{"id":909170,"date":"2018-08-06T19:54:47","date_gmt":"2018-08-06T19:54:47","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=909170"},"modified":"2018-08-06T19:54:47","modified_gmt":"2018-08-06T19:54:47","slug":"welcome-to-new-age-fiscal-policy-2","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=909170","title":{"rendered":"Welcome to \u201cNew Age\u201d Fiscal Policy"},"content":{"rendered":"

By Brian Maher<\/a><\/span> <\/p>\n

\"Chart\"<\/a><\/div>\n

This post Welcome to \u201cNew Age\u201d Fiscal Policy<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

The United States government, alas, is embarrassed for funds.<\/p>\n

More money is going out the back door than is coming in the front.<\/p>\n

So today Uncle Samuel holds his hat before the bond market\u2026 requesting to borrow $329 billion through September\u2026 and $440 billion by December.<\/p>\n

Sixty-three percent higher, these numbers are, than the Treasury’s borrowings for the same period last year.<\/p>\n

And this year’s debt spree promises to be the greatest since the depths of the financial crisis.<\/p>\n

Thus we pause today to acknowledge the nation’s deliverance from the final vestiges of fiscal sobriety\u2026<\/p>\n

Official second-quarter growth nicked 4.1% \u2014 its grandest quarter in four years.<\/p>\n

Unemployment is all but licked, we are told.<\/p>\n

In a season of plenty, even the Keynesian prayer book preaches a gospel of fiscal restraint.<\/p>\n

It is the time to gather acorns\u2026 to save against a time of lean kine\u2026 to lay up against the rainy day.<\/p>\n

When recession inevitably arrives, the government can then meet the emergency with a full strongbox.<\/p>\n

\u201cCountercyclical\u201d policy, academic men term it.<\/p>\n

But even the old Keynesian religion has gone behind a cloud\u2026<\/p>\n

In its place we find \u201cNew Age\u201d fiscal policy \u2014 the religion of perpetual deficit.<\/p>\n

Analyst John Rubino on the new catechism:<\/p>\n

\n

Even Keynesianism, generally the most debt-friendly\u2026 school of economic thought, views deficit spending as a cyclical stabilizer. That is, in bad times governments should borrow and spend to keep the economy growing while in good times governments should scale back borrowing \u2014 and ideally run surpluses \u2014 to keep things from overheating.<\/em><\/p>\n

But now we seem to have turned that logic on its head, with fiscal stimulus ramping up in the best of times, when unemployment is low, stock prices high and inflation stirring. New Age fiscal policy seems to call for continuous and growing deficits pretty much forever.<\/em><\/p>\n<\/blockquote>\n

America’s debt-to-GDP ratio rises to 105%.<\/p>\n

\u201cNever in modern times,\u201d warns analyst Sven Henrich, \u201chave we seen tax cuts being implemented and spending increased with debt to GDP north of 100%.\u201d<\/p>\n

The reasons for the new deficit spending come in two inseparable parts:<\/p>\n

One, $300 billion of new federal spending under last year’s bipartisan budget agreement.<\/p>\n

Two, the Trump tax cuts that limit the government’s wherewithal to fund it.<\/p>\n

Hence, the Treasury’s recent bond auctions to make the shortage good.<\/p>\n

The Office of Management and Budget projects trillion-dollar deficits for the next four years \u2014 at least.<\/p>\n

Meantime, the Congressional Budget Office projects nearly 4% economic growth as far as eyes can see:<\/p>\n<\/p>\n

But CBO’s forecast has a fatal hole in it\u2026<\/p>\n

It fails to account for possible recession.<\/p>\n

At 108 months, the current \u201cexpansion\u201d is the second longest in U.S. history.<\/p>\n

By next July it will become the longest ever \u2014 if the gods are kind.<\/p>\n

Can the economy peg along another four years without a recession?<\/p>\n

Or even half so long?<\/p>\n

We are unconvinced.<\/p>\n

In the likely event of recession \u2014 depend on it \u2014 the spending floodgates will be thrown open.<\/p>\n

\u201cWe get a recession,\u201d affirms the aforesaid Henrich, \u201cand you are looking at $2\u20133 trillion [annual] deficits.\u201d<\/p>\n

\u201cA deficit explosion,\u201d he styles it.<\/p>\n

Here is our prediction:<\/p>\n

Recession will likely fall within a year or two.<\/p>\n

Deficit spending of the kind described will come issuing forth in full spate.<\/p>\n

This deficit spending will exert vast upward pressure on interest rates.<\/p>\n

Why?<\/p>\n

Because only substantially greater rates will be able to lure investors at that point.<\/p>\n

As analyst Michael Lebowitz explains:<\/p>\n

\n

If $2, 3 or 4 trillion of additional debt needs to find a home, it is quite likely that interest rates would rise sharply to attract new investors. Plus, there is one other small problem. As interest rates rise, the interest expense on the debt increases and drives funding needs even higher. <\/em><\/p>\n<\/blockquote>\n

Here he knifes to the heart of the dilemma \u2014 rising interest expense on existing debt.<\/p>\n

Rising debt service will likely lower the curtain on the entire show, as rising borrowing costs overwhelm the economic machinery.<\/p>\n

Financial analyst Daniel R. Amerman:<\/p>\n

\n

Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $200 billion. A 2% increase in interest rate levels would up the federal deficit by $400 billion, and if rates were 5% higher, <\/em>the annual federal deficit rises by a full $1 trillion per year.<\/p>\n<\/blockquote>\n

Could interest on the debt alone total $1 trillion per year?<\/p>\n

The math is the math.<\/p>\n

And we would remind that 5% interest rates are well within historical norms.<\/p>\n

At that point the New Age fiscal policy would come crashing upon the rocks of actuarial fact.<\/p>\n

A 40% plunge in the stock market \u2014 or more \u2014 cannot be excluded.<\/p>\n

\u201cThe divine wrath is slow indeed in vengeance,\u201d said Roman historian Valerius Maximus nearly 2,000 years ago\u2026<\/p>\n

\u201cBut it makes up for its tardiness by the severity of the punishment.\u201d<\/p>\n

Meantime, the recovery is eight years old\u2026 and counting\u2026<\/p>\n

Below, Jim Rickards shows you why \u201call signs\u201d point to a global slowdown. Is the Fed prepared? Read on.<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/em><\/p>\n

The post Welcome to \u201cNew Age\u201d Fiscal Policy<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

…read more<\/a> <\/p>\n

From:: Daily Reckoning<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Brian Maher This post Welcome to \u201cNew Age\u201d Fiscal Policy appeared first on Daily Reckoning. The United States government, alas, is embarrassed for funds. More money is going out the back door than is coming in the front. So today Uncle Samuel holds his hat before the bond market\u2026 requesting to borrow $329 billion […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[366],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/909170"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=909170"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/909170\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=909170"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=909170"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=909170"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}