저자: Kevin · 외국인
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Hello everyone. This is Kevin. In this video, we discuss Jeffrey's concerns about a debt-fueled recession, a job market recession, and the skyrocketing US debt , which could force the government to print money to pay it off. This post is inspired by Jeffrey, and some aspects of what we're going to talk about are broken down on e-hack.com, as I always like to do, and I want to start right here on e-hack.
I'll start with this graph . This graph shows us the decline in the pace of private sector hiring that we see in the June, September, and October reports. Even without December data, private sector hiring, excluding leisure and hospitality, was extremely low. There was a real recovery in the leisure and hospitality sector in December, as soon as we see this number.
However, the point is that a significant portion of the employment growth , namely in the health, social assistance, and civil service sectors, is much larger than we have seen before. This is very typical of a late- cycle economy that is potentially heading towards recession. People fear that when this segment stops hiring, there will be almost nothing left to support the economy in terms of employment.
As we said earlier, it is jobs that support the economy. The most practical way to understand this is: if you live in an expensive area like Los Angeles, San Diego, or Manhattan, why is housing so expensive? Why is rent so expensive? Because there are jobs available there . People live there who have the income to afford these payments.
This creates more demand, and when you have that demand on an island, or what is it—a peninsula? Manhattan—it's probably an island, I don't know what it is, you have a limited supply of housing. The same goes for California and other parts of the United States. But the point is , once a self-sustaining unemployment spiral is launched, as companies start downsizing and hiring stops, negative annual figures very quickly emerge not only for company revenues but also for the total output of services and goods in the US.
Remember that the consumer generates about 70–72% of the economy, depending on the year in which the measurement is made. But let's look at another problem. So, something at the end of this post, Jeffrey, that I did n't like at all — look at this. Annual net interest payments of the US federal government as a percentage of government revenue .
Okay, we need to understand this a little. Government revenues are essentially tax revenues received by the government. There is no perfect metric for this, but we can take the Federal Reserve Bank of St. Louis's chart of the federal government's net interest payments as a percentage of GDP. And now we'll see somewhat similar growth here.
But there is something special about what this graph doesn't show us. But first, let's consider the risks of this. The risks of this schedule are that at some point the U.S. government, simply because we're spending so much money not only on things we've committed to, like Social Security and Medicare, but also getting less tax revenue because people and businesses are making less money.
And then, because of higher interest rates, as we continue to refinance lower-rate Treasury bills and bonds into higher-rate ones, the amount of money we spend on interest increases to the point where we have to print money just to be able to pay the interest. Jeffrey says we're close to that point.
Now I want to know what the consequences are . What does it mean when our debt payments become so high? Well, there are a few top priorities that we're thinking about. Of course, we think about the potential collapse of the US dollar and the collapse of confidence in the American currency , which eventually turns into a potential inflationary catastrophe similar to the situation in Venezuela, right?
When people no longer trust your currency, what happens? People are getting rid of your currency and no longer want to accept it . They start using, perhaps, a currency like gold, or perhaps something that might be more functional than gold, frankly, cryptocurrency. And so many people assume that's why the people at the SEC and maybe Gary Gensler are saying, "Why do we need a digital cryptocurrency ?
We already have a digital dollar." And maybe that's why you see people like Jamie Dimon at JP Morgan suggesting, "Hey, if I were the government, I would destroy cryptocurrencies." Interesting . There is a very real interest in preserving the US dollar and the existing system, as it currently allows us to print money to pay interest on the debt we have created to pay for things we cannot afford.
And this system of sorts continues to function. So the question is: until it becomes a problem , is it even a problem? Well, I wanted to use data from the St. Louis Federal Reserve as an indicator. This is their education department. But anyway, I like this schedule. I think this is very interesting.
So, these are the current expenditures of the federal government. Interest payments divided by GDP. Note that these are interest payments relative to GDP, not relative to, say, government revenue. However , they tend to be correlated because, obviously, as GDP grows, tax revenues usually grow as well, unless the government significantly cuts taxes, right?
So, assuming taxes are equal, this should be roughly equivalent . But I wanted to compare this graph to Jeffrey's graph, and you'll see something very interesting. In Jeffrey's graph, they cut off the data at 1994, and I thought, "Hmm, interesting, that was a previous peak." Why did they stop at 1994 to show that we were about to cross this level?
I think the reason is that if you extend the timeline to 1947, their argument becomes less convincing, because 1994 is somewhere around here. We actually had two previous peaks. We had a peak in 84-85 and in the early 90s during the recession. So we had these two peaks here. Keep in mind that their graph goes up a little higher, somewhere around this level.
This is because they cut the last data on the right. They simply take the last 6 months and multiply them, for example , by two. And this makes the line look significantly higher. OK. These are two small adjustments that I think are of great importance for understanding. Mainly because now I want to see how the stock market behaved under these conditions in the 80s and 90s?
What happened? Here, look at this. Here is the year 82, the end of Paul Volcker's rate hikes, and here is the recession of the 90s. And if you draw a line between '82 and, let's say, '92 , you see that the market is, you know, volatile, but generally moving up, almost, dare I say, like the Nike logo.
Oh, not that again. By the way, on the occasion, I am very glad that I was able to make a "hedgehog " on my head again. That's pretty cool. A, B, remember that you can read my research on e-hack.com absolutely free, including my analysis of Coinbase. I need to make a video about this. I have n't done that yet, but yes, I did some calculations there regarding Coinbase, so check it out.
So, okay. But the bottom line of this debt crisis: I want to be extremely clear. Our government's spending levels are unsustainable. And there are ways to solve this. The best- case scenario is an economic boom with growth and job preservation . That's why I think it's extremely important for the Federal Reserve to recognize the fact that we're starting to see a significant weakening of the labor market.
We also talked a lot about this. We discussed this yesterday on the channel. It is very important to listen to the warnings, to the early signals of the destruction of the labor market, because if we do not do this, we will overtighten the screws. I believe the Fed realizes this, and Jerome Powell's change of stance in December, which is the exact opposite of what it was two years ago, is evidence of its understanding.
Because, again, if we preserve jobs and maybe lower rates to get real job growth again, like in the private sector, then the economy can strengthen. When the economy strengthens, what suddenly happens? Our interest payments as a share of GDP are falling, we are starting to refinance at lower rates anyway.
So this line is going down anyway. And the overall debt burden we have is getting smaller. So the best case scenario from all perspectives is that the Federal Reserve does everything it can to encourage a thriving economy, and that's exactly what they will do, unless, of course, inflation rears its head, which we think is unlikely.
But this is obviously the main argument of the "bears". This is the Achilles heel of it all, because they would rather give us a recession than allow inflation. And they would rather avoid a recession to preserve jobs if inflation is low. I hope this makes sense. So what does this mean, to sum up everything that has been said?
So, to sum up: I am convinced that once inflation disappears, the Federal Reserve will immediately go back to printing money, because, paradoxically, printing money and increasing debt will help lower interest rates, strengthen the economy, and provide job growth; yes, the amount of debt will increase over time, but the overall unsustainability of government debts will simply be considered acceptable until it stops.
And when this stops, the problem will have to be solved the way European countries did during the eurozone debt crisis in 2013. Remember, uh, austerity, fiscal consolidation? Uh, they actually stopped taking out the garbage in Athens, that's just one extreme example. Uh, they significantly cut services and jobs.
This, this is a terrible time. This is a deflationary, recessionary, and terrible period. Austerity sucks . This path is complete crap. No one is cleaning up the graffiti, ambulance and police arrival times are increasing dramatically, and the condition of the roads is, uh, deteriorating. In times like these, it becomes more difficult to do business, even with a strong economy.
So, uh, again, your choice is to spend less. This is unlikely. Okay, unlikely, because Democrats will spend more , and Republicans won't repeal it, because repeal is tantamount to raising taxes. So, paradoxically, the best thing we have is that the Founding Fathers made the process of passing laws quite complicated.
This is the best option of all possible ones. Therefore, a reduction in spending is unlikely. This needs to be done, but it is unlikely to succeed. Er , secondly, economic growth. Uh, or thirdly, uh, and then you have more income to somehow pay off the debt, right? So, spend less, earn more. Uh, or you just devalue it with inflation.
Okay, this is the hardest one to understand, but that's why we have a 2% inflation target. If you make, I don't know, $50,000 a year and you have $1,000 in debt, your debt is, like, 1/50 or 2% of your income , right? Let's say your income increased 10-fold, to $500,000 per year . Well, that same $1,000 of debt is now only 20 basis points, or 1/5 of 1% of your real income.
So if you have debt, one of the best things to do is to earn more money. Of course, this is easier said than done, but if you have a money printing press, it's not that difficult. This is madness. And I know when people hear this, they say, Kevin, this is all a crazy Ponzi scheme. Yes, but just know the rules of the game and play by them.
Meanwhile, it's raining now, not snowing. OK. I actually liked the snow better. . Goodbye.
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