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2023-06-03 07:00 by Karl Denninger
in Macro Factors , 525 references
[Comments enabled]  

If you ever wanted more evidence that the so-called "inflation index" (CPI) was rigged to the degree that it is an outright fraud you need only look around.

I've known and pointed this out, particularly where it comes from in the methodology.  The crazy train of "Owners Equivalent Rent" is one of the largest elements of it, yet not the only one.

But recent travel underlined it in bold print when I went back to my "old stomping grounds" for a few days.

First, lodging was up some 40% over equivalent week blocks and of course the county bed tax is on top of that as a percentage, so the area is "flush" with plenty of tourism development money.  In fact they're so flush they don't have allocations for it.  Gee, go figure, given that the base price on which the tax is charged has gone up 40% and thus so has the tax.

Next up one of the arguably-best places to go get a steak or other good food in the area, not a chain, had massive increases in menu prices.  I was blown away at the changes.  What also struck me instantly was that virtually the entire wait staff were clearly not locals as they had been for the entire 20 years I lived there and the first couple of the pandemic; they were likely all J-1 visa folks.  The service was on-point and so was the quality of the food -- but the price, well...... what was a $70 experience was north of $100 and then to top it off the local city had taken what were $1/hr municipal parking lots and turned them into $15/flat rate for the day which utterly screws anyone coming into there who just wants to get a couple of beers or dinner.  That is an effective 15% city tax on top of your dining bill and sales tax for two and if you just wanted to come get a couple of beers the total price has now doubled.  That is likely enough to shut it off -- if not immediately, when people start thinking about it, and they will.

The thing about it is that thus far people are paying the ask as the place was jammed to the rafters.  Now to be fair it usually is -- its known to be the place to go for a good experience, excellent food and on-point service, all of which is still delivered.  But at what price?

The local really good coffee shop that used to have nice double-shots of Espresso for $3 now wants $4.  That's a 33% increase.  In less than two years.  Yes, the coffee there is very good as they know what they're doing.  But the price.... well...

Of course there isn't any reason for any of the parties involved in this to back off from it since they're still getting the business.

For now.

Last night a place that I really like managed to trip my "nope!" marker for what they wanted for a single beer.  I bought one -- but it is unlikely I'll go there very often at all.  Yes, I have it, but that's not the point -- once you start to approach where I can buy a four or six-pack of craft beer in the grocery store for a single pint glass with a reasonable tip you're in the danger zone, and they got there.

Will this "hold" or break the consumer?  I don't know; for right now it appears to be holding.  But I'm skeptical that it can and will continue for long as it is absolutely clear that the labor force is not being compensated at anywhere near that rate of increase.  The shift away from nearly-all local help to J-1s was in your face glaring and instantly obvious to someone who had patronized this establishment for twenty years, and those folks are probably ok with being crammed 10 to a one-bedroom apartment and sleeping on cots.  The local residents can't afford to live there on that sort of wage and thus they get "outcompeted" by the J-1s -- which of course we cheer on as "legal immigration" and "guest workers" while ignoring the fact that this means those former workers, and others in the same skill category, can't afford to dine or drink there anymore either.

Narrowing your customer base like this by pricing out the local residents eventually kills you.  Not immediately to be sure, and of course the "success stories" will breed copycats with the same sort of extortionate pricing.

It is what it is in America today, of course -- but I think we should be paying attention to this in terms of trends and what we can expect in the coming months and years.  None of it, from where I sit, looks good at all on a macro economic level a year or two down the road.

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2023-05-21 07:00 by Karl Denninger
in Macro Factors , 637 references
[Comments enabled]  

It's a scam.

But not the sort you think it is.

Rather, it has appeared to be "ok" and even "what people want."

It isn't, it never was, it was always a chimera and a lie.

People are jumping on Disney's revelation that they are not going to move a cadre of "imagineers" (their term for the groups that come up with new idea for their parks and such) to the Orlando area from California.  This, people say, is a reaction to DeSantis' feud with Disney, and some form of "corporate payback."

I can't get into the Board's head but this much I can tell you: Either they're about to make a make a mistake that will cost them billions and might cut the company's value in half or more, or that's not what's going on.

I'll take "that's not what's going on" for $1,000, Alex.

Disney, like virtually every other corporation in the United States and indeed worldwide has feasted on negative real interest rates now for more than a decade, and artificially suppressed rates for more than two decades.  So did Universities, Governments, think tanks, lobbyists and myriad others -- along with ordinary Americans.

You probably think that a 3% mortgage is reasonable.  It is not, except in a world where there is zero inflation -- that is, your $50,000 a year salary buys exactly the same amount food, fuel, electricity, insurance, bundles of shingles and cords of word 30 years from now -- or 30 years ago -- as it does today. You've never lived in that world and in fact nobody has since the turn of the last century.

The people from the founding of America to roughly 1913 more-or-less did, however.  There were fits and starts of inflation and deflation, but neither held sway.  People point at fiat currency as an inherent evil but if it is, and is uncontrolled, then so is a metallic (or any other) standard because all can be corrupted and over time all have been corrupted.  Those arguing for a return to that, or a new one (e.g. "digital encrypted currencies") have been and in every case are scammers; they hold it or some interest in it and want to use to abuse you up your rear-most exit.

In a world of 2% inflation -- true 2% -- the price of everything doubles in about 35 years.  The reasonable price of money over 30 years in a world of true 2% inflation is about 5%.  2% for the inflation, 3% for the risk that something terrible will happen to you over those 30 years and you won't be able to pay, and this assumes that when you take the loan you are both young and healthy.  That's right: If you're older than your 20s, obese, have some chronic condition or simply were born with some sort of disability your loan should be more expensive -- by a lot -- because the odds rise precipitously that something bad will happen before the 30 years is up.

Houses are not "assets"; they are in fact durable consumer goods much like a washing machine, car, lawn mower or similar.  They are constructed out of things that require continual input or they turn to dust.  Drive through rural America and you will see plenty of them in the process of being reclaimed by entropy as nobody is continually adding energy-based input to it anymore, a reality that nothing can escape -- including you personally.

Of course that's not what you were sold.

"Easy money" politics is like that.  It allows all manner of uneconomic, stupid things to be done, for a while.  It causes the cost of said uneconomic, stupid things to be paid by other people rather than those who did the stupid thing.  The shifting of said costs is usually (but not always) diffuse, but in every case it happens.  Stock prices go up not because of actual innovation but because there is no limit other than fear on deployed leverage; nobody has to actually make the numbers on a profit basis in real terms so long as the policy lasts.

But in point of fact there is never a free lunch.  As I've pointed out since beginning this column the laws of thermodynamics are not suggestions and they apply to economics -- not only on a large-scale level but personally too.  You can simplify those laws down to three sentences.

  • You can't win.  If you believe you can get out more than you put in you're delusional. If you run this trope on someone else you're committing criminal fraud and should be rotting in prison.  There is loss in all endeavors.

  • You can't break even either.  See the first point and it applies to the belief you can get 100% back on whatever you put in.  You can't.  Again, there is always loss.

  • You can't avoid playing, irrespective of knowing you will lose.  You can only choose to lose less or more, and if you do nothing entropy eats all and you wind up as dust.

It never ceases to amaze me how many people will try to argue that there is some exception to this -- especially those with a bunch of letters after their name working in think tanks and unversities.  There is not.  The end of "free money" has led firms like Disney to face reality: There is always loss in all endeavors but you must play or cease to exist and as a result doing things that make losses on top of the inevitable is stupid.

Disney is shutting down their "Star Wars Experience" which was dreamed up by their "Imagineers."  Why?  Because a couple of days in that "experience" for a family of four costs roughly $5,000 and there simply aren't enough wealthy people when you actually must expend effort and pay for same out of your personal surplus after expenses to fork up the money and keep the place open.  In short it is grandiose, kitchy and the market of available people willing and able to pay is too small given the price as soon as "free money" disappears, and it has.

The entirety of "Woke" is utterly dependent on the capacity to shift cost from where it actually resides to someone else and make them pay it.  The reason is simple: If you hire based on anything other than competence you get something less than 100% of what you could get in output.  You are intentionally crippling yourself in order to score political tribal points.

Absent coercion if you do this someone else will destroy you because they will refuse -- and outcompete you.  The firm that produces 98% of its capacity for every dollar put in will lose, every time, to the one that produces 100% of its capacity for every dollar put in.  It will take time before the first firm runs out of both customers and money but it will happen and as a result what inevitably comes with this sort of activity is the attempt to force everyone else down to that same production level.

Contemplate the push for so-called "green energy."  It is not cheaper and more-efficient.  It is always more-expensive and less-reliable.  If it wasn't everyone would choose it voluntarily for obvious reasons.  Is there a trade-off between ecological sanity and maximum output?  Sure!  Dead humans don't buy things, do they?  Poisoning your customers eventually leads to your extinction, so nobody will do that for very long unless of course you can force the customer to take the poison!

Oh, we didn't do any of that in recent memory, did we?

None of this nonsense happens except in a world where you pretend you can violate the laws of thermodynamics.  Societies have often fell into this sort of nonsense and paid for it with their literal lives; Rome did, and ultimately collapsed.  So have many others; Argentina is blessed with some of the richest natural resource deposits on the planet and yet they went from an incredibly vibrant and productive economy to a third-world hellhole with inflation rates approaching and in some cases exceeding 100% a year yet despite screwing basically everyone they have refused to abandon their delusions.

Nothing -- other than a belief in getting something for nothing -- prevents Argentina from returning to a prosperous, productive society.  Their damage is entirely self-inflicted and it has occurred over the last hundred years, despite the fact that the four out of ten citizens are in abject poverty and most of them have never known anything else.  The refusal to stop deficit spending has led to one blow-up after another because the laws of thermodynamics are not suggestions and are not subject to modification, repeal or escape.  You either conform to reality or you suffer the consequences, and suffer they have.

For more than three generations, none of which have learned a single thing.

DeSantis isn't "winning" on Woke, in short, nor is anyone else.  Witness InBev which tried to play a game by bringing in a "marketing executive" who pronounced that their core constituency for Bud Light was "too fratty."

Oh really?  The last time I checked frat houses tend to buy beer by the keg and not one at a time either.

Exactly how many of those customers can you afford to piss off?  Zero, unless you live in a free money world.

Well, we did -- we lived in a large-scale delusion for the last few decades.

Its over.

There are two choices: Either the deficit spending stops or we become Argentina, and by the way unlike Argentina we both have more guns per-capita (and not by a little either) and nuclear weapons.

There never was an argument for "woke" anything.  It was always predicated on intentional damage to score political points.  That's stupid.  It has always been stupid and will always be stupid.

Now it is existential: Either it stops at all levels or our nation fails.

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2023-05-10 08:44 by Karl Denninger
in Macro Factors , 679 references
[Comments enabled]  

Inflation, first....

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in April on a seasonally adjusted basis, after increasing 0.1 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.9 percent before seasonal adjustment.

Remember me pointing out that gasoline was wildly down right in front of the last CPI but had been trending back up, and as a result that would come back out?  It did.

The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline.

Gee, all those are optional purchases, right?  Oh, wait......

All items less food and energy was up 5.5% annualized, which is wildly above Fed "target" of course.  Yet the instant reaction in the futures was to spike higher.  Not a lot, but spike it did and the all items less food and energy trendline is basically flat since December.  At this sort of rate of change The Fed will be hiking rates for about two more years and they'll be around 8% or so with quarter-point hikes every time until that happens.  Of course that's not what the market thinks.

Worse is this:

Real average weekly earnings decreased 0.3 percent over the month due to no change in real average hourly earnings being combined with a decrease of 0.3 percent in the average workweek.

Yep, there's no hourly earnings change in real terms (they're going up as fast as inflation) but the workweek is being cut which I've pointed out has been in the BLS data for quite some time.  The last jobs report suggested this might be leveling off.

This report says no, that was a blip and is not fact.

Employers are cutting hours and what you're paid an hour is immaterial.

What matters is the size of your weekly check and it is going down in real terms to the tune of about 4% a year.

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2019-07-27 07:00 by Karl Denninger
in Macro Factors , 429 references
[Comments enabled]  

This garbage is just flat-out ridiculous:

I earn my living investing other people’s money in the stock market. I am terrified contemplating how I am going to save my clients’ money, as well as my own, if a Democrat is elected president. The policies that the Democrats are advocating will destroy the American economy, not just the stock market, but the whole US economy. My first instinct will be to raise cash ahead of the stock market crash, but even that is only a temporary safe harbor.

The Green New Deal, renewed regulations, Medicare for All, free college,  as well as the 70-90% tax rates proposed by Democrats, will tank the stock market and US economic growth, leading to higher unemployment and reduced wage gains. All these programs require higher taxes and not just the soak the rich fantasy of the 70-90% rates. Most of the Democratic candidates have pledged to roll back the 2017 Republican tax cuts that fueled the renewal of economic growth in the US.

All of this is true.

But it's irrelevant.

As I've pointed out for more than a decade by 2024 CMS -- that's Medicare and Medicaid -- are incapable of the shenanigans that they use to suppress their budgetary deficit impact.  This is not rocket science, it's arithmetic, exactly as is the so-called "doom dates" on Social Security.

But Social Security's "doom dates" are in fact rather minor.  Being able to pay 80% of a promised benefit (that is, you're running a ~20% fiscal deficit which is consuming assets) is sort of ugly, but that's fixable.  Nobody's going to like a 20% tax increase on FICA (7.65% of wages up to the cap, plus another half you don't see) but raising the cap, increasing that tax by 20% or some combination that gets to the same place resolves the problem.

That's not catastrophic.  Nor, for most people, is a 20% reduction in payments, although the howling (and election losses) that result from the latter guarantees that won't be the outcome.  Those tax changes will and can be made and will not result in a collapse of the economy.

However, CMS is not running a 20% fiscal deficit; in their case roughly one dollar in five is covered, not four dollars in five!  When they run out of that stoked-back powder there are two choices, and only two choices:

1. Essentially default in its entirety on the promises made to Medicare recipients, both current and forward, forever.  This will simply cost-shift basically all of that onto Medicaid, particularly with regard to nursing home care once you bankrupt the vast majority of Medicare (retired) people, which will happen almost instantly.

OR

2. Congress changes the law so as to permit CMS to run without backing, that is, the entirety of their operating deficit shows up on the federal budget as a fiscal deficit.

Social Security and Medicare are currently prohibited by law from doing #2.  Congress will have no choice but to permit #2 for at least Medicare, and since utterly nobody in the political or news space de-aggregates these two programs when talking about "fiscal cliffs" even though they have radically different exposures and funding problems the pressure to do it for both in the same bill will be overwhelming.

Not that it really matters; #2 will roughly double the federal deficit on an essentially immediate and permanent forward basis.

The "big lie" is this:

Whatever you think of President Trump, you know by his record that he will put America first and that his policies have created a robust economy. Unless you want to see the US economy and your standard of life destroyed, there is no alternative to voting for President Trump.

No, he has not.

The GDP data is here.

It shows a 4% gross GDP advance over the last 12 months (to Q2/2019.)

Debt to the penny shows a 3.91% fiscal deficit as percentage of GDP over the same period of time.

In other words there is no "robust economy" at all; it's a lie.

Actual GDP expansion in real terms over the last 12 months is 0.09%!

Statistically-speaking that's zero.

These are not my numbers and not my assertions; they're the government's figures and they're widely-regarded as facts.  Trump's most-recent "budget deal", which he is advocating for, has passed the House and will almost-certainly pass the Senate and be signed into law will remove all fiscal rectitude until the middle of 2021 by suspending the debt ceiling entirely.

Again, I remind you, by 2024 on current trajectories that roughly trillion dollar deficit ($828 billion on a rolling 12 month basis at present, and accelerating) will permanently double.

Yes, GDP will go up, since every dollar of that deficit will be immediately spent.  That's how borrowing works; you borrow money and you spend it, and as soon as you spend it GDP increases.  That's basic math and economics.

However, diluting the currency as a means of "goosing" GDP doesn't actually advance anything in terms of actual economic output.  Worse, productivity, if you believe the BLS, is "advancing" at 3.4% annually as of the last read.  This is, paradoxically, very negative in light of the fiscal deficit because "doing more with less", which is the definition of productivity, means that GDP should be running at least at that level on a fiscally-adjusted basis!

In other words if you include productivity, and for honest numbers you have to, the US is currently in a deep recession as it is in fact contracting real output on a roughly 3.3% annual rate.

How is this possible given "full employment" and the stock market soaring?

It's not hard to figure out; it's happening the same way you're "just fine" if you make $100,000 a year but continually add another $4,000 a year to your credit card balances.  That $4,000 is quite a lift in your standard of living.  It allows your family of four "another" week-long cruise per year, for example, or a very nice trip to Disney, or, for that matter, more than half of the monthly payments on a brand new $50,000 "loaded" pickup truck or Lexus.  Note that if every family did this GDP would increase at that same 4% since you're all spending 4% more than you make and the gross output will thus lift by that same 4%.  The (obvious, to anyone with more than two firing neurons in their brain) problem is that you're not really gaining any prosperity at all; in fact you're going backwards as you're accumulating an obligation that at least has an interest expense and at least in theory eventually must be paid off!

This illusion of "prosperity" can continue for a very long time -- so long as your credit card company doesn't call the loan, or even just shut off the spigot and deny any more charges. But even if just the latter happens not only does that $4,000 a year of "spending" disappear the interest payments do not disappear, and since you can't afford to pay down any of the principle those interest costs go on forevermore into the future.

Again -- as things stand right now we're consuming our capital base at a roughly 3% annual rate.  That depletion rate is set to double within the next five years.

I do not know when the markets will wrap their arms around this just like I don't know when you as a family would if you were running up your credit card on those Disney vacations.  But I do know that the day when it happens will come.  Not might, not could, will.

The willful and intentional denial of this fact by you, Greenwald, along with the others drum-beating for the flying-hair monster currently in office will simply make it worse when it does happen.  After all a market crash from DOW 27,000 to DOW 5,000 is very, very bad.  But one from DOW 35,000 to 5,000 is demonstrably worse because more and more people will believe that the so-called "value" in those assets is not only real but theirs to consume over the coming years when in fact it is not.  How many of those people have a half-million dollar "retirement fund" that is, in fact, really a $50,000 one?

What really galls me, however, is so-called "money managers" like the cited one in this quoted article, who believe that (1) this "prosperity" is real despite the data saying its not being literally in their face, (2) Trump is responsible for it and (3) voting for Democrats will be a disaster while not doing so will continue the "prosperity."

The root problem is that there is no prosperity in the first place; it's a chimera and fraud writ large and has been the case and policy of both parties since approximately 2000, when the accumulation of federal debt crossed the zero boundary and began resulting in negative contribution to GDP.

This is an exponential series.  Like all exponential series the negative impact starts slowly and thus the "belly" in the curve from the two lines on the chart for a while expands.  Yes, the top-line (debt) is accelerating but the imposed cost starts at a lower level and thus there's more "gap" between the two curves for a while.

But arithmetic tells us that exponents always behave exactly the same way.  That the appearing-safe "belly" will disappear, the gap will close and when it does you have a catastrophe because you can't cover the expense.  There is nothing you can do about it other than to halt the excessive spending and pay down the outstanding balance, but this requires not just halting the excessive spending (that is, cutting it to income levels) but going even further in order to pay off some of the outstanding balance.

At present the Federal Government is spending approximately 25% more than it takes in from all taxes combined.  To halt the detonation the spending cuts must therefore be more than 25% in total, now and forevermore into the future.  Everyone in DC has a wipe-out, toddler-style screamfest if you propose not spending more every single year yet the corrective action required is for one quarter of all money spent today be whacked off the budget.  That's how far down the rabbit hole we've gone, all without a single whimper of revolt or refusal to consent by the public at-large.

The mantra for the last 30+ years is that we're "leaving this mess to our kids and grand-kids", implying that we're saddling those who either cannot yet vote or worse, aren't yet born.  That was true 30 years ago,  It was probably true 20 years ago, as the generation just being born then would become adults about...... now.

But today it's no longer true.  We're not leaving anything to anyone.  The problem is here, it's ours, and we either stop it now or it will blow up in our faces.  Five years is a very short period of time to make fiscal adjustments and allow the economy to adjust and come back into balance.  Trying to eke out another 10, 20, or even 50% in stock prices over the next five years is not only unwise it's literally suicidal on a national basis and those advocating for same deserve to be held to account when, not if, their continued drum-beating for a fiscally, economically, politically, morally and ethically bankrupt position results in mortality.  One can only hope it's their progeny, spouses and then theirs personally, in that order first.  Sadly while I can hope and pray for them to be first it will not be only them no matter who goes first; the count of ordinary people who will be utterly destroyed and likely die is going to reach all the way from top to bottom with those at the bottom bearing the greatest percentage of losses.

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2018-07-05 07:00 by Karl Denninger
in Macro Factors , 301 references
[Comments enabled]  

This man is flat-out nuts.

When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.

Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of US imports from China consist of the offshored production of US corporations. Offshoring is a substantial benefit to US corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many—the former American employees who formerly had a middle class income and expectations for their children.

He goes on to argue that it's not China's fault -- it is the fault of our corporations, and thus we have to deal with "our" corporations.

Uh huh.

A business exists to make a profit.

Laws define what is legitimate to do in the pursuit of said profit, and what is not.

Millions of Americans lost their jobs because the law allowed their jobs to be offshored to literal slave-labor encampments without consequence.

And it is not just China.  In fact, China is just one of many offenders.

The results are plain. In Kuala Lumpur cranes stretch outward among the gleaming towers in a perpetual construction boom powered by foreign investment. The streets are spotless and well policed, the water is clean, and the politics are relatively stable. Consumers around the world benefit from products like mobile devices, circuit boards, and LED screens.

At the heart of this economic success are migrant workers. From Bangladesh, Nepal, the Philippines, Indonesia, and India, they arrive at Kuala Lumpur International Airport by the scoreful, papers in hand, hoping for a better life. Estimates of the number of foreign workers in Malaysia vary widely, from the government’s count of almost 1.8 million to perhaps twice as many, which would amount to a quarter of the country’s workforce. Migrant-worker advocates estimate one-third of those workers are undocumented.

Malaysia allows and prospers through what amounts to slave labor; in other words, modern-day human trafficking to obtain labor for pennies an hour.

This is nothing new; in fact it's as old as people.  Mexico was once one of the worst in this regard; they didn't give a crap about the health of their slaves or even their longevity; they had access to so many of them that there was no economic incentive to even feed their slaves.  In other words it was cheaper to buy a new slave than feed the one you have.  America's slavery, for all its warts, didn't devolve into that but it wasn't from the "caring" of the slave-owners -- it came from the economics.

Has it really changed?  Nope, nor will it ever except where the law forces it to.

This is why in my book Leverage I pointed out that the only way to deal with this crap and stop it is to apply Wage and Environmental parity tariffs without exception and to ensconce those in law for any firm that wants to do business in the United States, without exception.

PCR says this is the fault of the Fed.  Of course he does -- he doesn't want to deal with the fact that he, personally egged on the offshoring and "free trade" bullshit, never mind his time in advocacy with the Hoover Institution, Georgetown, George Mason University, an associate editor for the Wall Street Journal (which has an unabashed record of promoting so-called "free trade") and, of course, Reagan's "supply side" economics which were little more than a sop to offshoring and exploitation of slavery.  Oh, and let's not forget his advisory role to J.P. Morgan!

It's not like the big banks had anything to do with this, right? smiley

Reagan had the distinction of running enormous deficits during his Presidency, which inflated GDP.  Everyone cheers for GDP increases but nobody in the media, nor Roberts himself, points out that mathematically GDP will always increase by the exact amount all branches of government combined spend in deficit, whether they allegedly issue "bonds" to "fund" that or not.

Nobody issues bonds or takes down a deficit for money they do not immediately use.  If your local district issues a $20 million bond for a school improvement it immediately spends the $20 million.  If they taxed the money from you first the net GDP impact would be zero -- you forfeit the $20 million to the school (which means you don't spend it) and then the school spends it.  $20 million minus $20 million is zero.

But if they can spend it first then they take nothing from you initially and GDP goes up by $20 million.

The problem is that theoretically they must take the $20 million later to pay off the bond but history says they never do. Instead the bond is rolled over and only the interest is paid, so the $20 million appears to be "free" in economic terms and thus GDP continues to go up when they issue the next one too.

It's not true in fact and what's worse is that the "extra money" flying around makes the price of everything go up.  Now if there was no turd-world slave labor there would be a check and balance on this that would come in the form of rapidly-rising wage demands (when you get to the point of being unable to feed yourself why go to work?) and that cuts off the game.

To prevent a replay of this after it happened during Nixon's administration (and interest rates were forced higher in response) PCR and the rest of the "free market" screamers passed law and policy to make it both legal and trivially easy to find a source of slaves to replace those pesky people in America who would otherwise demand more money to keep making both cars and computers.  They are also the same people who insist that illegal Mexicans be allowed to flood the nation to pick oranges, strawberries and roof houses.

It's not that Americans can't do those jobs it's that you can't ask Americans to do so them for $3/hour and expect them to be able to survive.  The price of a house or strawberry package would skyrocket immediately and cut off the unbacked credit issuance.

In other words it's all fraud and PCR knows it.

But this is what passes for "economic wisdom" these days, never mind "reporting."

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