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The Debt Ceiling Deadline Has Passed, And Now The Biggest Test Of Donald Trump’s Presidency Begins…

Trump First Weekly Address - Public DomainOn Wednesday, the temporary suspension of the debt ceiling ended, and so now the federal government is not going to be able to go into any more debt until the debt ceiling is raised.  For the moment, the Trump administration can implement “emergency measures” to stay under the debt limit, but it won’t be too long before we get to a major crisis point because the federal government is quickly running out of cash.  Already, the U.S. Treasury has less cash on hand than Apple or Google, and that cash balance is going to keep on dropping until the debt ceiling is finally lifted.

You may remember that the debt ceiling became a major issue a couple of times during the Obama years.  Last time around, Barack Obama and the Republicans in Congress agreed to a horrendous deal which suspended the debt ceiling until several months after the 2016 election

Since President Barack Obama signed the “Bipartisan Budget Act” on Nov. 2, 2015 there had been no legal limit on the amount of money the federal government could borrow until now. That law included a section entitled “Temporary Extension of Public Debt Limit.” It said that the law imposing a limit on the federal debt “shall not apply for the period beginning on the date of the enactment of this Act and ending on March 15, 2017.”

During the 16 and a half months between the signing of that deal and today, the U.S. national debt rose by a whopping $1,414,397,000,000.

But now the U.S. national debt will not be allowed to rise by another penny until the debt ceiling is raised or suspended once again.

The Trump administration is pushing hard to get the debt ceiling raised, and this is a complete reversal from how Donald Trump felt about the debt ceiling back in 2013.  The following comes from the L.A. Times

Trump sided with hard-liners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.

Trump was actually right about the debt ceiling in 2013, and he is wrong now.

We simply cannot afford to keep adding trillions of dollars to the national debt.  What we are doing to future generations of Americans is beyond criminal, because we are literally destroying their future just so that we can enjoy an inflated standard of living that we do not deserve today.

Treasury Secretary Steven Mnuchin has already begun to implement “extraordinary measures” to keep us under the debt ceiling.  The first step that was taken was the suspension of the sale of SLGS securities

“Today,” Mnuchin wrote, “Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities. SLGS are special-purpose Treasury securities issued to states and municipalities to assist them in conforming to certain tax rules. These securities count against the debt limit. The suspension of SLGS sales will commence on March 15, 2017, and continue until the debt limit is either raised or suspended. As in the past, it is likely Treasury will utilize additional extraordinary measures.”

The federal government will be able to keep going for a little while by implementing such “extraordinary measures”, but the Treasury cash balance is going to continue to dwindle and at some point a major squeeze is going to happen.

As things get tighter and tighter, the Trump administration will become increasingly desperate to get the debt ceiling raised.  As I wrote about yesterday, the key for Trump is going to be finding 218 votes in the House of Representatives that will be willing to go along with him.

You would think that since Republicans control the House that this should be easy, but the truth is that there are a lot of conservative Republicans that are not inclined to agree to a debt ceiling increase without substantial accompanying budget cuts.

The proposed budget that Trump released this week is getting a lot of criticism from the left for cuts to social programs, but the truth is that it actually doesn’t reduce the deficit at all

President Trump’s “skinny” budget blueprint for 2018 features a proposed $54 billion increase in defense spending and an equal number of spending cuts from the smallest part of the federal budget.

That means his changes won’t add to next year’s projected $487 billion deficit. But they won’t reduce it, either.

And remember, that “$487 billion” figure is just for show.  During the Obama years the U.S. national debt increased by an average of well over a trillion dollars a year, and that is almost certainly going to continue for years to come as long as the debt ceiling is raised.

Republicans are supposed to be the party of fiscal responsibility.

So now is their big test.

If they raise the debt ceiling and continue adding more than a trillion dollars a year to the national debt, they will lose all credibility with conservative voters on fiscal issues.

But if they try to force the federal government to start living within its means that is going to severely harm the economy in the short-term.

Donald Trump is going to have to try to figure out a way to navigate this crisis.  He has already promised that he will not touch Social Security and Medicare, and those are the two biggest drivers of our budget deficits.  In fact, it is being projected that entitlement spending and interest on the debt will eat up every single penny that the federal government takes in within 20 years.

So if Trump won’t touch the big entitlement programs, where will he possibly find enough cuts to satisfy the fiscal conservatives in Congress?

Without them, Trump does not have enough votes to raise the debt ceiling.

In addition, many of the conservatives in Congress absolutely hate the new Republican health care plan, and they hope to use this debt ceiling crisis as leverage to change the bill.

If Trump can’t work out something with conservatives, perhaps he could turn to the Democrats.  But most Democrats are extremely resistant to work with him on anything after all that has been said and done, and so for Trump to get a deal with them he would have to make extreme concessions.

This represents the biggest political test for the Trump presidency so far, and if we get down the road a couple of months and nothing gets done, this debt ceiling crisis could spark the kind of financial crisis that I describe in my novel entitled “The Beginning Of The End“.

Barack Obama pushed things right to the brink a couple of times, but he was savvy enough politically to never let things go over the edge.

Now it is Trump’s turn, and somehow he has got to find a way to get the debt ceiling raised without making extremely deep compromises that would gut the rest of his agenda.

And he had better get to work on this quickly, because time is running out and the clock is ticking…

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

Panic Button On Keyboard - Public DomainWe haven’t seen numbers like these since the last global recession.  I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing.  We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”.  Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about.  But that does not mean that the crisis is over.  All bear markets have their ups and downs, and this one will not be any different.  Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.

Just consider what is happening in China.  Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

For years, the expansion of the Chinese economy has helped fuel global economic growth.  But now things have shifted dramatically.

At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…

China’s premier told visiting U.S. Treasury Secretary Jacob Lew on Monday his government is pressing ahead with painful reforms to shrink bloated coal and steel industries that are a drag on its slowing economy and ruled out devaluing its currency as a short-cut to boosting exports.

Premier Li Keqiang’s comments to Lew on Monday were in line with a joint declaration by financial officials from the Group of 20 biggest rich and developing economies who met over the weekend in Shanghai. They pledged to avoid devaluations to boost sagging trade and urged governments to speed up reforms to boost slowing global growth.

Across all state-controlled industries, as many as six million workers could be out of a job, with almost two million in the coal industry alone.

But it isn’t just China.  Right now manufacturing activity is slowing down literally all over the planet, and this is exactly what we would expect to see if a new global recession had begun.  The following chart and analysis come from Zero Hedge

As the below table shows, 28 regions have reported so far. Seven saw improvements in their manufacturing sectors in February, twenty recorded a weakening, and India was unchanged. This means that over 70% of the world saw manufacturing sentiment deteriorate in February compared to January.

February Manufacturing Numbers - Zero Hedge

In terms of actual expansion, there were 21 countries in positive territory and 7 in negative. In particular, Greece moved from neutral to contraction territory, while Taiwan dropped below breakeven from expansion.

Unfortunately, most Americans don’t really pay much attention to what is going on in the rest of the world.  For most of us, what really matters is what is happening inside the good ole USA.

And of course the news is not good.  There were more signs of trouble for U.S. manufacturing in the February numbers, and this continues a trend that stretches back well into last year.  The following is what Chris Williamson, the chief economist at Markit, had to say about these numbers

“The February data add to signs of distress in the US manufacturing economy. Production and order book growth continues to worsen, led by falling exports. Jobs are being added at a slower pace and output prices are dropping at a rate not seen since mid-2012.

“The deterioration in the manufacturing sector’s performance since mid-2014 has broadly tracked the dollar’s rise, which makes US goods more expensive in overseas markets and leads US consumers to favour cheaper imported goods.

“With other headwinds including the downturn in the oil sector, heightened uncertainty due to financial market volatility, global growth worries and growing concerns about the presidential election, it’s no surprise that the manufacturing sector is facing its toughest period since the global financial crisis.

Over the past couple of decades, the U.S. economy has lost tens of thousands of manufacturing facilities.  We desperately need a manufacturing renaissance – not another manufacturing decline.

As good paying manufacturing jobs have been shipped overseas, they have been replaced by low paying service jobs.  As a result, the middle class is shrinking and the ranks of the poor are exploding.

It is hard to believe, but today more than 45 million Americans are on food stamps, and a significant percentage of those individuals actually have jobs.  They are called “the working poor”, and it is becoming a major crisis in this nation.

And no matter what Obama may say, unemployment remains a major problem in the United States as well.  At this point, unemployment rates in 36 states are higher than they were just before the last recession hit in 2008.

Of course a lot of people are going to look at this article and will point to the stock market gains of the past couple of weeks as evidence that “things are getting better”.  It is this kind of clueless approach that is keeping the American people from coming together on solutions to our problems.

The truth is that the United States has been experiencing economic decline for decades.  Our economic infrastructure has been gutted, the middle class is steadily deteriorating, and we have amassed the biggest pile of debt in the history of the world.

Anyone that believes that things are “just fine” is in a massive state of denial.  Consuming far more wealth than we produce is not a formula for a sustainable economy, and it is just a matter of time before we find this out the hard way.

Celebrating Independence Yet Enslaved To Debt

Every year when July 4th rolls around, Americans from coast to coast celebrate July 4th with cookouts, outdoor concerts and fireworks.  We love celebrating Independence Day and yet we are deeply enslaved to debt.  We like to think of ourselves as “free” and yet we have rolled up the biggest pile of debt the world has ever seen.  The people that we have borrowed all of this money from expect to be paid.  Sadly, instead of addressing the problem, we have been loading more debt on to the backs of future generations with each passing year.  What we are doing to our kids and our grandkids is so immoral that is almost defies description.  At the heart of this debt-based system stands the Federal Reserve.  It is a perpetual debt machine that was designed to trap the U.S. government in a spiral of debt permanently.  Today, the U.S. national debt is 4700 times larger than it was when the Federal Reserve was created back in 1913.  This year alone, we will add more to the national debt than we did from the presidency of George Washington to the beginning of the presidency of Ronald Reagan.  So yes, enjoy the hotdogs and the fireworks, but also remember that we will never be free as long as this constantly expanding debt problem is hanging over our heads.

If you know anyone that does not take our national debt problem seriously, please share with them the video posted below.  It is entitled “Economic Armageddon and You” and it is definitely worth the 5 minutes that it takes to watch it.  Someone out there did a really great job of explaining our debt problem in a way that almost anyone can understand….

So is there any solution to this problem?

Not under the current system.

The debt-based Federal Reserve system is designed to expand U.S. government debt indefinitely.  But of course all debt bubbles burst eventually and we are rapidly reaching that point.

It is being projected that the U.S. national debt will hit 344% of GDP by the year 2050 if we continue on our current course.  The truth is that it would never get even close to that high because the whole system would completely collapse long before then.

So what should we do?

We need to abandon our current debt-based financial system.  The way that our current system normally works, whenever more money is created more debt is also created.  Such a system is inevitably doomed to fail.

We need to transition to an entirely new system that has nothing to do with the Federal Reserve or Federal Reserve notes.  We need an entirely new system where the money is not based on debt.

But even though more Americans than ever are awake to the flaws in our monetary system, the truth is that neither major political party is remotely ready to even consider an end to the current financial system.

Many Republicans believe that if we can just cut government spending enough we can solve the problem.  Many Democrats believe that if we can just “raise enough revenue” we can solve the problem.

Neither of those solutions will work.

Many conservatives are so frustrated with the whole thing that they just want Congress to refuse to raise the debt ceiling.  I have taken a lot of heat over the past couple of days for suggesting that this is a bad idea.

If we refuse to raise the debt ceiling, our borrowing costs will absolutely explode.  Even if the U.S. government adopted a “balanced budget” by some miracle, the reality is that the federal government would still need to “roll over” very large amounts of debt every single year.  If interest rates on U.S. debt rise substantially it will be beyond catastrophic.

In 2010, the U.S. government paid $413 billion in interest on the national debt.

If interest rates were to start rising as a result of a debt default, interest on the national debt would likely double or even triple.

Look, if we want to come anywhere close to balancing the budget under our current system, it will be a whole lot easier to do if we are spending 400 billion dollars on interest on the national debt rather than 1.2 trillion dollars.

Today, the U.S. government only takes in about 2.2 trillion dollars in taxes.  How in the world are we going to have a chance if we have to pay out a trillion dollars just in interest on the national debt?

The yield on 10-year U.S. Treasuries rose from 2.86% to 3.18% just this past week.  Let us hope that this is not the beginning of a bad trend.

A refusal to raise the debt ceiling would also likely set off another recession (or worse).  The following is what a new article on CNBC says would happen if the U.S. does not raise the debt ceiling by August 2nd….

A U.S. default would not only be historic, it would also almost certainly lead to a new financial crisis. Interest rates would likely spike, equity markets would plunge along with the value of the dollar, and the country could fall back into a recession.

We have to raise the debt ceiling.

So does this mean that I am advocating “kicking the can down the road”?

No.

If you are a conservative, you can still get the same result that you want without destroying the credit rating of the United States.

All the Republicans in Congress have to do is to pledge that they will never pass anything but a balanced budget for 2012 or for any year beyond that.  Without the permission of the House of Representatives, Barack Obama and the Democrats cannot continue their deficit spending.  The sad truth is that the Republicans have been enabling and actively participating in this debt binge all along.

A balanced budget would definitely hurt the economy, but at least it would not wreck our credit rating and cause our borrowing costs to multiply.

But is that what the Republicans are shooting for?

No.

It is being reported that the Republicans and the Democrats have tentatively agreed to between $1 trillion and $2 trillion in budget cuts over the next 10 years.

So that comes to $200 billion in spending cuts a year at most.

Considering the fact that we are running budget deficits of about a trillion and a half dollars a year, that is not nearly enough.

So don’t accuse me of wanting to kick the can down the road.  I want to actually do something substantial about the national debt.  I just don’t think it is a good idea to trash our credit rating in the process.

It is the Republicans and the Democrats in Congress that are kicking the can down the road.

Trillion dollar deficits are not acceptable.  Our nation is on the road to financial ruin.

But it is not just the federal government that is in massive financial trouble.

The reality is that we have “government debt problems” from coast to coast.

Did you hear that the government of Minnesota shut down the other day?

As the financial health of almost every single state government continues to decline, this type of thing is going to become more common.

In the state of Illinois things are so bad that some income tax refunds have not been paid since 2009.  The following is a brief excerpt from an article on the Economic Policy Journal blog….

I repeat, this is no time to own state or municipal bonds. The desperation level at various states and municipalities is getting more and more intense.

With the start of a new budget year just two days away, thousands of Illinois businesses are still waiting for state income tax refunds dating back to 2009.

In a recent article entitled “Is The Economy Improving?“, I went into greater detail about the horrific financial crisis that Illinois is facing….

*****

Did you know that things have gotten so bad in Illinois at this point that the Illinois state government is letting bills go unpaid for long periods of time on a regular basis?

It’s true.

Right now they have billions in unpaid bills and they are facing a financial future that is so bleak that it is almost indescribable.

In one recent article, author Stephen Lendman described the horrific financial crisis that Illinois is facing right now….

With spending exceeding revenues, and obligations not postponed, unpaid bills are growing “at a frightening rate. For instance, IGPA’s Fiscal Futures Model indicates (they) could reach $40 billion by July 1, 2013, with an associated delay in paying those bills of more than five years.”

Besides its $13 billion deficit and $6 billion in unpaid bills, its pension fund is about $130 billion in the red – a red flag that state workers may lose out altogether, wiping out their promised retirement savings.

But it isn’t just the state government that is having problems.  According to Cook County Treasurer Maria Pappas, the average household in Chicago would owe a whopping $63,525 if all local government debt was divided up equally among all of the households.

*****

How can we claim that our country is free when we are enslaved to such horrible debt burdens?

The borrower is always a servant of the lender.  As a nation, we are becoming a little bit less independent every single day.

So enjoy celebrating Independence Day while you still can.

If we continue on the path that we are currently on, nobody is going to be celebrating much of anything in the future.

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