EspañolWithin a week of Donald Trump warning US residents to prepare for the financial ruin of the nation, the Dow Jones Industrial Average surpassed 17,000 for the first time ever. The rise in stocks was apparently a response to a good jobs report that exceeded the expectations of analysts. Economists and analysts, however, have very short memories.
The Wall Street Journal reports the US economy created 288,000 new jobs in June, well above the 215,000 new jobs that were expected. This brought US unemployment down to 6.1 percent from 6.3 percent. The WSJ article goes on to say that investors see more room for a bull run. There is only one problem with all of that: it’s bull.
That’s not to say that WSJ isn’t accurately reporting on what is happening or what people are saying. The problem is a good number of those “investors” and “experts” have been wrong time and time again. I have no doubt that we could continue to see stocks rise. As a capitalist, that usually means a good thing for the money makers. So, why then is Donald Trump saying exactly the opposite?
In an interview on Fox, as reported by Money News, Trump said the United States could become a large scale Greece or Spain, and that the country is teetering on the edge of financial ruin. Trump expects a downgrade of government debt. While I occasionally find myself at odds with Trump, this time the real estate tycoon nailed it.
Most major US media outlets are ignoring the facts that paint a very different picture of the US economy and its future.
The government’s current official debt exceeds US$17.5 trillion and is climbing, while total US debt exceeds $61.5 trillion. That represents a staggering $193,000 of current debt per man, woman, and child. Compare that to per capita income of $42,000 (GDP divided by population), a median household income of $51,000, and a median individual income of just over $28,000 per year.
To put it another way, if you take $61.5 trillion and divide it by the total number of taxpayers (116 million), you come up with a tax burden of $530,000 per taxpayer. Today’s workforce in the United States is just shy of 146 million people, with 92 million considered “not in the workforce” — people who have chosen not to work, gave up looking, or are unable to work. In the United States, 156 million people receive some kind of public assistance. In other words, there are more people receiving money from the government than paying into it in payroll taxes.
The US government continues to spend about $62 billion more per month than it generates in taxes and other revenues. It has already borrowed more than half a trillion dollars so far with about three months left in the fiscal year.
So, what happens in your household when you spend more money than you receive in income? You go bankrupt and you lose your home.
That is what Donald Trump is talking about: fiscal reality. The US government finances its growing debt the same way Puerto Rico does: by borrowing money. The feds, however, have another tool that states and municipalities do not. When there isn’t any more money to borrow, they just print new money out of thin air. This “monetizing” of debt is exactly what brought the economic death of Germany, and combined with the Great Depression, begot the rise of Adolf Hitler and the Nazi party.
This kind of free spending also means inflation and can lead to hyperinflation. Food prices in the United States are already rising. What happens when no one wants to buy US debt, as is happening now with Puerto Rico, and all you have left is to print funny money?
Widespread economic chaos and a long-term depression: just ask Argentina.
The “bull run” on Wall Street may go on for a short time, but in the end the United States’ debt will catch up with the illusion of good economic reports. All that will be left then is piles of bull.