Is Fed Chair Powell Actually Cap’n (Credit) Crunch? US Money Supply Has Shrunk For Eight Months In A Row As Bank Credit Slows To -0.2% YoY

I don’t know whether Cap’n (Credit) Crunch is Fed Chair Powell or the big spender Boss (Tweed) Biden?

Money supply growth fell again in June, remaining deep in negative territory after turning negative in November 2022 for the first time in twenty-eight years. June’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.

And with M2 Money growth down for 8 consecutive months, bank credit down -0.2% YoY.

Since April 2021, money supply growth has slowed quickly, and since November, we’ve been seeing the money supply repeatedly contract—year-over-year— for six months in a row. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.

Money-supply growth has now been negative for eight months. During June 2023, the downturn continued as YOY growth in the money supply was at –12.4 percent. That’s up slightly from May’s rate of –13.1 percent, and was far below June’s 2022’s rate of 5.7 percent. With negative growth now falling near or below –10 percent for the third month in a row, money-supply contraction is the largest we’ve seen since the Great Depression. Prior to March through June of this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.

The money supply metric used here—the “true,” or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.

The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).

In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In June 2023, the M2 growth rate was –3.5 percent. That’s slightly up from May’s growth rate of –3.7 percent. June 2023’s growth rate was also well down from June 2022’s rate of 5.6 percent.

Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.

It should be noted that the money supply does not need to actually contract to signal a recession and the boom-bust cycle. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth. But the drop into negative territory we’ve seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.

The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. The money supply has now fallen by $2.8 trillion (or 15.0 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we’ve seen since the Depression. (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)

In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $4 trillion or so—or 22 percent—down to a total below $15 trillion.

Since 2009, the TMS money supply is now up by nearly 184 percent. (M2 has grown by 146 percent in that period.) Out of the current money supply of $18.8 trillion, $4.5 trillion of that has been created since January 2020—or 24 percent. Since 2009, $12.2 trillion of the current money supply has been created. In other words, nearly two-thirds of the money supply have been created over the past thirteen years.

With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after fourteen months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market.

Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed’s manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Individual bankruptcy filings were up 68 percent in the first half of the year. Temp jobs were down, year-over-year, which often indicates approaching recession.

Money Supply and Rising Interest Rates

An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of July, the Fed has allowed the federal funds rate to rise to 5.50 percent, the highest since 2001. This has meant short-term interest rates overall have risen as well. In June, for example, the yield on 3-month Treasurys remains near the highest level measured in more than 20 years.

Without ongoing access to easy money at near-zero rates, however, banks are less enthusiastic about making loans, and many marginal companies will no longer be able to stave off financial trouble by refinancing or taking out new loans. For example, Yellow Corporation, a trucking company, has declared bankruptcy and will lay off 30,000 workers. Tyson Foods announced this week it is closing four chicken processing plants in an effort to cut costs. 3,000 workers are likely to lose their jobs as a result. These firms have experienced financial problems for years, but rising interest rates preclude additional delays of the inevitable. We will see more of this as more companies face the realities of higher rates. (In another sure sign of a slowing economy, state and local tax revenues have been falling.)

Meanwhile, as lenders get spooked by tightening cash availability, it’s getting more difficult to qualify for a home loan, and credit availability is the tightest its been in a decade. Meanwhile, the average 30-year mortgage rate rose in July to nearly the highest point since 2002.

One of the most troubling indicators is soaring credit card debt even as interest rates soar. As of May 2023, the commercial bank interest rate rose to the highest rate measured in at least 30 years. Just last year, the interest rate hovered around 15 percent. In May 2023, it reached over 20 percent. This is happening as credit card debt and other revolving loans have reached a new all-time high.

These factors all point toward a bubble that is in the process of popping. The situation is unsustainable, yet the Fed cannot change course without reigniting a new surge in price inflation. Any surge in prices would be especially problematic given the rising cost of living. Both new and used cars are becoming increasingly unaffordable. Ordinary Americans face a similar problem with homes. According to the Atlanta Fed, the housing affordability index is now the worst it’s been since 2006, in the midst of the Housing Bubble.

If the Fed reverses course now, and embraces a new flood of new money, prices will only spiral upward. It didn’t have to be this way, but ordinary people are now paying the price for a decade of easy money cheered by Wall Street and the profligates in Washington. The only way to put the economy on a more stable long-term path is for the Fed to stop pumping new money into the economy. That means a falling money supply and popping economic bubbles. But it also lays the groundwork for a real economy—i.e., an economy not built on endless bubbles—built by saving and investment rather than spending made possible by artificially low interest rates and easy money.

Either Powell is Cap’n (Credit) Crunch or Boss Biden because of his insane spending spree helping inflation hit 40 year high is Cap’n (Credit) Crunch.

While looking up baseball statistics, I found this picture of former Cincinnati Reds outfielder Wally Post. Or is that actor Nick Searcy from “Justified”?

Boss Biden’s Economy! Core Inflation Prints At 4.7% In July, Food UP 4.9% YoY, Shelter UP 7.7% YoY (Although Fed Is Unlikely To Raise Rates Again)

Welcome to Boss Biden’s America! It reminds of woefully corrupt Boss Tweed and Tammany Hall in New York City. Today’s inflation report revealed that core CPI YoY was 4.7%. Ugh!

While energy prices are down since last year, Food prices are still up 4.9% YoY and shelter (housing) CPI is up 7.7% YoY.

Expectations for this morning’s must-watch CPI print were for a MoM and YoY rise in the headline, and modest slowing of the core YoY. However, The Fed will be watching its new favorite signal – Core Services CPI Ex-Shelter – which reaccelerated in July (+0.2% MoM, and from +3.9% to +4.0% YoY).

The headline CPI rose 0.2% MoM in July (as expected), the same as in June, pushing the YoY up to 3.2% (from 3.0% in June) but below the 3.3% expected…

Source: Bloomberg

Today’s increase in CPI YoY broke the record-equaling streak of 12 straight months of declines.

Core CPI rose 0.16% MoM, with the YoY growth in prices slowing to 4.7%.

Source: Bloomberg

Both Goods and Services inflation (YoY) slowed in July – but Services remain extremely high at +6.1%…

Source: Bloomberg

On an annual basis, the index for all items less food and energy rose 4.7% over the past 12 months with the shelter index rising 7.7% over the last year, accounting for over two-thirds of the total increase in all items less food and energy.

Other indexes with notable increases over the last year include motor vehicle insurance (+17.8 percent), recreation (+4.1 percent), new vehicles (+3.5 percent), and household furnishings and operations (+2.9 percent).

Source: Bloomberg

Taking a closer look at the all important shelter index, while it is still growing both sequentially and annually, the slowdown in growth is increasing more visible:

Shelter inflation up 7.69% YoY in July vs 7.83% in June, lowest since Dec 22; also up 0.43% MoM, lowest monthly increase since Jan 22
Rent inflation up 8.03% in July vs 8.33% in June, lowest since Nov 22; also up 0.41% MoM, lowest since March 22

The silver lining here, as noted by former Fed staffer Julia Coronado, is that “we are seeing core inflation slow before the expected big step down in rent/oer” which is great news as “lots of price sensitivity in travel and core goods that was slow to take hold but is now fully coming through.” In other words, if and when rent/shelter inflation actually post a decline (with the usual 12-18 month BLS lag), the Fed will be scrambling to fight inflation.

Turning to the wage aspect, for the second month in a row, ‘real’ wages rose YoY in July (but barely, +0.2%), and it appears that we are about to dip back into real contraction next month.

Source: Bloomberg

So the question becomes – is this an inflection point in inflation? (or is M2 still leading the way?)

Source: Bloomberg

Yet, Fed Funds Futures are pointing to no further Fed rate hikes.

With House Republicans releasing bank records showing over $20 million in payments to Biden family, associates, and Democrats denying any wrongdoing, I think we are seeing the Biden Administration as a rebirth of New York City’s Tammany Hall corrupt political machine led by Boss Tweed. Since Biden’s malfeasance/influence peddling occurred when he was Vice President under Barack Obama (aka, Barry Soetoro), Obama is the new Bathhouse John Coughlin the woefully corrupt Chicago Alderman and Hunter Biden is the new Hinky Dink (Michael Kenna, also a woefully corrupt Chicago Alderman).

Bathhouse Barry Soetoro, Boss Biden and Hinky Hunter at a basketball game.

Economic Rollerball! US Regional/Small Bank Shares Drop After Moody’s Cuts Ratings, Warns on Risks (Bidenomics Favors Large Firms, Not Small Firms)

Rating company downgrades 10 lenders, citing dimmer outlook
U.S. Bancorp, BNY Mellon among six firms facing potential cuts

Not surprising given that Bidenomics is nothing more than giving big bucks to big corporations, including banks. Regional/small banks? Not so much.

US bank stocks declined after Moody’s Investors Service lowered its ratings for 10 small and midsize lenders and said it may downgrade major firms including U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp.

Higher funding costs, potential regulatory capital weaknesses and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday.

“Collectively, these three developments have lowered the credit profile of a number of US banks, though not all banks equally,” the rating company said.

Moody’s Sees Problems Ahead for US Banks

Rating company issues raft of downgrades, outlook

Source: Moody’s

Shares declined for firms that had their ratings cut, including M&T Bank Corp., down 3.2%, and Webster Financial Corp., which lost 1.3%. Moody’s also adopted a “negative” outlook for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp. and Citizens Financial Group Inc. Among those, PNC was down 2.2% and Capital One lost 2.4%.

Investors, rattled by the collapse of regional banks in California and New York this year, have been watching closely for signs of stress in the industry as rising interest rates force firms to pay more for deposits and bump up the cost of funding from alternative sources. At the same time, those higher rates are eroding the value of banks’ assets and making it harder for commercial real estate borrowers to refinance their debts, potentially weakening lenders’ balance sheets.

“Rising funding costs and declining income metrics will erode profitability, the first buffer against losses,” Moody’s wrote in a separate note explaining the moves. “Asset risk is rising, in particular for small and midsize banks with large CRE exposures.”

Some banks have curbed loan growth, which preserves capital but also slows the shift in their loan mix toward higher-yielding assets, Moody’s said.

Banks that depend on more concentrated or higher levels of uninsured deposits are more exposed to these pressures, especially banks with high levels of fixed-rate securities and loans.

Deposits are declining as The Fed hikes rates.

So, Bidenomics reminds me of the film “Rollerball” where big corporations run the government and run a game akin to Rome’s gladiator fights.

“Pain Trade” Points To A Steeper US Yield Curve As Fed Remittances To US Treasury Soar (The Cost Of Bidenomics’s BIG Policies)

Yes, Bidenomics is an FDR-type massive expansion of government into the private sectors requiring massive Federal spending … and inflation. Except that it beenfits anything BIG and powerful to the detriment of the small and weak.

(Bloomberg) Friday’s jobs data sparked a relief rally in bonds and a flatter yield curve, but the pain trade is still for higher yields and a steeper curve – the lesser-spotted bear steepener – with this week’s CPI a potential catalyst.

Last week was a turbulent one for bonds, but the continued softening in payrolls data served to remind the market that supply and fiscal-profligacy fears have to be counter-balanced with an economy that’s in its late-cycle stages.

After the data, 10-year yields took the elevator back down to sub-4.05% after briefly going above 4.20%. They have since clambered back to 4.12%, but their next cue is likely to come from Thursday’s CPI report. Headline is expected to nudge back up to 3.3% (from 3% last month), mainly due to base effects, and core is expected to hold steady at 4.8%.

Still, stronger-than-expected data probably means higher yields in a market more acutely alert to inflation (and therefore supply) risks. As with last week, term premium would likely drive the move, meaning a curve steepening. After relentlessly flattening for the last two years, the pain trade is for a steeper curve. Implicit positioning of speculators from the COT report shows there is a heavy skew to a flatter curve.

The negative carry for most flatteners remains punitive (for 2s10s USTs it’s ~83bps over a year), but the large upside potential from supply/inflation worries and the covering of positions begins to make that look less insurmountable.

Finally, the Bundesbank’s decision to stop paying interest on domestic government deposits – which initially pushed short-term German bonds higher this morning – highlights the broader issue of central banks paying interest on reserves when they are superabundant.

In the days of QE and 0% interest rates, the ECB and Fed at al. remitted money to their treasuries from the income on their bond portfolios.

But now that is reversed as bond income is dwarfed by the cost of paying interest on trillions of bank reserves. Take the Fed, whose debt to the Treasury is now accruing at over $2 billion each week.

This is something that will become more politically contentious, especially as economies continue to slow and cost-of-living pressures bite further.

Bidenomics. The takeover of the US economy by BIG corporations, BIG labor unions, BIG tech, BIG pharma, BIG defense, BIG healthcare, BIG media, BIG banks, BIG tech, BIG … Well, anyting that is BIG and powerful that can buy influence in Congress and the Administration. Except BIG energy which lost out to BIG Progressive DC thinktanks.

Leading to BIG inflation!

But I feel good! Even though inflation expectations are soaring again as gasoline soars again.

Bidenomics! M2 Money Velocity Rises … To Almost Pre-Covid Levels, Fed Balance Sheet Remains Above $8 TRILLION (Biden Energy Secretary Secretly Consulted Top Chinese Energy Official Before SPR Release, Sales To Hunter Biden-Linked Chinese Energy Giant)

I wonder which season the US economy is in, according to President “Chance the Gardener” Biden.

If you believe the recovery talk (from the reckless Covid economic and school shutdowns of 2020), all is well in the (economic) garden. For example, M2 Money Velocity (GDP/M2), is almost back to where it was just prior to the 2020 Covid outbreak and resulting government-caused recession. M2 Velocity was 1.425 in Q4 2019 and was 1.289 for Q2 2023. But ever since The Federal Reserve became hyper intervention in the economy (let’s just start with Bernanke’s massive intervention in late 2008 (red line) and the Fed balance sheet expansion), and it was increased dramatically during the Covid shutdown. And is STILL above $8 trillion!

Before Bernanke and the financial crisis of 2008-2009, M2 Money Velocity was above 2.0. But it has been below 2.0 ever since The Fed’s intervention in 2008.

On the energy front, US Energy Secretary Jennifer Granholm, whose catastrophic handling of US energy policy will be one of the most memorable and dire consequences of the Biden era, engaged in multiple conversations with the Chinese government’s top energy official just days before the Biden administration announced it would tap the Strategic Petroleum Reserve (SPR) to combat high gas prices in 2021, the same China whose Hunter Biden-linked energy giant Unipec, which we previously learned had bought millions of barrels from the SPR release.

Granholm called China National Energy Administration Chairman Zhang Jianhua, a longstanding senior member of the Chinese Communist Party, for a half-hour one-on-one conversation on Nov. 21, 2021. Granholm’s calendar also shows an earlier phone call had been scheduled with Jianhua for Nov. 19 but a rep for the former Michigan governor said the first call never took place. Then, on Nov. 23, 2021, the White House announced a release of 50 million barrels of oil from the SPR, the largest release of its kind in U.S. history at the time.

According to Fox News, Granholm’s previously-undisclosed talks with China National Energy Administration Chairman Zhang Jianhua — revealed in internal Energy Department calendars obtained by Americans for Public Trust (APT) and shared with Fox News Digital — reveal that the Biden administration likely discussed its plans to release oil from the SPR with China before its public announcement in the US: yes, China’s Communist Party learned what Biden would be doing before the US did.

While Biden/Granholm are merrily draining the Strategic Petroleum Reserve, we see that West Texas Intermediate Crude Oil (Cushing) prices are up 54% under Biden and regular gasoline prices are up 58%.

All is sort of well in the garden because The Federal Reserve still has its massive interventionist foot on the gas pedal. Yet, America is on an economic suicide course with its green energy hype.

Frankly, Biden talks like Chance The Gardener from the film “Being There.” Except that Chance the Gardener is a nice person and Biden is reputed to have been the nastiest member of the US Senate. Not to mention the stupidest member of the US Senate. Although I don’t think Chance the Gardener would have taken millions in bribes from foreign countries like China and Ukraine.

Biden The Gardener should be Biden’s re-election slogan! Of course, Chance the Gardener could walk much better than Biden with his dementia shuffle. And Chance was a great gardener, all Biden knows how to do is sell the “Biden Brand” of political influece peddling to foreign countries.

US Gasoline Prices Surge Again 6.5% Since 7/23/2023 (Gas Prices UP 60% Under Bidenomics As Strategic Petroleum Reserve DOWN -46% Under Corrupt Joe)

Josef Stalin of the old Soviet Union used to be called County Joe. But Biden has so many possible nicknames: Corrupt Joe, Pay-for-play Joe, Sleazy Joe, Bully Joe, etc. How about Green Joe?

Green Joe (or the Nasty Green Giant?) along with his energy goon Jennifer Granholm, have drained the strategic petroleum reserve by 46% while gasoline prices have soared 60% under Bidenomics.

Gasoline prices have rise over 6.5% just since 7/23/2023.

Trump wants to drain the swamp, Biden/Granholm want to drain the strategic petroleum reserve so we can’t go back to fossil fuels. Biden and Granholm as Fossil Fools

Energy Secretary Jennifer “The Evil Pixie’ Granholm demostrating how she will refill the strategic petroleum reserve. Which she never will, of course.

July Jobs Report Disappoints! Only 187k Jobs Added, Wage Growth Of 4.4% Still Lower Than Core Inflation Rate Of 4.8%, Rent CPI (June) Is Still Roaring At 7.8% YoY (May and June Figures Revised Sharply Lower)

The Federal Reserve is watching July’s jobs report carefully. According to the Bureau of Labor Statistics (BLS), the US economy added 187k jobs in July, less than the expected 200k.

US average hourly earnings continued at 4.4% year-over-year (YoY). However, the last core inflation reading was 4.8% YoY, so real wages continue to decline.

Rent CPI for June was 7.8% YoY.

Here is the rest of the story.

In keeping in with Biden admin’s penchant of constantly fabricating data, both May and June numbers were revised sharply lower of course:

May revised down by 25,000, from +306,000 to +281,000
June was revised down by 24,000, from +209,000 to +185,000.

To show just how ridiculous the data manipulation is, consider this chart – every monthly payrolls report in 2023 has been revised lower.

And on the disappointing jobs report and massive revisions of past data (the REAL inflation plaguing the nation is The Federal goverment lying about data), the US Treasury 2 year yield dropped like Biden on a flight of stairs.

Here are the faces of Washington DC. Lies, corruption, government for sale to highest bidder, cynacism, oppression, fear mongering, etc. This is Biden’s legacy.

Bidenomics! Ford Will Lose $4.5 Billion On EVs This Year, Up From $2.1 Billion Last Year (Ford DOWN -48% Since January 2022, GM DOWN -40% As Fed Withdraws Stimulus)

Bidenomics, the term for “Government Gone Wild! in terms of spending and EPA regulations, is a disaster for the US middle class and low wage workers. Even the 1% are now hurting if bought into Biden’s green lunacy. Ford is now down -48% since January 14, 2022 as The Fed started raising rates to fight inflation. GM is down “only” -40%.

Ford is slated to lose $4.5 billion from its EV segment this year, a $1.5 billion larger loss than the company had expected.

So far this year, the division has lost $1.8 billion and this year’s $4.5 billion loss figure blows away last year’s $2.1 billion loss. Ford also announced that its electric F-150 pickup trucks will undergo a price cut, according to Fox.

Ford beat earnings on Thursday and reported adjusted EPS of $0.72, beating expectations of $0.54. It posted revenue of $45 billion and adjusted EBITDA of $3.8 billion, above estimates of $3.15 billion.

The company also raised its guidance, forecasting adjusted EBIT of $11 billion to $12 billion from $9 billion to $11 billion. The company is now guiding for free cash flow of $6.5 billion to $7 billion, from $6 billion.

But reality has sunk in about the company’s comments regarding its EV production schedule and spending plans. Price cuts in the industry, led by Elon Musk and Tesla, have thrown Ford’s production targets into a tailspin and Morgan Stanley noted on Friday morning that “major changes to the EV strategy” could be necessary, according to a wrap up by Bloomberg.

Ford now says it is “throttling back” on plans to ramp up EV production, the wrap up said. It blamed the price war for EVs as part of the cause and told shareholders it would need another year to meet its target of 600,000 EVs produced annually.

Ford CEO Jim Farley said late last week: “The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us. Ford+ is making us more resilient, efficient and profitable, which you can see in Ford Pro’s breakout second-quarter revenue improvement (22%) and EBIT margin (15%).”

CFO John Lawler said yesterday that the company “has ample resources to simultaneously fund disciplined investment in growth and return capital to shareholders – for the latter, targeting 40% to 50% of adjusted free cash flow,” Bloomberg added. He now says Ford is “not providing a date” for producing 2 million EVs per year, which was previously the company’s target for 2026.

Ford’s inability to compete with Tesla was noted earlier this year in a piece titled Tesla ‘Weaponizes’ Price-Cuts To Crush EV Competition.

Is the company pulling an Intel and “kitchen sinking” its guide for the year, or has Elon Musk’s price cuts over at Tesla really put the legacy automaker on the ropes? Ford reports again on October 26, where we’ll get our next glimpse into its continuing operations this year.

Tesla is down -26% since January 14, 2022. And showing a nice turnaround!

Today, the 10-year Treasury yield is up 11 basis points.

Government Gone Wild!

Gov Gone Wild! Wild Federal Spending, Massive Deficits And Soaring Interest Payments On Debt Requires More Fed Intervention (Bidenomics At Work!)

The US Fiscal position is very bad and the US is beginning to look like a third world economy. And with Biden and Democrat AGs filing indictments against Biden primary Presidential oppoonent, that country is Venezeula! Like skyrocketing interest on the Federal debt to pay for green energy hustlers and the Ukraine war.

The US Federal Deficit continues to grow as seen in the charts below. A $2.25 Trillion dollar run rate deficit is significantly worse than the $1.3 Trillion that was recorded in Fiscal 2022. This level of deficit is unprecedented in an economy with low unemployment and theoretically no recession. Naturally, we ask just how big the deficit will be if we have either a recession or a crisis? In the dotcom bust, the GFC and the COVID shock, the deficit expanded massively.

Taking Garic’s math one step further, the US incurred a deficit of $1.3T in Fiscal 2022 (September). If the current run rate is sustained that would imply an annualized deficit of $2.9 Trillion.

Of course, one big driver of this deficit is the interest cost incurred by the Government itself. It is rapidly approaching a $1 Trillion dollar run rate which means the Government is spending more in interest than on national defense. As you can see in the schedule below, the Fed’s rate hiking campaign has been very expensive for the US Government since a large portion of the federal debt is in shorter maturities which currently pay ~ 5.3% in interest. As recently as September of 2021, many of these same securities had much lower interest cost – as low as only 10-30 basis points.

Looking at the chart above, we wonder: is there anything about this that looks remotely sustainable? We are at that point in the movie where raising interest rates to fight inflation actually makes things (including inflation) worse. Worse because deficits swell and will need to be monetized.

Furthermore, the issue is acute because the US Government uses the short-term bond market to Fund most of its debt. As the chart below from Gavekal Research/Macrobond shows, the Government needs to roll over $6 Trillion of maturing notes in 2023 and $3 Trillion of notes in 2024. This does not take into account any of the roughly $1.2 Trillion of bonds and notes that will be sold into the market by the Fed if Quantitative Tightening continues. Nor does it account for the ever increasing US Federal Deficit which will easily exceed $2.2 Trillion this year.

In short, the US Government has some serious funding challenges particularly when we consider that foreigners have been net sellers of our bonds since 2014.

IT’S THE DEBT, STUPID

On January 19, 2023 the US Federal Government hit its debt ceiling of $31.4 Trillion. Extraordinary spending measures kicked in which allowed the Government to keep operating. This lasted until June when Treasury Secretary Yellen informed Congress that a debt default was imminent if the ceiling was not raised.

After the usual political posturing, Congress did two things: (i) they agreed to place a two year cap on spending increases for a small portion of the budget that amounted to only 7% of the total budget. (like placing a band aid on a gaping wound); and (ii) they agreed to suspend the debt limit and to not replace it with another figure until January of 2025. We do not think they have ever.

Put it differently, let’s call this “Government Gone Wild!”

Bidenomics! Biden Blames USA Downgrade On Trump (But Economy Added 12.53 Million Jobs After Covid Shutdowns Ended Under Trump While It Took 2 1/2 Years For Bidenomics To Add 12.56 Million Jobs)

Bidenomics is where the Attorney General Garland gives Hunter Biden blanket amnesty and arrests Biden’s Presidential opponent. Welcome to the United Venezuelan States of America!e

The new regime talking points are out – namely that Fitch downgraded the US credit rating from AAA to AA+ on Tuesday because of MAGA Republicans and all things Trump.

But while Fitch cited “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers” as reasons for the downgrade, the Biden administration is of course blaming Donald Trump and his supporters due to one portion of Fitch’s explanation: “a steady deterioration in standards of governance over the last 20 years,” and that “repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”

Then on Wednesday, Fitch’s Richard Francis told Reuters that the downgrade was ‘due to fiscal concerns and a deterioration in U.S governance as well as polarization which was reflected in part by the Jan. 6 insurrection.’

“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” he said, adding “You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties … the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically.”

And so of course, the Biden administration is blaming Trump.

“This Trump downgrade is a direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness that Americans continue to reject,” said Biden re-election campaign spokesman Kevin Munoz. “Donald Trump oversaw the loss of millions of American jobs, and ballooned the deficit with the disastrous tax cuts for the wealthy and big corporations.”

Ah, so now it’s the Trump downgrade™

Meanwhile, White House spox Karine Jean-Pierre also blamed Trump on Tuesday, saying that the White House “strongly” disagrees with the decision, adding “it’s clear that extremism by Republican officials — from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations — is a continued threat to our economy.”

Former Clinton Treasury Secretary Larry Summers called the decision “bizarre and inept,” while former Obama economic advisor Jason Furman called the move “completely absurd.”

On Wednesday, CNBC wheeled out Jared Bernstein, chair of Biden’s Council of Economic Advisers and former Obama official, who similarly blamed Trump.

“I think again the timing issue is is Jermaine here. The deficit went up every year under President Trump. The debt to GDP ratio rocketed under President trump. It has stabilized admittedly at a higher level under this president but we’re doing all we can to try to ameliorate those tensions,” he said.

Bernstein reflected on the “cognitive dissonance” he felt at the downgrade amid the success of ‘Bidenomics’ commenting that “creditworthiness deteriorated significantly under President Trump for good reasons… and under President Biden, it started to track back up…”

Except that’s the exact opposite of what happened. According to the 100% non-partisan “market”, the creditworthiness of US Treasury debt improved almost constantly under President Trump and worsened dramatically almost immediately upon President Biden’s inauguration:

Treasury Secretary Janet Yellen said that the downgrade was “arbitrary and based on outdated data,” adding “Today, the unemployment rate is near historic lows, inflation has come down significantly since last summer, and last week’s GDP report shows that the U.S. economy continues to grow.”

CNN also blamed Trump, penning the headline: Fitch downgrades US debt on debt ceiling drama and Jan. 6 insurrection.”

The stupidity on CNN and Jared Bernstein are appalling. True, the media and Biden Administration are terrified of losing the 2024 Presidential election, but outright lies and misrepresenation are wrong no matter what.

But the claims that the US was downgraded because Trump’s economy lost miilions of jobs is ridiculous.

Actually, the US economy added 12.53 million jobs after April 2020 (Trump) while Bidenomics created took 2 1/2 years to add 12.56 million jobs. So, Biden took over twice as long to create jobs after Covid than it did under Trump. Simply opening the economy and schools produced that magical claim by Biden. And the National Teacher’s Union and Randi Weingarten worked with Fauci to orchestrate shutting down schools. Blaming Trump for local governments shutting down the economy is pure bunk.

Bidenomics and massive Federal spending is the cause for the downgrade. Not Trump.