These graphs from the St. Louis Fed tell a story of excess, endurance, price appreciation & intense risk
I’ve been on the expanding debt theme for many years now, but the already sublime $34 Trillion+ in public debt is due to increase significantly just this year, let alone in coming years. That is because of the fiscal policy efforts of the administration in power seeking to remain in power. The government is spending money it does not have (but can create at will through debt/deficit spending) to keep the economy juiced.
We’ve covered this repeatedly in NFTRH and in public articles, so let’s move on and view some clear pictures of what is in play and see what is being reflected back at us from the Fed’s own macro data, starting with two striking graphs we’ve reviewed occasionally over the last few months.
The Gross Domestic Product of the United States is a thing to behold. Onward and upward or, if you prefer, sail on Good Ship Lollipop! The Fed kicked off the latest leg of expansion with its inflationary monetary policy during the 2020 panic. But something else is sustaining it now.
This graph paints GDP as a massive macro parlor trick as public debt climbs in unison. It’s not a real economy with productivity its bedrock. The economic expansion is a product of debt expansion/spending. Period. There can be no argument about this. The foundation of this economy is confidence that the game will drag on as it has for many years to this point.
And as also belabored repeatedly, the bond market is rebelling as it breaks a decades long downward trend in yields. The debt for economic progress game hit a saturation point in 2022.
Finally, the yield curve (the spread between the 10yr yield above and the 2yr yield) has registered a signal (inversion and subsequent move toward steepening and de-inversion) that preceded economic recession in 1990, 2001 and 2008.
It’s an election year. A divisive and absurd election year featuring two defective candidates. An ‘all or nothing’ election year. As the Fed has been forced by the inflation problem it birthed (in 2020) into a more muted monetary policy stance, fiscal (political) policy has come to the fore. The pictures above are reflections of an economy (and society that it supports) running on fumes, but keeping up appearances quite well to this point.
“Bad” things, like the accumulation of unpayable debt to fuel progress, do not always mean bearish for prices. As long as the debt for growth game endures, market prices (more recently fanned out to include the precious metals, commodities and inflation trades, as we anticipated earlier in the year) will reflect positive things for speculators on the surface. The damage has not been to prices or to long/bullish speculators, the damage is to the long-term well being of the economy and society.
Taking it further out, the NFTRH view has been that the bull in prices (market, asset, etc.) can go to or through the election. But then the favored alternative is for an interim liquidity come-down prior to the next bout of mass recognition of the next phase of the inflation problem. Of course, inflation is a genie that once out of the bottle (as indicated by the trend break in long-term yields) may not go willingly back into the bottle even for an interim ‘liquidity crisis’ phase.
Hence, we are also very interested to see the next move by the US dollar; hold the 2024 uptrend or break down from it and the moving averages, which would pull fiscal inflators out of the shadows and subject them to criticism of overt currency devaluation, in service to keeping the economy going. Such an indication, if it comes about, could join those above in signaling ‘bullish… but not really’.
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