Is All This Debt Good For Us?

Inside the real October surprise... ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ February 29, 2024  |  [Sign Up]( Is All This Debt Really Good For Us? Really…? “When national debts have once accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.”  ~ Adam Smith, The Wealth of Nations (1776) [Special Reminder: In case you missed our late-day announcement yesterday, [The Real October Surprise]( The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge [here](. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.] Dear Reader, February 29, Leap Day, 2024 — Ahh…after several gloomy days in Baltimore, the sun is out. It’s a rather balmy 43 degrees. Balmy for an extra day in February in the Mid-Atlantic, that is. Either way, it’s a perfect day to take a barometer reading of our favorite source of disquietude: the fate of the currency we use (ahem) to plan our futures. “Nations still bow to the pre-eminent dollar,” writes Brian Lutz, a stealth sentry at [Dollarcollapse.com]( “The dollar’s reign is unquestionable. That’s because U.S. ‘productivity’ is highest among all other nations.” Or so the story goes. “When it comes to economic output,” Lutz continues, “the U.S. is still the world leader, which means the federal government has been able to run deficits without too much consequence for some time. As long as [the feds and Wall Street] can justify the currency’s value through economic productivity, its reserve currency status is valid. That allows the U.S. Treasury to continue to issue more U.S. debt.” Fair enough. Lutz cites some institutional logic from Bloomberg:   There’s a subtext to this year’s blistering rally in US risk assets: When it comes to the dollar, there is no alternative. The greenback is just shy of the record it reached during the pandemic and on pace for its best year since 2020. As measured against the currencies of America’s largest trading partners, it’s a lofty 17% above its average over the last two decades. Then, as we suspected he might, Mr. Lutz begins to analyze some dissenting views. “This is an enormous issue for international investors, what to do with this massive U.S. market that has become 60% plus of world equities, world bonds,” Jan Loeys, a senior advisor on long-term strategy at JPMorgan, asked on a recent podcast. “Can you ignore this market?” Markets do make opinions, right? “Thanks to the U.S. dollar’s status as reserve currency, the U.S. has had the luxury of being able to run a large deficit,” wrote Johanna Kyrklund, group chief investment officer and co-head of investment at Schroders, in a recent note. “However, signs of fiscal profligacy from candidates may push the patience of markets too far.” And there it is.  “What would make the global market ignore the dollar's hubris?” Mr. Lutz pushes on asking the pertinent question in our view. In a word, “debt.” Let’s take a look. CONTINUED BELOW... 2024 – The Real Election Year Surprise In 2016, the October Election Surprise was Hillary Clinton’s email scandal… In 2020, the October Election Surprise was the suppression of all the dirty material on Hunter Biden’s “forgotten” laptop… Now, in 2024, we’re forecasting an October Election Surprise that almost no one sees coming — and this time it’ll be way more devastating than anything you’ve seen before. [Click here to learn about 2024’s real October Election Surprise »]( It’s not at all what you think. CONTINUED... Yesterday, GDP numbers were released. According to the Bureau of Economic Analysis (BEA), GDP grew by 3.2%. The BEA report suggests increases in consumer spending, exports, and state and local government spending are the reason for politically “on point” growth. But a look under the hood belies an alternative driver. Our friends at Zero Hedge help us out with some deft number crunching of the data posted on the U.S. Treasury's Debt to the penny website. The fourth quarter, Q4, “shows that the U.S. economy increased some $334.5 billion in absolute nominal dollar terms.” Mr. Durden: Where did this growth come from? Why, debt, of course, and a lot of it. For the answer of how much debt, we go to the ‘debt to the penny’ website, where we find that debt on Sept 30, 2023 was $33,167,334,044,723.16 and debt on Dec 31, 2023 was $34,001,493,655,565.48. In other words, it cost $834.2 billion in debt during Q3 to grow the US economy by $334.5 billion, or exactly $2.50 in debt for every $1 in GDP "growth." Source: BEA and US Treasury By now, everyone seems to recognize the obvious. You can’t borrow and spend your way to prosperity. Everyone that is, but a handful of Biden surrogates who are on a media tour trying to convince the world the president is sharp and in control. “Just look at his accomplishments,” they say, without naming any. “Bidenomics is working,” they continue. Somehow, the White House minions believe their only challenge on the road to the election is explaining the benefits of this extraordinary economy the president has built. Over and over, again. The real challenge facing the federal government is mentioned about as often as… well, it doesn’t ever get mentioned. At the current pace, with interest on the debt itself rising beyond $1 trillion, the U.S. is nearing a tipping point debt crisis. The debt-to-GDP ratio this morning is 123%. Economic historians start getting a rash when that ratio starts eclipsing 130%, which we briefly did in 2021. Chart 1.Debt begins to explode under Reagan in 1982 as he sought to outspend the Soviet Union during the Cold War. The trend line doesn’t bode well for averting catastrophe. Since Reagan proved “deficits don’t matter,” at least according to Dick Cheney, the Federal government hasn’t found a global conflict or a domestic boondoggle it doesn’t like. What begets all the borrowing? Chart 2. The productive capacity of increasing debt, most notably from 1982 to the pandemic. It begets more debt. Compare the rise in debt in chart 1, above, to the marginal utility of that debt in chart 2. Notably, beginning in 1982, the debt bought us a lot of guns and butter. Productivity? Not so much. Who benefits? Politicians get votes. Defense contractors build stuff to destroy. Bankers and traders push paper around and skim off the top. And… this is the part of the story when history begins to rhyme. As we explore in finer detail [here]( it was government spending fueled by debt, in excess of revenues, that led to president Nixon’s “disco age crime” of dismantling the Bretton Woods exchange rate system. The breakdown of Bretton Woods effectively ended the reserve currency status of the U.S. dollar, but for some fast footwork by then Secretary of State Henry Kissinger. Now, we’re entering a new period of debt crises. It’s so obvious, we only call it a [“grey” swan event]( because the economic impact and disruption of everyday Americans’ financial security is unknown. Otherwise, it would just be a plain white swan. So it goes, Addison Wiggin, The Wiggin Sessions P.S. We almost forgot. The House is supposed to vote today on whether to pass the latest “continuing resolution” funding federal agencies. “Money [already] spent for agriculture, science, veterans' programs, transport and housing is due to run out first,” Barron’s observes, “potentially hitting food safety inspections, air traffic controllers' pay, and a number of other important functions.” Reading the details is about as engaging as listening to Jerome Powell talk about the drama of Fed governors meetings. Of course, Congress won’t default. The quarterly charade of passing stop gaps makes you wonder why members bother assembling the dozen annual spending bills that comprise the budget for the year in the first place. P.P.S. The folks at Zero Hedge are likely correct when they surmise that fuzzy government economic numbers and an inability for Congressmen to tie their own shoes explain why bitcoin is now trading above $60,000 – the highest price since late 2021. Bitcoin is one alternative to the world’s reserve currency. You can find our strategy on it and other investment recommendations when you become a member of [The Grey Swan Investment Fraternity](  Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to The Wiggn Sessions delivering daily email issues and advertisements. To end your The Daily Missive from The Wiggin Sessions e-mail subscription and associated external offers sent from The Daily Missive from The Wiggin Sessions, feel free to [click here.]( Please read our [Privacy Statement.]( For any further comments or concerns please email us at feedback@wigginsessions.com. 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