Which country has far more debt than the United States?
The answer is China, along with many other countries. Everyone focuses on the United States’ massive federal debt levels, but they ignore our TOTAL (public and private sector combined) debt load – which is not nearly as serious as those of other countries.
The U.S. has a total debt-to-GDP ratio of about 250%, while China’s is over 310%, according to renowned international currency analyst Russell Napier on this recent Blockworks podcast.
South Korea and Canada are in even more precarious states, as an aside, and yes… it will likely all blow up at some point.
Napier’s point about China though was that they have grown so much by borrowing excessively (far more than any other country, lately) – and that China’s communist party thinks it can continue to control everything… but it can’t.
And we’re seeing that play out now with the Chinese currency falling in value, and it will likely fall much more – per Napier – creating a major crisis for China and the rest of the world.
Can Our Own Federal Reserve Continue to Control Everything?
Everyone believes the Fed raises and lowers interest rates when they want to “tweak” the economy as if they’re monetary gods in total control of a $25 trillion economy.
The Fed of course could never control an economy as vast as ours, as no person or entity ever could; the Fed primarily reacts to economic conditions, as they raise and lower the Fed Fund Rate in an effort to nudge the economy in the “right” direction.
Analysts like Jeff Snider and George Gammon like to remind us that the Fed is far less effective than most people realize, as the economy often just rights itself irrespective of Fed action.
Purpose of the Fed?
Heresy Financial’s Joe Brown just released an excellent video about the Federal Reserve: The One True Purpose of the Federal Reserve.
Per Mr. Brown, the Fed’s ostensible purposes are: (1) stable prices; (2) stable employment; and (3) stable long-term interest rates. Brown, however, says its “one true purpose” is to keep the Federal Government’s funding machine going full speed – by keeping borrowing costs as low as possible and tax revenues as high as possible.
NOTE: a 2% inflation rate not only makes debt easier to pay off, but it pushes people into higher and higher tax brackets, fostering more and more tax revenue.
The Fed did not play such a huge role in our economy until Alan Greenspan was appointed its chair in 1987, after which time he became known as “The Maestro” for his ability to tweak the economy – primarily with rate changes.
And tweak he did, but he also partially fostered the S&L crisis of the late 1980s, the dotcom crisis in 2000, and the mortgage meltdown or GFC of 2008 (in other words, our economy has become much more volatile).
The Fed’s “recipe” has always been to lower rates to stimulate the economy, as everyone knows, but they always seem to leave rates too low for too long.
In addition, much of our growth over the last 40 years has been a result of a gradual and continual decrease in interest rates, ushering in what Russell Napier calls “The Age of Debt.”
So, the question is whether the United States or the rest of the world can continue to lower rates and borrow forever – in order to keep their economies propped up.
The answer is likely no, as both China and Japan are showing us right now. Japan’s debt situation is as dire as China’s, and they too are facing a currency crisis.
Anyway, I suspect all this will come to an end for the United States too, and that the Fed will have no choice but to react to some sort of major concern or crisis – as opposed to just lowering rates for the fun of it.
I further expect a lot of volatility this year with China, Japan, and so many other countries facing issues far worse than our own, and with the United States dealing with its own massive issues, such as a runaway deficit, a commercial real estate crisis, political instability, and our recent rate increases finally instilling themselves into our economy.
All credit though must go to the Fed and the Treasury for keeping things afloat and going this well for this long.
But, as I read constantly on X – BUCKLE UP, 2024 is going to be a wild ride!
