Category: Debt Crisis

MLLG

Debt Ceiling Legerdemain

George Noga

Debt ceiling drama was nothing but maskirovka

GEORGE NOGA – JUN 4, 2023

The debt limit negotiations were all sound and fury signifying nothing. The ending of this melodrama was known for a long time. The media, with hyperbole and hysteria, breathlessly flogged a possible default to sluice up their ratings; but there never was any real risk of default. The worst that could have happened was a brief technical default on interest payments – and even that was extremely farfetched.

white concrete dome museum
Photo by Louis Velazquez on Unsplash

There never would be default on any principal for the obvious reason that new debt could be issued in the same amount as the maturing debt without exceeding the debt limit. Insofar as interest is concerned, the federal fisc has over $400B coming in each month whereas interest on the debt usually is around $65B. The US could pay interest on the debt and still have $335B left over. The Treasury also could pay Social Security of $1 trillion per month and have $235B remaining for other expenses.

The ending was precisely as I wrote in my April 23, 2023 post entitled “Debt Limit Kabuki”. It is available on my website: www.mllg.us and on Substack.

“In the end, everyone gets what they want. The debt ceiling is suspended and phony spending cuts are touted. Americans are beguiled into believing we are on a sounder fiscal trajectory. Everyone claims victory and government goes back to business as usual.”

The so-called spending cuts are nothing but smoke, mirrors and prestidigitation. Of the claimed $2 trillion in cuts over 10 years, none are real. Real cuts in current spending are strictly symbolic; they are infinitesimal and inconsequential. All the phantom cuts are based on future arbitrary spending baselines. Moreover, the ersatz cuts apply only to discretionary non-defense spending (DNDS), which is less than 14% of federal spending; the other 86% continues to increase at a high rate.

Trajectory of the deficit is unchanged

Federal spending next FY will increase $500B or 8% even if DNDS is frozen. That’s because entitlements and mandatory spending will increase at least 5% and interest on the debt will skyrocket by $300B or 60% to over $800B. The deficit will remain at $1.5T and likely will increase to $2.0T – and that assumes no recession. This means the deficit will increase y $3T to $4T over the next two years subject to the so-called spending cuts. Some cuts! Freezing the DNDS reduces the putative FY23 deficit only from what was projected – and that is not a real cut, but legerdemain.

As noted, interest on the debt increases $300B next year alone due to sharply higher interest rates and the issuance of new debt at current interest rates to replace maturing debt carrying much lower interest rates. There is $6 trillion of treasury debt maturing soon and it will cost $200B more in annual interest to replace. The other $100B comes from new debt. Because there is $31T of total debt, this same calculus of $200B increases in interest costs will repeat each of the next few years. Within one year, interest on the debt will exceed spending on defense, medicare and DNDS – i.e. running the government. Soon interest alone will top $1T per year.

The skunk at the garden party

About the only favorable thing that can be said about the debt ceiling deal is that it is (barely) better than nothing. Anyone who looks at the numbers in this post will see there is no escape. The only way to change the trajectory of the deficits is to make immediate, large and real spending cuts and to sustain them for a decade or more.

As is apparent from the debt limit kabuki, that is politically impossible – actually, it’s worse than impossible; it’s politically radioactive. The necessary cuts will be made only in the midst of an economic meltdown when Americans are in such a panic they will go along with anything that offers them a glimmer of hope.

Simply to freeze the debt ratio at its present level of around 100% would require an immediate cut of $900B, or over 20% per year across the board – including Social Security, Medicare, Medicaid and mandatory spending (pensions). And that does not solve the problem; it just keeps it from getting worse.

At the risk of being the skunk at the garden party, the debt ceiling deal is cause for dread – not congratulations. America has passed the point of no return and the beginning of the Great Debt Crisis is only a matter of time. It is Checkmate!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Debt Limit Kabuki

George Noga

The ending is preordained

Debt Limit Kabuki

GEORGE NOGA – APR 23, 2023

The spending crisis is one of my signature issues; the current hot button is the debt limit. Republicans want to use the debt limit as a wedge to reduce spending, while Democrats want a straight up or down vote on raising the debt ceiling. But don’t be fooled by all the hullabaloo and hyperbole that will play out between now and summer. It is a kabuki, i.e. a stylized ritual mixing drama with tradition.

To be sure, there will be drama. Will the GOP be able to hold its caucus together, given its razor-thin margin, when they are being demonized daily by Democrats and their media sycophants? Will their resolve hold when they are being accused – as they surely will be – of shredding Social Security and Medicare, starving school children and throwing granny over a cliff? What will the Dems offer in the way of greater fiscal responsibility? Will government services be cut – if so, which ones? Will the government default on the debt? Finally, what will the final deal look like?

But, like any good kabuki, all the players already know their parts and the ending is preordained. Following is how the kabuki is scripted.

  • House Republicans stay united until things get really dicey. As vital government services are cut and Dems run vicious attack ads in the districts of vulnerable Republicans, GOP moderates pressure Speaker McCarthy to make a deal.
  • Biden will cut government services that most directly affect citizens with the aim of making their lives as uncomfortable as possible. He will close national parks during the peak summer vacation season. He will cut the FAA, reducing air travel to a trickle. He maliciously will grind the economy to a halt.
  • Biden will go to Defcon-1 to threaten default on the debt and all that augers; but there will be no actual default. Section Four of the Fourteenth Amendment to the Constitution prevents the government from defaulting on principal or interest. Hence, default is a bridge too far – even for the Biden Administration.
  • In the end, both sides get what they want; the debt ceiling is raised and phantom spending cuts are made. Americans are beguiled into believing something meaningful happened and that America is on a sounder fiscal trajectory. Everyone involved claims victory and government returns to business as usual.

The final deal will include some putative spending reductions that amount to much less than meets the eye. The phantom savings will consist of:

  1. Funds already appropriated but not yet spent. These funds would not have been spent anyway, and this so-called reduction is completely illusory.
  2. Savings in the out years of the 10-year budget window. These back-end loaded cuts are legerdemain and can (will) be reinstated in future years.
  3. Faux reductions based on inflated future projected increases. For example, if spending was projected to increase 8%, they cut it to 5% and claim a huge cut.
  4. Various accounting artifices, gimmicks and one-time adjustments.
  5. Tax increases (mainly symbolic) to assuage Dems so that they can claim victory. However, there is a good chance the tax increases will never materialize.
  6. Real and immediate spending cuts, if any, are small and insignificant.

What Will Be the Effect on America’s Fiscal Trajectory?

The debt limit kabuki will be nothing but fiscal maskirovka and prestidigitation. There will be much sound and fury; but, in the end, America’s fiscal trajectory will change only imperceptibly. Cuts to entitlements, defense and interest on the debt all are off the table. That leaves only about $900 billion, or 15%, of non-defense discretionary spending. Even if Congress could cut 10%, that would be only $90 billion per year – a tiny ripple in America’s fiscal pond. If spending returns to its pre-pandemic level (GOP position), the deficit trajectory also would be unchanged. You will know Congress is serious only when it tackles entitlements.

Remember, as the high theater of the debt limit kabuki plays out to its preordained conclusion over the next several months, you already know the ending!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

Continuing Coverage of the Spending Crisis . . . Debt Ratio Above 100% – Attains Critical Mass

George Noga

The debt ratio will be 175% by the time of the US semiquincentennial in 2026

Continuing Coverage of the Spending Crisis . . .

Debt Ratio Above 100% – Attains Critical Mass

By: George Noga – February 7, 2021

The two issues we have written about for the longest time and also the most frequently are manmade climate change and the spending crisis. Ironically, the issue that is real (spending) and is certain to result in disaster is not taken seriously by progressives and the media. Concomitantly, these same groups regard the issue that is phony (climate) as an existential threat to humanity. They have it completely bass ackward.

We last wrote about the spending crisis on May 3, 10 and 17, 2020 and in a four-part series beginning April 8, 2019. These are available on our website (www.mllg.us). Our headline uses the term critical mass in its scientific sense. There is now enough fuel (debt) to trigger a chain reaction which becomes self-sustaining. That is illustrated by the numbers shown on the lines below. But instead of trying to slow the chain reaction, politicians (with full-throated media support) are adding more and more fuel.

The debt ratio is 101%; it will hit 175% by 2026 and 250% by 2031.

The crisis explodes long before we hit 500% in 2038 or 1,000% in 2044.

We updated the numbers based on all data extant. The public debt to GDP ratio is now 101%. The ratio will hit 175% in 2026 and 250% in 2031 on its way to 500%, 1,000% and oblivion. Before 2040, annual interest on the debt will exceed GDP; the timing depends on interest rates. Our forecasts, on which the above ratios are based, have proven far more accurate than those made by government or private economists.

The debt ratios speak for themselves and don’t require sophisticated economic analysis to understand. The Titanic has hit the iceberg and there is no way to unhit it. The key question now is how much time remains until Titanic sinks. No reasonable person can look at the data and conclude there are more than five or ten years left.

Progressives tout Modern Monetary Theory as a panacea. Our 5/3/20 post, devoted entirely to MMT, provides a primer. MMT explains certain economic phenomena better than mainstream economics. Proponents of MMT assert governments can borrow more, much more, in the short term than previously thought possible without raising interest rates; however, no economists assert the borrowing can be unlimited.

Following are some of our conclusions about which we are highly confident.

– Debt crisis is moral, not economic: As a nation we chose the easy path to avoid making difficult decisions and to seek social peace with massive borrowing.

– Crisis arrives within 10 years: It is impossible to discern any viable path forward with a ratio of 250% in 2031 and heading, via self-sustaining chain reaction, for 1,000%. However, the crisis could materialize sooner – much sooner – than ten years.

– MMT buys time: MMT permits more borrowing than previously thought possible but the amounts are limited. MMT can defer the day of reckoning, but can’t prevent it.

– Crisis hits suddenly: There will be no time to react. One morning everything will seem fairly normal but by the end of the day no one will buy US government debt.

– Government will print money: Initially, government will create monopoly money. Interest rates likely will soar and inflation will take off. Pension assets are at risk.

– No end until excess debt is purged: Once begun, the crisis will persist until all excess debt is purged. This will require one generation (lost generation) and America will be a far different and much poorer country when the crisis finally abates.

Americans know better; but we chose – and continue to choose – to believe progressive politicians and talking heads who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised social peace by avoiding confrontations inherent in making difficult choices. How is that working out for America?

Next on February 14th – The implosion of the population bomb.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

The Spending Crisis: Monopoly Money

George Noga

Americans are not accustomed to thinking about currency risk; this needs to change.

 

The Spending Crisis: Monopoly Money

By: George Noga – May 17, 2020

       My last post on May 10, 2020 established new all-time MLLG records for forwards and reader feedback. If you missed it, go to www.mllg.us to understand what all the hullabaloo is about. It was one of the most consequential posts in my 13 years of blogging – until this post. This post may be even more consequential!

           I now can see clearly how the spending crisis plays out and, as a corollary, how better to prepare for it. Due to an unforeseen confluence of events, the end game came into focus. More time at home due to coronavirus restrictions allowed for discernment. Second, mountains of new pandemic-related debt made the crisis imminent. Third, as shown in my May 10th post, we have passed the point-of-no-return and are nearing critical mass. Fourth, I read excerpts from a new, unpublished book by Ray Dalio, arguably the most astute investor of our era, that crystallized my thinking.

Possible Government Responses to the Spending Crisis

         There are five main ways government can respond to the crisis: (1) cut spending; (2) raise taxes; (3) default and/or restructure; (4) seize pension assets; and (5) print money. The first two options clearly are untenable. Spending cuts would need to be so deep and tax increases so huge the social cost would be unacceptable. Moreover, such actions would need to be sustained for decades – an impossibility. Default would be too painful as the defaulted debt represents someone’s assets. Seizure of pension assets (by converting them into government pensions) would be a hard sell. That leaves option five – print monopoly money. BINGO!  (See our 5/12/19 post for more on this.)

        Government will print money because it is expedient, poorly understood by most people and results in the least (apparent) pain. Printing money and inflating (basically the same thing) historically has been the go-to choice for governments with their backs against the wall. It is likely there also will be token spending cuts, tax increases and other actions, but they will be more symbolic than consequential. Congresswoman Rashida Tlaib’s proposal to issue trillion dollar coins may not be that far fetched.

        A few words about timing. The analysis in my May 10th post shows the debt ratio at 169% in 2025 and 264% in 2030. That makes the onset of the crisis no more than 5 to 10 years away – perhaps less. Ray Dalio has stated the US is in the seventh inning of its debt crisis – that means he believes we are 78% of the way to Gotterdammerung!

Preparing for the Crisis – Protecting Your Family and Your Assets

         Readers always ask what measures can be taken to prepare for the crisis and I am frequently asked what I am doing to prepare for the inevitable. At this juncture, I am taking the most obvious, commonsensical and lowest-risk actions described below. Note: My posts of 10/14/18 and 10/21/18 (on website) discuss these issues in depth.

1. Firearms: Although I strongly support the second amendment, I do not presently own firearms. The debt crisis will be accompanied by a high probability of civil unrest, breakdowns of law and order, interruptions of public services and financial chaos. Therefore, I am reevaluating and likely will acquire guns and ammo.

2. Gold: I will begin investing in gold, precious metals and hard assets. Initially, this will be 5% of my portfolio – perhaps increasing to 10% over time. It also is wise to keep a supply of small denomination gold and silver coins at home for use in a crisis.

3. Currency: Americans are not accustomed to thinking about currency risk. This needs to change. Per Ray Dalio, Americans need to think about currencies in the same way they think about holding any other asset. I am diversifying my currency risk with a foreign bank account denominated in a foreign currency and by buying bond funds that focus on highly rated bonds in currencies of countries with low debt ratios.

4. TIPS/Long Bonds: The hardest hit asset when the monopoly money starts flying off the printing presses will be long-dated bonds. I am divesting such assets. I also will take a position (5% to begin – more later) in TIPS to protect against hyperinflation.

       The above measures are only initial responses; there will be more to come. It  appears my analysis and writing about the spending crisis soon will be validated. I derive no pleasure whatsoever from this and wish I was wrong. I do take some small consolation however, if I am able to help readers better prepare for the inevitable.

Next Sunday: A memorable posting about school choice and the LGBTQ issue.
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

The Spending Crisis: Reductio ad Absurdum

George Noga

Given current trends, the annual interest on our debt will exceed GDP; let that marinate!

The Spending Crisis: Reductio ad Absurdum

By: George Noga – May 10, 2020

OF THE 600 POSTS I HAVE AUTHORED DURING THE PAST 13 YEARS, NONE IS MORE CONSEQUENTIAL THAN THIS ONE! Usually I limit posts to 600-700 words but did not wish to break this one into two parts; hence, it is twice the normal length. I used my time at home due to coronavirus restrictions to research and to prepare an expanded, fresh and gripping analysis of the spending crisis.

       For the first time, I employ an apagogical argument that proves a contention by deriving an absurdity from its denial. Specifically, reductio ad absurdum disproves an argument by following its implications to an absurd conclusion. The fallacy lies in the argument that can be reduced to absurdity; reductio ad absurdum merely exposes the fallacy, in this case that the US can continue spending and borrowing.

       What makes this analysis so different and riveting? (1) I have taken a much deeper dive into the data; (2) Assumptions about the composition of the debt are changed; (3) Realistic assumptions are used instead of optimistic ones; (4) More recent data are available; (5) The reduction to absurdity argument is adduced; and (6) It explains why, at its beating heart, the spending crisis is moral rather than economic.

Assumptions About GDP

       GDP for 2019 was 21.4T (trillion); for 2020 I used the latest Goldman Sachs forecast – a 6.3% reduction from 2019. For the first time, I assume mild recessions (4% contractions) once a decade in 2026-27, 2036-37 and 2044-45. Other than recession years, I assume GDP grows at 2%, in line with the past decade, and then slowing to 1.5% in later years. These are middle-of-the-road, Goldilocks assumptions.

Assumptions About Debt

      Public debt at year-end 2019 was $17.2T. To that I add coronavirus spending Phases I, II and III of $2.3T (total) and my Phase IV (infrastructure, etc.) estimate of another $2.0T. I also must add the 2020 structural deficit of $1.0T and the additional operational deficit due to coronavirus of $0.8T. This results in a public debt of $23.8T at year-end 2020. For future years, I assume the debt grows at a rate in line with the trend of recent years – with appropriate adjustments for recession years.

“Before long, public debt and total debt will be one and the same.”
Public Debt Versus Total Debt

         Here I make a notable departure from the past. Previously I have counted only the public portion of the debt, which is $7T less than the total debt. The difference consists of intragovernmental debt owed to Social Security, FHA and other agencies. Before now I excluded such debt because it is non-marketable, accrues (but does not pay) interest and is notional in nature. Before long however, the government must begin issuing public debt to fund the intragovernmental debt for, inter alia, paying future Social Security benefits. Therefore, I now assume that intragovernmental debt of $1.0T is converted to public debt each year from 2021 through 2027. Thus, public debt and total debt will be one and the same by the end of 2027.

Government Sponsored Enterprises (“GSEs”)

        Fannie Mae (FNMA), Freddie Mac (FHLMC) and a few other GSEs are owned by the federal government. In a rational universe, they would be consolidated into the accounts of the federal government. Although the feds are not legally liable for the debts of Fannie and Freddie, there is an industrial-strength implicit guarantee based on precedent. Fannie and Freddie guarantee $7T of debt; in a crisis they would need trillions in bailouts. For this analysis, I have not included any debt for GSEs.

Unfunded Liabilities and Obligations

       The Treasury Department estimates federal unfunded liabilities are $122T; this means the government has made promises to pay that amount without providing any funding. Over time, these obligations come due and must be financed with – you guessed it – more debt. I have not counted any of this $122T in this analysis. I once studied unfunded liabilities and concluded that a more realistic estimate is double the Treasury number, or one-quarter of a quadrillion dollars. In even more cheery news, state and local governments have another $10T in unfunded pension liabilities.

Reduction To Absurdity

        Based on the assumptions described supra, following are the Debt/GDP ratios for select years. The GDP and debt are in trillions of dollars. Data for 2019 are actual.

Year             GDP              Debt             Ratio
2019             21.4               17.2                80%
2020             20.1               23.8              119%
2025             22.2               37.5              169%
2030             22.6               59.7              264%
2040             24.4             161.2              659%
2050             26.4             588.4           2,226%

       In five years the ratio is projected to be 169%; within a decade it is 264%. In twenty years the ratio skyrockets to an absurd 659%, while in 2050 it is a preposterous 2,226%. The US has passed the point-of no-return. The Titanic has hit the iceberg and there is no way to unhit it; now it is but a matter of time until the inevitable happens. Because of the humongous coronavirus spending, the advent of the crisis has been advanced by five to ten years – all in just the past few months.

       By reducing to absurdity the future spending and debt, this analysis proves it is impossible to sustain our spending and borrowing for much longer. It is risible that the US can have a ratio of 2,226%, or even 659%. Moreover, the 2030 ratio of 264% is tinctured with absurdity; even the 2025 ratio of 169% is problematic. Even with a powerful tailwind from MMT, it seems like we have fewer than 10 years left.

        While trafficking in the absurd, let’s peek at interest on the debt. At the current US composite rate on its debt (2.5%), annual interest on the debt will reach $1 trillion circa 2026 – in just over five years. If the interest rate to service our debt increases to 4.5% (a low number historically) interest payments would exceed GDP by 2050. Let that metric percolate for a while; our annual interest on the debt would exceed GDP!

“We always chose the easy path. As a nation, we failed morally.”

        It is impossible to look at the data and analysis presented herein and to imagine we have more than five or ten years left before the spending crisis reaches critical mass and discombobulates our lives for the next 20-25 years, i.e. a lost generation. It will be worse than the dot-com bubble, the great financial crisis and coronavirus combined. Great and sustained sacrifice will be required until all the excess debt is purged. The gargantuan spending cuts necessary (20% to 30%) will rend the social fabric of our nation; we will be lucky to avoid anarchy and to maintain the rule of law.

The Moral Root of the Crisis

        Ever since I began writing about the spending crisis, I have posited that, at bottom, it is a moral crisis, not an economic one. Historically, the US has borrowed heavily only to finance wars. Our national debt in 1980 was less than $1 trillion and our debt ratio was under 30%. Inexplicably, that’s when we began our debt binge.

       We gave some segments of the population huge tax cuts to beguile them into accepting massive spending on other segments of the population. We spent vast sums on certain cohorts of Americans to bewitch them into tolerating the tax cuts on other cohorts of Americans. We have repeated this pattern up to the present in a futile  attempt to avoid tough choices and to buy social peace via massive borrowing.

         The decades of the 1980s and 1990s were prosperous. There were no major wars, natural disasters, pandemics or financial meltdowns. The baby boom generation constituted 38% of the population and was in its peak productive years. There were few retirees and Social Security and Medicare generated massive fiscal surpluses. The Berlin Wall fell and the USSR collapsed, unleashing an enormous peace dividend.

         The period since 1980 should have been the easiest time in American history to balance the budget; instead, we kept borrowing feverishly and never stopped. We danced while the band played on. We must plumb the depths of our souls to understand why we became so addled and addicted to spending and borrowing. For whatever reasons, we always chose the easy path and, as a nation, we failed morally.

       We believed politicians who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised abundance for all by robbing Peter (our children and grandchildren) to pay Paul. They promised social peace by avoiding the confrontations inherent in making choices. They promised no man must ever pay for his sins. But even in this brave new world, water will wet us and fire will burn, and the Gods of the Copybook Headings, with terror and slaughter, will return!

The final paragraph uses snippets from Kipling’s, The Gods of the Copybook Headings.
Next on May 17th, we blog about school choice and the LGBTQ issue.  
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Modern Monetary Theory and Coronavirus

George Noga

MMT likely will influence the amount the US can spend and borrow before crisis begins.

Modern Monetary Theory and Coronavirus
By: George Noga – May 3, 2020

          We have long planned a post about Modern Monetary Theory (“MMT”) as part of our intermittent series analyzing the issues in the 2020 election. The coronavirus epidemic has added a palpable sense of urgency to plumbing the depths of MMT because the untold trillions in new money being created by the government in response to Covid-19 will provide an acid test of MMT much sooner than contemplated. This post focuses on explaining and analyzing MMT – a daunting task even for us.

Our next post May 10th is among the most consequential of the 600 posts we have written over the past 13 years! It presents an up-to-the-minute projection of the US Debt-to-GDP ratio incorporating the multi-year impact of the mammoth new debt and deficits that result from the effects of coronavirus. The analysis in the May 10th post is new and different than anything we previously have written about the spending crisis. This truly is a blockbuster and one you definitely don’t want to miss.

Just What is Modern Monetary Theory?

        First off, MMT is not so modern; the accepted origin is a book “Soft Currency Economics” by economist Warren Mosler published in 1993. However, as with most economic theories, its underpinnings can be traced back for centuries.

         The main tenet of MMT is that any government that issues its own fiat currency can create and spend unlimited amounts without the need to finance it via either tax revenue or debt instruments. Such a government can never be forced to default on debt denominated in its own currency. Further, any such monetization does not compete with the private sector or cause higher interest rates. The only problem acknowledged by MMT proponents is that inflation can get out of hand under some conditions.

        In layman’s terms, MMT asserts that the USA has much more leeway to spend money than previously thought; it can’t ever go broke; and the debt to GDP ratio is immaterial – provided inflation is managed. Progressives like Sanders, Warren and AOC believe MMT is the Holy Grail of economics which can be used to finance the green new deal and the rest of the progressive wish list – all at once. Beware however, MMT makes for strange bedfellows and it also has many conservative adherents.

Is MMT Valid and Does It Work?

        The strongest case against MMT is millennia of human experience. From Rome to today, many countries with their own fiat currency have defaulted or suffered other terrible economic fates, MMT notwithstanding; the lengthy list includes, inter alia,  Weimar Germany, Argentina and Zimbabwe. Logically, MMT defies understanding; how can we create and spend money ad infinitum without adverse consequences? If MMT works, why doesn’t every country use it? It appears to be pie-in-the-sky or like finding a unicorn at the end of a rainbow. Many top economists and businessmen including Bill Gates, Jerome Powell and Warren Buffet believe MMT is claptrap.

      To its credit, MMT explains certain economic phenomena better than classical economics. The USA and Japan among others have seen budget deficits skyrocket and bond markets respond in accord with MMT; yields on government bonds decreased despite sluiced up supply and trillions of dollars of quantitative easing. Massive government borrowing has not crowded out corporate debt or raised interest rates. Simply, some markets are acting in ways that can best (only) be explained by MMT. The chief economists for Goldman Sachs, Pimco and Nomura believe MMT is valid. The top investor of our era, Ray Dalio, attributes much of his success to MMT.

         So, how can such diametrically conflicting theories, logic and data be reconciled? Economic principles that have stood for millennia are not going to be replaced by MMT nor will countries be able to borrow unlimited amounts. Nonetheless, thanks to MMT nations may be able to borrow more – much more – than previously thought possible. Moreover, the recent behavior of bond markets and interest rates can’t be reconciled with other economic theories. MMT provides much better explanations for what is happening. In short, MMT works in certain areas where other theories don’t.

         Although MMT may permit more borrowing, this is a double-edged sword. The increased debt will make the resultant crisis deeper and longer. Another disastrous result of MMT is that it vastly diminishes the power of markets and central banks to allocate money and credit and to control the money supply and interest rates. To a corresponding degree, MMT increases the power of politicians. Progressive politicians could use such power to control the entire economy and spend the USA into oblivion.

DO NOT MISS OUR NEXT POST ON MAY 10TH; IT IS A BLOCKBUSTER!
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Uncle Sam is Coming for Your IRA

George Noga
“I rob banks because that’s where the money is.”  (Willy Sutton)
Uncle Sam is Coming for Your IRA
By: George Noga – November 17, 2019

        Our headline is incomplete. Uncle Sam is not coming just for your IRA; he is coming for your 401(k), 403(b) and corporate and government pension. In short, he is coming for all your retirement assets. The government is coming for your pension for precisely the same reason Willy Sutton robbed banks – because that’s where the money is. It already has begun with the imminent passage of the Secure Act.

      The “Setting Every Community Up for Retirement Enhancement” Act, known euphemistically by its acronym, the Secure Act, passed the House of Representatives 417-3 in May. It is expected to pass the Senate with widespread support although a few senators are holding it up for various reasons. The Secure Act is a poster child for two MLLG principles. The title of a law is inversely related to its effect and the more euphonic the name, the greater the harm. Second, any law that has near unanimous support is, ipso facto, bad for the nation – if both parties like it, we’re screwed.

Politicians and IRAs are analogous to grave robbers and King Tut’s tomb

         The Secure Act destroys decades of meticulous planning by millions of middle class Americans by eliminating the stretch IRA – that allows savers to leave their IRAs to children and grandchildren and to stretch distributions over their lifetimes. This taxpocalypse gobbles up 35% of inherited IRAs without Congress having to vote for a tax increase; it upends college planning; and, it creates an estate planning cataclysm. Although the Secure Act targets IRAs, it also ensnares Roth IRAs, 401(k)s and the entire panoply of retirement assets which can be rolled into IRA accounts.

The Secure Act is only the beginning; it gets worse – much worse

        Among the Secure Act’s occult provisions is a mandate that annuities be offered as a payout option on all retirement accounts. This is the camel’s nose under the tent and could lead to mandatory annuitization of all retirement accounts. That would force distributions into higher brackets, accelerate taxable distributions and eliminate all inherited IRAs – not just the stretch ones. Best of all for politicians, they could accomplish this without voting for a tax increase. But wait; it gets even worse.

        The spending crisis will reach critical mass – likely in the coming decade. Please see our four-part series on the US spending crisis that ran from April 28 to May 19, 2019; it is on our website: www.mllg.us.  US public debt will approach $40 trillion by the end of the coming decade. By a calamitous coincidence, US retirement assets also will approach $40 trillion in exactly the same time frame. BINGO!

         When the debt crisis is tearing America asunder and there is a pool of money that would pay off the entire debt, is there any sentient person who believes the ineluctable won’t happen? The government, either piecemeal or in one fell swoop, will seize all your retirement assets and convert them into government pensions to be paid in fiat currency. Think this is farfetched? In recent years, Poland, Hungary, Bulgaria, Ireland and France have, through one artifice or another, seized money from pension assets.

        It’s so obvious Willie Sutton and King Tut’s grave robbers understood it. Uncle Sam must go where the money is and that is your retirement assets. The Secure Act is but the first step in what will be a long train of usurpations of your retirement assets.

Next up on November 24th is our special Thanksgiving posting.
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More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us