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Patrick Hill: Can The Fed Achieve Full Employment Without Inflation?

"The Fed’s new framework was designed for a world of deficient aggregate demand where supply was not an issue. Coming out of the pandemic, we live in a world of ample demand where the main problem is on the supply side."

Mohamed El-Erian, Chief Economi

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The Fed’s new framework was designed for a world of deficient aggregate demand where supply was not an issue. Coming out of the pandemic, we live in a world of ample demand where the main problem is on the supply side.”

Mohamed El-Erian, Chief Economic Adviser, Allianz SE

The Fed’s challenge is whether it can achieve a vague, full employment goal without surging inflation.  A year ago, at the Jackson Hole virtual conference, Fed Chair Jerome Powell outlined a new strategic monetary framework.  The framework outlined a new full employment goal that was broad-based, including employment of Blacks, Hispanics, and other groups. The new strategy called ‘flexible average inflation targeting’ makes a 180 degree turn toward allowing inflation rather than containing it via increased interest rates and monetary tools. Full employment becomes the top priority over inflation. The Fed policy position is that if inflation ran a bit hot over 2% to achieve employment goals, that would be all right. 

Powell Optimistic on Full Employment Goal

Nick Timiraos, in an August 29th Wall Street Journal article on this year’s Jackson Hole conference, notes that Fed Chair Powell is optimistic that the Fed can achieve a maximum employment goal. Powell said in his speech, “Favorable hiring conditions, as seen in record levels of job openings and job quitting, suggest job seekers should help the economy cover the considerable remaining ground to reach maximum employment.” The Fed in the past has defined maximum employment as an unemployment rate consistent with stable inflation.

Recently, Powell has said he would like to see the unemployment rate drop to the pre-pandemic level of 3.5%.  The August Non-Farm Payroll report showed an unemployment rate of 5.2%, mainly due to a decline in job seekers. There was a steep decline in the number of workers that want a job from 6.5M to 5.7M.  Also, the report indicated weak employment growth with only 235k new jobs. Thus, the Fed may maintain liquidity injections and hold off interest rate hikes longer. But, the agency risks allowing inflation to surge above a ten-year high where it is today.

The Federal Reserve faces significant headwinds toward achieving full employment, including declining consumer sentiment, puzzling lack of employment growth, and surging inflation. Let’s examine each of these factors to determine the Fed’s probability of achieving its maximum employment goal.

Declining Consumer Sentiment

Recent consumer sentiment indicators show a decline in sentiment due to future income concerns, job issues, Delta variant infection increases, and inflation. The following charts indicate consumer sentiment in the key $100k high-income segment has declined for the last five weeks as they lose confidence in personal finances in part due to job posting declines. Corporate executives who were optimistic during the spring recovery are now pulling back on job postings.

The high-income segment drives most consumer spending, which comprises 70% of GDP. 

Sources: Langer Research, Track the Recovery, Burning Glass (updated weekly), The Daily Feather – 8/20/21

Also, workers are concerned about their future income as well. As they consider income in the 1-to-2-year period, there is a significant decline in expectations for income.  Concerns about lack of job prospects are likely driving their weakening confidence in future income. The following chart from Morgan Stanley and the University of Michigan indicates a continuing decline in income expectations.

Sources: Morgan Stanley, University of Michigan, The Daily Shot – 8/20/21

Inflation Worries Drive Consumer Sentiment Lower

Inflation worries, as well drive consumer sentiment lower, which will trigger reduced spending. This most recent University of Michigan survey underlines growing consumer worries about increasing inflation in the next year.  Today, consumers experience high prices from vehicles, food, housing, rental cars, and airline tickets.  But they are also concerned about persistent inflation over the next 5 to 10 years. Consumer expectations for continuing inflation will drive their behavior to buy immediately to avoid future higher prices or stop buying if they are worried about future income.  High-income households are likely to continue spending. In contrast, the 80% with limited wealth are likely to pause buying until they are more confident of job prospects.

Sources: University of Michigan, The Daily Shot – 8/16/21

Consumer spending is the lynchpin of a growing U.S. economy. As consumer sentiment dives due to concerns on inflation, job prospects, personal finances, and income, economic activity will slow.  A stalling economy will support the Federal Reserve’s position that interest rates need to be low to achieve full employment.  Yet, the character of work is changing rapidly and defying economic models and analyst forecasts.

The Employment Puzzle – Millions of Job Openings Yet Unemployment Is High

On a macro basis, there were 10.1M job openings in July, yet unemployment stayed stubbornly high, with 8.7M estimated to be unemployed.

Sources: Bureau of Labor Statistics, The St. Louis Federal Reserve – 8/16/21

The employment puzzle is directly related to a new paradigm emerging about the character of work in America.  The one-hundred-year event of the pandemic has caused a massive shift of workers to new jobs. Job churn from February 2020 to this past summer has jumped to 37%, with 26% of this number changing employers. For instance, a recent Bankrate study showed that 55% of American workers expected to change jobs in the next year! In addition, there is a shift in the balance of power between managers and employees by introducing the power of the internet as the base work environment – not the office.  Indeed, reports that a new ‘city’ has emerged on their job opening platform called ‘WFH’ with over 100k jobs listed and growing fast.  Many firms list WFH as a benefit as they recruit talent from other firms that stay with ‘office only’ requirements.

The WFH Shift Challenges Small Business Hiring

Due to this shift to the internet, owners face hiring challenges in the restaurant industry, hard hit by pandemic lockdowns.  As an example, a barista interviewed by Bloomberg in Memphis tells how he quit his job and took a job as a customer service representative, which was completely WFH. Another benefit to the WFH environment is workers are taking on two jobs to increase their income, as reported by the Wall Street Journal in an August article on new work styles. 

Other workers take advantage of their day by interviewing via video or Zoom calls providing more potential job options than in the past office-bound situation. Workers not finding jobs to their liking are opening businesses as a ‘side hustle’ on internet exchange platforms like Pinterest, eBay, Etsy, and Amazon.  Also, as workers develop more internet skills, we expect to see more workers shift to WFH jobs.  In this chaotic work environment, high-growth companies are taking advantage of layoffs in weaker sectors.

eCommerce Is Transforming Employment in Low Paying Sectors

The employment market is quickly shifting as major warehouse companies and firms related to shipping grow faster than other sectors in the pandemic economy. 

Sources: Indeed, The Washington Post – 8/13/21

As we noted in our post, Job Churn Creates Massive Economic Uncertainty

Amazon hired 500,000 warehouse, delivery, and e-commerce support workers during the pandemic.  In addition, Amazon worked closely with Marriott, Chipotle, and other leisure and hospitality companies to employ their laid-off workers. As a result, Amazon added as many new workers as 136 other companies during the year.”

We expect to see more strong sector firms recruit from weaker low paying sectors like Leisure and Hospitality as partial lockdowns force more layoffs by small businesses, mainly in dense core cities like San Francisco and New York. The Delta virus seemed to have caused consumers to reduce their patronage in restaurants and bars nationwide.  In August, the Leisure and Hospitality sector’s seven-month growth trend ended with the loss of 41k jobs.

Retires Leaving the Workforce – Young Workers Not Returning

The pandemic caused a shock in the labor force, with millions of workers leaving the labor force. Marianne Wanamaker, Professor at the University of Tennessee, summarizes the unemployment situation this way, “People left the labor market in droves during the pandemic, and they’re not coming back, noting that the country’s labor force participation rate has been stagnant at 61 percent. “We are way behind the predicted employment recovery.” Confirming her observation, the Dallas Federal Reserve reports that over 1.5M seniors have decided to leave the labor force since last year’s pandemic lockdowns.  Senior workers are continuing to leave the workforce. In July, a Kansas City Federal Reserve worker survey showed that 28% of those workers leaving manufacturers left work for retirement.

Another significant group not returning to the labor force is young male workers.  Twenty percent of young men 25 – 34 years old living with their parents as their participation level in the labor force dropped to 85%, only bouncing up to 87% last month. Some are choosing to go to school or have concerns about becoming infected by the coronavirus.

Sources: Bureau of Labor Statistics, The Daily Shot – 8/20/21

How Many Unemployed Workers Will Return to The Workforce?

People went onto unemployment rolls to survive as the lockdowns forced businesses to lay off workers.  The key question now is: how many claimants will return to the workforce? A recent academic analysis shows that only 12.5% of workers are not accepting job offers due to staying on unemployment benefits.  Reports from 21 states ending extended unemployment benefits showed mixed results.  About half of the state reports indicated increases in employment, and the others showed little or no employment increases.

In his daily blog of August 31st, Lance Roberts, Chief Strategist at Real Investment Advisors, noted the most recent Chicago PMI report indicates that unemployed workers are not immediately returning to jobs.  The report posed an interesting question to managers, and here is their answer: With enhanced Unemployment Insurance benefits set to expire in September, are you forecasting an increase in your staffing levels?” The answer: “The majority said they were not.” 

Unemployed worker surveys over the past few months found these reasons for workers not returning to the job market:

  • Lack of childcare – even with schools opening in major cities, 50% of pre and after school childcare centers have closed
  • Delta Virus Infection – virus hospitalizations have risen to levels last seen in February of this year
  • Job Benefits vs. Quality of Life – workers with long commutes or low income are hesitating to take new jobs until they sort out what kind of job, work environment, or location they want to live in
  • Continue as Caregiver – in states like Texas, Alabama, Louisiana, Georgia, Tennessee, and Florida where the Delta variant rages, forcing prospective workers to be caregivers

Small Businesses Challenged by Lack of Commuters

Unemployment in commuter impacted cities will likely stay high as small businesses struggle with a lack of commuters. In particular, Kastle Systems, a building security firm, reports an average occupancy rate in the top ten metro areas of just 32.1% in August. In February 2020, the national occupancy rate was 99.5%.  Similarly, in cities like San Francisco, the occupancy rate is 19.6% and New York 22.9%.   A CNBC survey of human resource executives of firms with 10,000 employees or more showed 60% of company return office plans were impacted by the Delta variant infection rate. Firms as diverse as Apple, Wells Fargo, Google, World Bank, Medtronic, and the Dallas – Fort Worth Airport Authority have announced delays in back to the office requirements. The return to office delays varies from October to January 2022.

In mid – October pandemic emergency benefits will end for gig economy workers, and after Labor Day, standard state benefits will not receive federal funding. Thus, the fate of millions of unemployed workers is highly uncertain. Will most workers take jobs, or will they opt out of the labor force?

Inflation Is Surging

Inflation is coming on strong.  Over the past year, the Fed has implemented near-zero interest rates and $120B monthly injections of liquidity into the bond markets. The ultra-simulative Fed policy magnifies the impact of an unprecedented $4.5T of COVID fiscal relief packages. According to the Committee for a Responsible Federal Budget, monetary and fiscal stimulus combined totals $8.9T. It seems reasonable that the unprecedented combination of fiscal and monetary stimulus is driving inflation to 10-year highs.

The Fed watches the Personal Consumption Expenditure (PCE) inflation rate to assess the impact of its policies on inflation. The PCE is now running above at levels not seen in a decade. Core PCE, which excludes volatile energy and food prices, has soared to 3.6%, almost twice the Fed’s 2.0% inflation target.

Sources: Commerce Department, The St. Louis Federal Reserve, WSJ

8/27/21

The Consumer Price Index at 7.8% considers major increases in housing that the PCE does not.  Rent price increases have averaged 16% for July.  According to a recent Case-Schiller price report, home prices have surged by 18% on a year-over-year basis.  CPI is at the highest annualized 6-month rate since 2008.

Source: BofA Global Investment Strategy, Bloomberg, The Daily Feather – 8/25/21

Persistent inflation is likely to stay unchecked if both liquidity injections are in place and near-zero interest rates are maintained. Declines in consumer spending may slow inflation rates, but supply shortages will keep upward pressure on prices. Delayed shipping from Asian ports to the U.S. magnifies shortages. For example, China shut down its Shanghai port for several weeks due to a Delta virus outbreak in July. Delays and mismatched container locations have caused shipping rates from China to Los Angeles to increase ten times since February 2020.  These historic shipping cost increases are passed along to consumers by companies raising prices.

The Fed’s Hand Is Likely to Be Forced by Labor Force Transformation & Inflation

The agency has not defined a specific optimal employment rate for groups or the economy. The Fed has said that ‘it will balance inflation versus full employment goals.’ As Mohammed El-Erian notes in our introduction, the new Fed policy design focuses on creating demand, not solving supply issues caused by a once in a 100-year pandemic.  Pandemic-induced fear drives demand lower for some services and higher for others in an unpredictable manner. The current second wave of consumer Delta virus fear is likely to subside as the pandemic comes under control. But the pandemic has triggered persistent supply-side shortages in critical sectors in labor, goods, and services.  Monetary policy does not solve supply-side issues. In conclusion, supply-side shortages combined with a stimulative monetary policy seem to be driving a surge in inflation.

The Fed’s ultra-stimulative policy poses a significant inflation risk foreclosing the achievement of its full employment goal. The labor force transformation makes it difficult to forecast or model the ‘real’ full employment rate. Thus, the full employment goal remains elusive.

Meanwhile, consumer expectations for inflation in the real economy are rising fast.  Persistent inflation may force the Fed to slow the economy resulting in reduced hiring, as Ben Bernanke observes:

Bottom line, the critical element is inflation expectations. As long as they stay in the vicinity of 2%, the Fed’s strategy will achieve its goals. If inflation expectations were to move significantly higher, the Fed would be forced to tighten more quickly and probably slow the economy more than they would like.”

                                                                          Ben Bernanke, former Federal Reserve Chair 

Author

Patrick Hill is the Editor of The Future Economy, https://thefutureconomy.com/, the site hosts analysis of the real economy, ideas on a new economy, indicators, labor-capitalism trends, and posts to start a dialog. He writes from the heart of Silicon Valley, leveraging 20 years of experience as an executive at firms like H.P., Genentech, Verigy, Informatica, and Okta to provide investment and economic insights. Twitter: @PatrickHill1677, email: patrickhill@thefutureconomy.com

The post Patrick Hill: Can The Fed Achieve Full Employment Without Inflation? appeared first on RIA.

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Analyst reviews Apple stock price target amid challenges

Here’s what could happen to Apple shares next.

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They said it was bound to happen.

It was Jan. 11, 2024 when software giant Microsoft  (MSFT)  briefly passed Apple  (AAPL)  as the most valuable company in the world.

Microsoft's stock closed 0.5% higher, giving it a market valuation of $2.859 trillion. 

It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Apple closed 0.3% lower, giving the company a market capitalization of $2.886 trillion. 

"It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution," D.A. Davidson analyst Gil Luria said at the time, according to Reuters.

The two tech titans have jostled for top spot over the years and Microsoft was ahead at last check, with a market cap of $3.085 trillion, compared with Apple's value of $2.684 trillion.

Analysts noted that Apple had been dealing with weakening demand, including for the iPhone, the company’s main source of revenue. 

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the pandemic and competition from Huawei.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 compared with a year earlier, according to research firm Counterpoint, as the company contended with stiff competition from a resurgent Huawei "while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi," said senior Analyst Mengmeng Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now," he said.

A man scrolling through Netflix on an Apple iPad Pro. Photo by Phil Barker/Future Publishing via Getty Images.

Future Publishing/Getty Images

Big plans for China

Counterpoint said that the first six weeks of 2023 saw abnormally high numbers with significant unit sales being deferred from December 2022 due to production issues.

Apple is planning to open its eighth store in Shanghai – and its 47th across China – on March 21.

Related: Tech News Now: OpenAI says Musk contract 'never existed', Xiaomi's EV, and more

The company also plans to expand its research centre in Shanghai to support all of its product lines and open a new lab in southern tech hub Shenzhen later this year, according to the South China Morning Post.

Meanwhile, over in Europe, Apple announced changes to comply with the European Union's Digital Markets Act (DMA), which went into effect last week, Reuters reported on March 12.

Beginning this spring, software developers operating in Europe will be able to distribute apps to EU customers directly from their own websites instead of through the App Store.

"To reflect the DMA’s changes, users in the EU can install apps from alternative app marketplaces in iOS 17.4 and later," Apple said on its website, referring to the software platform that runs iPhones and iPads. 

"Users will be able to download an alternative marketplace app from the marketplace developer’s website," the company said.

Apple has also said it will appeal a $2 billion EU antitrust fine for thwarting competition from Spotify  (SPOT)  and other music streaming rivals via restrictions on the App Store.

The company's shares have suffered amid all this upheaval, but some analysts still see good things in Apple's future.

Bank of America Securities confirmed its positive stance on Apple, maintaining a buy rating with a steady price target of $225, according to Investing.com

The firm's analysis highlighted Apple's pricing strategy evolution since the introduction of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model.

BofA said that Apple has consistently launched new iPhone models, including the Pro/Pro Max versions, to target the premium market. 

Analyst says Apple selloff 'overdone'

Concurrently, prices for previous models are typically reduced by about $100 with each new release. 

This strategy, coupled with installment plans from Apple and carriers, has contributed to the iPhone's installed base reaching a record 1.2 billion in 2023, the firm said.

More Tech Stocks:

Apple has effectively shifted its sales mix toward higher-value units despite experiencing slower unit sales, BofA said.

This trend is expected to persist and could help mitigate potential unit sales weaknesses, particularly in China. 

BofA also noted Apple's dominance in the high-end market, maintaining a market share of over 90% in the $1,000 and above price band for the past three years.

The firm also cited the anticipation of a multi-year iPhone cycle propelled by next-generation AI technology, robust services growth, and the potential for margin expansion.

On Monday, Evercore ISI analysts said they believed that the sell-off in the iPhone maker’s shares may be “overdone.”

The firm said that investors' growing preference for AI-focused stocks like Nvidia  (NVDA)  has led to a reallocation of funds away from Apple. 

In addition, Evercore said concerns over weakening demand in China, where Apple may be losing market share in the smartphone segment, have affected investor sentiment.

And then ongoing regulatory issues continue to have an impact on investor confidence in the world's second-biggest company.

“We think the sell-off is rather overdone, while we suspect there is strong valuation support at current levels to down 10%, there are three distinct drivers that could unlock upside on the stock from here – a) Cap allocation, b) AI inferencing, and c) Risk-off/defensive shift," the firm said in a research note.

Related: Veteran fund manager picks favorite stocks for 2024

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Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…

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There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

 

The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.

 

There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.

 

“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”

 

In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.

 

There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.

 

Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.

 

Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”

 

As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.

 

###

 

About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.

 

CONTACT

Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 | aerie.em@ivi.int


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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

Earlier today, CNBC’s…

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever... And Debt Explodes

Earlier today, CNBC's Brian Sullivan took a horse dose of Red Pills when, about six months after our readers, he learned that the US is issuing $1 trillion in debt every 100 days, which prompted him to rage tweet, (or rageX, not sure what the proper term is here) the following:

We’ve added 60% to national debt since 2018. Germany - a country with major economic woes - added ‘just’ 32%.   

Maybe it will never matter.   Maybe MMT is real.   Maybe we just cancel or inflate it out. Maybe career real estate borrowers or career politicians aren’t the answer.

I have no idea.  Only time will tell.   But it’s going to be fascinating to watch it play out.

He is right: it will be fascinating, and the latest budget deficit data simply confirmed that the day of reckoning will come very soon, certainly sooner than the two years that One River's Eric Peters predicted this weekend for the coming "US debt sustainability crisis."

According to the US Treasury, in February, the US collected $271 billion in various tax receipts, and spent $567 billion, more than double what it collected.

The two charts below show the divergence in US tax receipts which have flatlined (on a trailing 6M basis) since the covid pandemic in 2020 (with occasional stimmy-driven surges)...

... and spending which is about 50% higher compared to where it was in 2020.

The end result is that in February, the budget deficit rose to $296.3 billion, up 12.9% from a year prior, and the second highest February deficit on record.

And the punchline: on a cumulative basis, the budget deficit in fiscal 2024 which began on October 1, 2023 is now $828 billion, the second largest cumulative deficit through February on record, surpassed only by the peak covid year of 2021.

But wait there's more: because in a world where the US is spending more than twice what it is collecting, the endgame is clear: debt collapse, and while it won't be tomorrow, or the week after, it is coming... and it's also why the US is now selling $1 trillion in debt every 100 days just to keep operating (and absorbing all those millions of illegal immigrants who will keep voting democrat to preserve the socialist system of the US, so beloved by the Soros clan).

And it gets even worse, because we are now in the ponzi finance stage of the Minsky cycle, with total interest on the debt annualizing well above $1 trillion, and rising every day

... having already surpassed total US defense spending and soon to surpass total health spending and, finally all social security spending, the largest spending category of all, which means that US debt will now rise exponentially higher until the inevitable moment when the US dollar loses its reserve status and it all comes crashing down.

We conclude with another observation by CNBC's Brian Sullivan, who quotes an email by a DC strategist...

.. which lays out the proposed Biden budget as follows:

The budget deficit will growth another $16 TRILLION over next 10 years. Thats *with* the proposed massive tax hikes.

Without them the deficit will grow $19 trillion.

That's why you will hear the "deficit is being reduced by $3 trillion" over the decade.

No family budget or business could exist with this kind of math.

Of course, in the long run, neither can the US... and since neither party will ever cut the spending which everyone by now is so addicted to, the best anyone can do is start planning for the endgame.

Tyler Durden Tue, 03/12/2024 - 18:40

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