended encompassed months #120-123 of the current business cycle expansion—-a longevity zone that has never before been traversed.

The technology boom of the 1990s—the previous champion—succumbed to recession in month #119. So living on borrowed time is hardly the word for it.

What kind of madness, therefore, says that Uncle Sam can be borrowing 12% 0f GDP at the tippy top of the business cycle when it’s damn obvious that the US economy is slouching toward stall speed and recession thereafter?

As we have been documenting, the US body economic is riddled with the accumulated disease from a central bank driven spree of debt, speculation and malinvestment. Like, for instance, the 15 million square feet of office space that WeWork has under 15-20 year lease in the hopes that the thousands of “cash burn baby” start-ups which rent its “desks” by the month will never run out of VC capital to destroy.

Likewise, the total public and private debt of the US economy has been off to the races as well—notwithstanding the alleged wake-up call we got about excessive debt at the time of the 2008 financial crisis.

In fact, here’s what has happened since then. Total debt is up by nearly $21 trillion from the pre-crisis peak in Q4 2007 to a staggering $73.4 trillion at the end of Q2 2019.

That’s a 40% expansion at a time when we were supposed to be deleveraging; and it’s also a reminder that cheap debt fueled growth is reaching its sell-by date: During the same 12-year period, nominal GDP increased by only $6.8 trillion, meaning it took $3 of incremental debt to generate just $1 of additional GDP.



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