Neither President Biden or GOP presumptive nominee Donald
Trump have outlined any plan to lower government spending and thereby decrease
humongous budget deficits. Astonishingly, theres almost no discussion of debt
in the presidential campaign. If anything, the two leading candidates are
promising to do things that could make it worse.
Former president
Donald Trump is touting tax cuts. President Biden is pushing more spending,
along with potential tax increases that would not realistically offset it. Both
candidates added substantially to the debt during their terms in the White
House due largely to expenditures to fight the pandemic. But Mr. Trumps tax
cuts also reduced revenue by nearly $2 trillion, over a 10-year period, while
Mr. Biden has increased spending on infrastructure, industrial policy and
student debt relief.
Republican officials are already plotting to grow the
deficit even more in 2025 with tax handouts to the corporations who are keeping
prices high even as inflation falls, said Andrew Bates, a White House
spokesman.
At a moment we should be looking at what spending to reduce
and how to increase revenue, the national agenda is full of conversation about
huge new tax cuts and major spending initiatives, Maya MacGuineas, president
of the nonpartisan Committee for a Responsible Federal Budget, told The
Washington Post. The risks that we run from this growing mountain of debt
run the gamut from slower economic growth to lower incomes, an inability to
respond to emergencies and a weaker role in the world. Nothing could be more
urgent, but none of our leaders have a plan to address this glaring problem.
More student loan forgiveness (which the Curmudgeon
opposes) adds to the deficit but won't impact cash flows right away. Experts
say the macroeconomic environment is stable, but the rising deficit and student
loan forgiveness add pressure.
Medicare and Social Security are running low on
funds, which could force a benefit
cut for tens of millions of Americans just as the national debt crescendos.
Impact on Credit Markets
The U.S. Treasurys shift to short-term debt financing might disrupt
money markets. The U.S. Treasury will soon issue $150 billion more debt,
mostly through Treasury bills. This will raise the total stock of
Treasury bills to $6.2 trillion by year-end, causing funding market concerns if
there are not enough buyers (which are mostly money market funds). The last time T-bill demand was low, lending
rates spiked over 10%. This could happen again, according to Josh Belanger.
Chart Courtesy of Josh Belanger
..
Also, bond yields are likely to rise with the increased
supply of Treasurys. The CBO forecasts that annual U.S. debt servicing
(interest) costs will rise to $1.7 trillion in 2034 from $892 billion this
year. At that point, the U.S. would be spending about as much on interest
payments as it does on Medicare.
The harmful effects of higher interest rates fueling higher
interest costs on a huge existing debt load are continuing, and leading to
additional borrowing, said Michael Peterson, chief executive of the Peter G.
Peterson Foundation, which promotes fiscal restraint. Its the definition of
unsustainable.
Senator Chuck Grassley of Iowa, the top Republican on the
Senate Budget Committee, said that President Biden was responsible for high
borrowing costs and called for spending cuts.
-->The Curmudgeon and Victor wholeheartedly agree!
June 27th Presidential Debate:
The presidential debate this week may be interesting and
cause some market movement. Rather than
watch the polls, which are worthless propaganda watch the Real Clear Politics betting odds on who will win. Currently, Trump is an
overwhelming favorite.
While we dont expect any talk on spending cuts or the
deficit, we are hoping there is serious talk about ending the wars in Gaza and
Ukraine as well as rising tensions with China.
One truly remarkable fact about Thursdays debate is that the
combined ages of Biden and Trump (81+78=159) is 68% of the age of the U.S.
(=235), which was established in 1789 when the U.S. constitution was put into
operation.
Geopolitical Risks:
Victor sees the greatest geopolitical risks as:
1.
The non-stop talk of war
against Russia by the U.S. and NATO due to the ongoing 28-month war in Ukraine.
2.
The deep deterioration in
relations between the U.S. and China.
The Curmudgeon adds Israels multi-front war with
Hamas in Gaza and Hezbollah in Lebanon.
Add the exponential rise in antisemitism and unchecked pro-Palestinian
protests on college campuses.
-->These worrisome threats to peace are accelerating
rapidly.
The Threat from Hypersonic Missiles:
A hypersonic weapon is a weapon capable of travelling at
hypersonic speed, defined as between 5 and 25 times the speed of sound or about
1 to 5 miles per second (1.6 to 8.0 km/s).
- China has already
developed and deployed ground to air and sea launched hypersonic
missiles over the South China Sea.
Flying at least 20 times the speed of sound, it could reach
anywhere on earth in less than an hour. These weapons can attack with
extreme speed, be launched from great distances and evade most air
defenses. They can carry conventional explosives or nuclear warheads.
China and Russia have them ready to use. The U.S. doesnt.
- Russia has hypersonic
missiles that can carry 16 thermonuclear warheads dropped between
Washington DC and Boston consecutively. If deployed that would take out
the entire Northeastern seaboard.
The approximate speed and trajectory, in pink, of a
hypersonic glide vehicle weapon, which is boosted into the air and then glides
at high speeds to its target, compared with a non-hypersonic cruise missile and
a ballistic missile. Chart Courtesy of
the Wall Street Journal.
A Grim Warning about World War III:
President of Serbia Aleksandar
Vučić recently warned that World War III is imminent, and it
may break out in the next four months. He said this in an interview with the
Swiss publication "Weltwoche."
Victor states the obvious: a war between superpowers with nuclear
weapons is not winnable. The only survivors, if any, would be the
cockroaches.
Have the leaders of western nations completely lost their
minds? Not even Gold will save you from these Neo-Con maniacs who promote War. Where
is the sanity of our world leaders?
End Quote:
An evil man will burn his own nation to the ground to rule
over the ashes. Quote attributed to Sun
Tzu from The Art of War, a
cornerstone of military strategy.
Fact Check: Research
by TruthOrFiction.com,
as well as an in-depth look into the writings of Sun Tzu and The Art of War,
confirm that the above quote is not present in any of Sun Tzus known works.
.
Be well, stay calm, success, and good luck. Till
next time
...
The Curmudgeon
ajwdct@gmail.com
Follow the
Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has
been involved in financial markets since 1968 (yes, he cut his teeth on the
1968-1974 bear market), became an SEC Registered Investment Advisor in 1995,
and received the Chartered Financial Analyst designation from AIMR (now CFA
Institute) in 1996. He managed hedged equity and alternative
(non-correlated) investment accounts for clients from 1992-2005.
Victor
Sperandeo is a historian,
economist and financial innovator who has re-invented himself and the companies
he's owned (since 1971) to profit in the ever changing and arcane world of
markets, economies, and government policies. Victor started his Wall
Street career in 1966 and began trading for a living in 1968. As President and
CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research
and development platform, which is used to create innovative solutions for
different futures markets, risk parameters and other factors.
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