Facing Debt-Ageddon!
EVERYONE was panicking a few months ago because the U.S. government was prepared to borrow record levels of debt to fund its record spending.
We all wondered who was going to buy all that debt. And – we thought that the government would have to offer higher and higher yields to entice enough investors to buy our debt. And that of course would push interest rates through the roof.
The government will add about $2.5 trillion of additional debt to our balance sheet this year alone, more than our entire Federal budget in the early 2000s.
And this is a major reason why many analysts were predicting 8% 10 Year Treasury Yields and 10% mortgage rates.
BUT – the opposite happened! Treasury Yields have PLUMMETED!
Snider Explains Why Massive Debt Loads Are Not Collapsing The Bond Market And Pushing Rates Through The Roof
Jeff Snider explains why rates are not shooting and will not shoot through the roof in this video: Can The Government Keep Spending Money Forever?! (the answer, sadly, appears to be “yes,” but it is not good news).
TLDR: The more the government borrows, the more it slows down economic growth. And the more it slows down economic growth, the more investors demand the “safety and liquidity” of Treasury Bonds. So, there will always be sufficient demand for our debt, without having to push yields higher.
The reason more borrowing slows down economic growth is because it fosters extremely inefficient government spending (mostly re-distribution; not infrastructure investment) at the expense of private sector investment. Excess government spending and borrowing “crowds out” more efficient and very necessary private sector investment.
So, we’re in sort of a doom loop where the government will keep borrowing more and more to save the economy, but it is actually hurting the economy – and that will foster more bond demand which will allow the government to borrow even more.
Those of us who own assets or who are in industries that benefit from this financial structure are often oblivious to the economic damage excessive borrowing does – particularly when our stock prices and incomes are surging.
But – the huge chunk of Americans (rank and file employees) who do not own assets or benefit from low rates are getting the snot beat of them – and they’re getting more frustrated by the day.
A Few Other Points Snider Makes
- Government Uses Blackmail To Justify Spending: In 2008 and 2020, the government justified its massive spending as an effort to A. prevent another great depression; and B. save jobs. Snider says it does neither.
- Government Is Like A Witch Doctor: Native American witch doctors would do rain dances, and then when it would eventually rain, they’d take full credit. Our government does the same thing after their spending blowouts. When our economy recovers, they take full credit – even though it would have recovered on its own in a much healthier manner, per Snider.
- Government No Longer Builds Things: Government spending on actual infrastructure and investment (proverbial “roads and bridges”) is as low as it has been since 1950. The government instead does the most “inefficient thing” they can do – just redistribute money and effectively pay people not to work.
- Stimulus Does Not Stimulate: Snider loves to remind us that government stimulus never works (in the U.S., China or Japan). Governments simply have a massive vested interest in convincing us that it does, as it allows for far more pork distribution and government power.
- 2008 Was Not A Subprime Crisis: Snider blames 2008 entirely on a global dollar shortage. It is too complex to explain here, but it is an issue he addressed constantly – and it is very interesting, making his videos well worth watching.
- We’re In A Silent Depression: Our government has suppressed economic growth so much since 2008 that we have effectively been in a silent depression.
CONCLUSION: Expect more government intervention; more spending; and more borrowing. BUT – don’t expect real economic growth (or the kind that benefits rank and file private sector employees) and don’t expect higher rates – if Snider is correct (and recent trends imply that he is).
