Dollar

Woes

Endgame: Starting In 2024, All US Debt Issuance Will Be Used To Pay For Interest On Debt

As we first pointed out one month ago, when looking at the US 'income statement', most concerning by far is that for the first four months of fiscal year 2019, interest payments on the U.S. national debt hit $221 billion, 9% more than in the same five-month period last year, with the rate of increase breathtaking. As a reminder, according to the Treasury's conservative budget estimates, interest on the U.S. public debt is on track to reach a record $591 billion this fiscal year, more than the entire budget deficit in FY 2014 ($483 BN) or FY 2015 ($439 BN), and equates to almost 3% of estimated GDP, the highest percentage since 2011. 

From that point on, every incremental increase in interest rates, which will eventually happen simply due to rising inflation expectations, will merely accelerate the ponzi process, whereby even more debt is sold just to fund the rising interest on the debt, requiring even more debt issuance, and so on, until finally the "Minsky Moment" arrives. At that point, while we don't know yet what the next reserve currency - either fiat, hard or digital - after the US dollar will be, we urge readers to own a whole lot of it.

Central Banks Are Ditching the Dollar for Gold

Global gold reserves rose 145.5 tons in the first quarter, a 68 percent increase from a year earlier, the World Gold Council said Thursday in a report. Russia remains the largest buyer as the nation reduces its U.S. Treasury holdings as part of a de-dollarization drive.

Italy Is Latest Country Seeking To Bring Their People’s Gold Home

The 5 Star Movement is asking Italy’s Parliament to approve measures that would allow private banks to sell their share in The Bank of Italy at 1930’s prices. Taking it a step further, they are also demanding that ownership of the Bank of Italy’s 2,451.8 tons of gold be taken over by the country’s citizens and spent on populist policies. The current value of these gold reserves is $102 billion.

Another European country, Germany, has quietly called back 674 tons of gold from France and the U.S. Federal Reserve to its central bank, the Bundesbank. Ninety-eight percent of Germany’s gold was stored abroad during the height of the Cold War to keep it out of the reach of Russia. With the weakening of the Euro, Germany wants the gold closer to home. The Bundesbank now has half of the country’s gold in safe storage. 

Gold is seen by central banks as a way to maintain financial trust during economic upheaval. 

The move by global central banks to repatriate their gold may be a sign that an economic crisis could be looming in the near future.

Social Security is approaching crisis territory

The recent Trustees’ report projected that Social Security will draw down its reserves by 2035, at which point the law requires a 20-percent across-the-board benefit cut if nothing is done to shore up the trust fund. 

Or, policymakers might simply abandon the self-funded nature of the program by borrowing from general revenue — adding more to the national debt than we would otherwise and ending Social Security’s century-old status as a protected program, largely walled off from the rest of the budget.

 DYI:  As to the last article regarding Social Security once again the author of the article gets it wrong. 

Social Security’s so called trust funds are simply IOU’s that are only redeemable by the Treasury Department.  If our budget is in surplus enough to cover the IOU’s, if not, then the Treasury will have to borrow by issuing additional bonds to pay Social Security.  Simply put the IOU’s are redeemed this moves that portion of Social Security from a self-funding agency to general revenues or borrowings.  The total cost is already expressed between self-funding and their IOU’s redeemed at the Treasury Department.

In 2035 when the IOU’s run out America will end up with a political question as to how Social Security will be funded.  I would prefer the regressive F.I.C.A. taxes ended and have the program payed through general revenues.  This is the most likely outcome politically.

Dollar Woes

No doubt countries around the globe are backing away from the American dollar especially the Russian.  This also goes a long way explaining our government’s propaganda arm the main stream press with their constant Russian B.S. stories that over the long haul never amount to a hill of beans.  Be as that may be, sometime in the future confidence in the dollar will erode and unless these insane self-defeating policies make a 100% turn around we will be in for a spate of high inflation.

America will remain a powerful country economically, political and militarily.  However, the U.S. will no longer dominate the world stage.  We will have the same fate as the Roman Empire as world domination is simply far too expensive. 

  DYI