Last Sunday morning, on his awesome “This Week” show, our good friend George Stephanopoulos took some of his valuable time to interview the always captivating, never a dull moment, master of the one-liner, Larry Kudlow….possibly one of the most entertaining, congenial and amazing spin-doctor-mouthpieces that an administration could ever hope to have in its corner.  As expected, and as always, sure enough, he didn’t disappoint.

NOTE: As always, out of respect for your time, feel free to just scan the “Red” text for the gist of today’s rant if you don’t have the emotional fortitude to wade through every painful word of this…

Here’s the full video below…..for the purposes of today’s discussion, I’d like to focus on the couple of minutes beginning at minute 5:00 of the video clip.  A few relevant sentences from the transcript, with one specific clip are highlighted in “Red” , are also listed below…..

Perhaps George wasn’t briefed on what Larry was going to say, maybe he was caught up in the moment, or maybe he just didn’t think it through as Larry was blurting and babbling it out, but I found it remarkable that Larry could just throw out a “$9 trillion worth of assistance going to 175 million individuals” figure without George giving out at least a “huh?” or possibly a “hmmm…really??”  He just agreed with him and moved on.

If I were George, at that particular moment I might have done some quick math in my head and said something  like…

“Whoaaa Larry, Larry…hold your horses pardner….$9 Trillion spread out among 175 million Americans is about $51,428.57 per person….that seems like a whole lot of money…..we’re not hearing anything like this from the folks out there in God’s country…I’m thinking they would have said something if they were getting checks like that……are you sure that’s right?….I mean, if that were true, everybody would be jumping for joy….nobody would want to be going to work….social distancing would be a walk in the park….that $9 Trillion can’t be right…”

….and of course. it’s not even close to being right/accurate/correct or any other adjective you might want to apply….in fact, like so many features of this Reality TV Game Show Financial System we’ve created, it’s what we financial people call “total bullshit”.

America’s Check Book

One of the greatest things about living in a democracy is that our institutions, manned by drone-like number-crunchers, continually produce reports.  Most people don’t look at these reports or have any idea what they mean  or what they do, but they exist nonetheless.  These reports are done like clockwork and allow the public at large to peak into the finances of their government.

One of my favorite reports is a little ditty called the “Daily Treasury Statement“.  Of course, and I say this in all sincerity, I believe that I just might be the only person in America (not employed by the Federal Reserve or the Treasury) who actually reads this beautiful little tome with regularity on a daily basis.  I refer to it as “America’s Check Book”. 

Now, of course, the report contains all sorts of discombobulated labeling and nomenclature designed to confuse non-financial people (like Senators and Congressmen/Congresswomen), but I’ll try to take a minute and simplify what we are looking at.  Here is the Table II – “Checkbook” section of the April 30th report for your review as well as the link/URL to same:

https://fsapps.fiscal.treasury.gov/dts/issues 

In an effort to simplify this analysis, think of this schedule as the Cash-In vs. Cash Out of your Checkbook for the month of April 2020.  The numbers are just much bigger.  The left side is “Receipts” or “Cash-In”. If this were your personal Checkbook, you’d have money coming in primarily from wages, and maybe from borrowing or perhaps sales of your “stuff”.  For the Treasury that’s the same as collecting taxes/fees and “issuing public debt”.  In April, Uncle Sam took in a total of $2.808 Trillion, most of which, $2.528 Trillion was from borrowing, or “issuing public debt”.  So the “Operating Receipts” ie.) non-debt related receipts were $280 Billion.

Now, lets take a look at what Uncle Sam spent our money on in April.  It looks like spending was only $2.143 Trillion, with an increase in our cash position of $664 Billion.  That sounds pretty darned good!…  Except that the main reason the cash balance increased was because we only paid off $1,153 Trillion in “public debt”, in other words, we “skipped a credit card payment”.  So, after removing our debt transactions our “Operating Payments” came in at $990 Billion.

Therefore, outside of public debt transactions (Public Debt transactions generally don’t find their way into the hands of American citizens) our net funds expended to Larry’s 175 million Americans was $710 Billion so far, or $4,057 per person for Larry’s 175 million Americans…a far cry from the $9 Trillion Larry described.

Perhaps there’s some sort of a time lag?  Perhaps Larry is just trying to convince everyone that the financial urine they are feeling leaking on their naive little heads is just a fresh Spring rain shower? Or, more likely, perhaps this $9 Trillion that Larry is describing isn’t actually earmarked to go to 175 million Americans at all, but actually headed to landlords, Corporations, ShellCos, Family Offices, Banks and businesses to keep them afloat?  Could it be that the bulk of the $1.376 Trillion increased cash raised from the difference between the “Public Debt Issued” and “Public Debt Redeemed”is actually just the first installment of a torrent of funding already earmarked to satisfy the thirst and liquidity needs of the offshore Euro-Dollar/China-Dollar markets?

In an effort to drill down a bit farther, let’s take a look at Uncle Sam’s spending on programs in April that are actually different than the categories that existed in January (pre-Covid19) to try to get an approximation of how much (or little) of this stimulus and aid is actually going to “real people” to spend, rather than bailouts and asset price support.  Figures below….

When we look at the total Cash Payments from Uncle Sam’s Checkbook in April (Post COVID19/CARES Act) and compare it to the last full month (Pre-COVID19/CARES Act) we see that spending increased from $1.437 Trillion to $2.143 Trillion, or $706 Billion, a lot of money to be sure, but not exactly $9 Trillion.  Now, let’s drill down one more level and try to determine what is really being spent on “people” vs. the amount being sent to the banks via “Asset Price Support”.   The first amount we’re going to remove from the checkbook disbursements is the amount spent on “Public Debt Retirement/Payment”.  This amount goes directly to investors and never makes it to Main Street.  This figure was $998 Billion in January and $1.153 Trillion in April.  The second adjustment we can make is the removal of “Tax Refunds” since this was American Tax Payer money anyway.  We can remove $2 Billion and $209 Billion for January and April respectively.  Finally, because of the reclassification of payments, there are a number of HHS (Health & Human Services) Categories which have been reclassified (Medicare/Medicaid, etc.) and have been included/blended into the new HHS Groupings.  Again, like the tax refunds, this money would have spent anyway.  That “double dipped” amount is $137 Billion, calculated by simply removing the this amount from the April spending.  In summary, Larry’s $9 Trillion additional stimulus, after adjustments, was actually $207 Billion in April, or about $600 per “American” ($207 Billion/330 million people).

Now, I’m sure that the next argument Larry might make is that “Well….we were just getting started!….give us some time to get up to speed”…and he’d be right.  So far, in May, if we make the same adjustments, we calculate that stimulus spending going directly to “Americans” to be $255 Billion, or $31.9 Billion a day through 8 business days, compared to an April pace of $9.4 Billion a day.  Simply put, at this pace, the Treasury will spend $670 Billion on “stimulus” for American families in May. ($31.9 Billion x 21 days), or about $2,000 per “American”….a nice improvement, but still, not even close to Larry’s $9 Trillion and far from adequate to support our brand new class of non-working poor.

Now Let’s Look at Where the Big Bucks are Going!

As you might suspect, this tiny amount of COVID19 money ($207 Billion in April and $255 Billion through May 13th gets us to a grand total of $462 Billion) pales in comparison to the massive amount of funding being handed out to America’s Banks and entities as well as Foreign Banks and entities via Repo/SWAP and now the FED SPV’s (Special Purpose Vehicles)  Let’s look at the figures below:

Since the end of January, the Combined Public Debt (as described in the Treasury Reports) combined with the FED’s Balance Sheet (Money “printed” and shipped off to the big banks) increased by $4.776 Trillion.  As we’ve described above, only $462 Billion of this spending (or 10% of the total) went to “Americans” while the rest of it ($4.314 Trillion) went off to support the global financial system.  The BIS Q2 numbers won’t be out for months, but if I were to guess, at least half of these newly printed dollars made their way offshore as a store of value for “god knows who doing god knows what”, never, for one minute, finding their way into the hands of America’s main street economy.  The “god knows who”, of course, need to invest dollars in liquid, dollar denominated deposits and Assets.  The other half would be loaned and otherwise deployed by US Entities into relatively liquid assets like US Stocks, Bonds and Money Funds.  If I were looking for evidence that this is indeed happening, Ladies and Gentlemen, I give you the S&P 500.

Now, of course, there was a point in time, in the not so distant past, that a $4.3 Trillion increase in Government Spending and Monetary Expansion would get you a heck of a lot more than a 400 point goosing of the S&P 500, but I’m also relatively certain that the 36 million new Unemployment Compensation Applications have done a pretty good job of killing investor enthusiasm, putting the FED and Congress in the unenviable position of trying to actually keep the punch-bowl filled and the party going, even while most of the guests are too shit-faced to drive, have been contemplating leaving the party for quite a while, and really want to go home and sleep it off.

Uncle Sam…Paying the Mortgage With his Credit Card

After the prior GFC and a decade of growth from the “world’s greatest economy ever in the history of all time” we would have expected to see dramatic GDP acceleration, unprecedented wealth formation and massive Government Surpluses generated by the taxation of this enormous wealth and productivity, but as the Nobel laureate economist, Sir Meatus Loafus once quipped:

“Maybe we can talk all night….but that ain’t gettin’ us nowhere …I know you’re lookin’ for a ruby in a mountain of rocks… But there ain’t no Coupe de Ville hidin’ at the bottom of a Cracker Jack box ……so don’t be sad…..two out of three ain’t bad…“

Of course, we’ve had acceptable GDP growth, we’ve created more nominal “wealth” than any decade in modern history, but as far as “real” economic growth and deficit reduction, we’ve missed the mark by a country mile.   So let’s take a look at a couple of key figures that illustrate the mess we’ve foisted upon ourselves.  Here we go:

As we can see, GDP is up about 50% in nominal terms from 2008.  However, our “Total Debt” has grown to three times the level as before the GFC (the end of the last economic expansion).  As always, the problem, is with ratios.  It’s now taking us $1.49 of Government Debt to produce a dollar of GDP, when back in 2008 it took us less than half as much.  Today, we are accomplishing less and we’re going deeper into debt to do it.  If America was a business, it would be a private equity turn-around target.  Perhaps the Chinese Communist Party is preparing a bid?

How in the wide world did this happen?  We need only look at the deficits we’ve been running.  Again, in the “greatest economy in history” we’ve not run an annual Budget Surplus since 2001.

When I look at that graphic, it tells me that we are about to suffer the unavoidable slings and arrows of our own outrageous, self induced misfortune.  If we were to come up with a shoot from the hip forecast, for what this deficit might look like for 2020, given that our deficit through April is already $1.143 Trillion, closing in on the record $1.4 Trillion set in 2009, after just a couple of months, if we account for the uncertain impact/length of our shutdown, we can easily guess we might be staring a $6-$7 Trillion Deficit right in the kisser, funded by Treasury debt that either has to be sold to someone, or bought by the FED using freshly printed greenbacks.  (i.e. Modern Monetary Theory goes from theory to practice)

The three possible longer term paths here are 1.) That we are about to slip into the unavoidable abyss of Japanification, where dollar denominated asset values collapse under their own weight, despite Herculean FED efforts to support them, and the values flounder for decades; or,  2.) As the world becomes less globalized and the need for and/or perception of US Dollars as a safe haven and store of value becomes less certain, the enthusiasm to hold all of these newly printed dollars, and consequently purchase all of the newly issued Treasury Bonds and Bills will also naturally wane.  The dollar will be worth less and it will cost much more to finance our lifestyle.  If you had owned a house and needed to sell it in 2009, you are intimately familiar with what happens to an asset value when buyers head for the hills. 3.) Some variant or combination of 1 & 2.

The only argument that anyone ever makes against the above is that:

1. The US Dollar is the “cleanest dirty shirt in the Chinese Laundry”.
2. The Dollar is the dominant reserve currency…. that won’t change.
3. America always wins…we are winners….we’ll find a way.
4. Never bet against America…the markets always come back…BTFD 
5.  ….an assortment of other  cute catch-phrases that have nothing to do with economics or math.   

The only response I’d have to any of those statements would be a request that the people making them take the time to thoroughly read Ray Dalio’s “Big Debt Crisis” and/or my book-report/analysis of it when it was first published.  I just wish that Ray would have used his giant, pragmatic brain to help America through this, rather than just make a buck or two by placing bets on the skirmishes as he watches, with apparent ambivalence, as our Democracy, the source of his riches, dies a slow painful death.

Finally, none of the data above tells me that there is any possibility whatsoever of a “V shape” recovery on the way, or for that matter anywhere on the horizon.

 

The End Game

As I’ve said on numerous occasions, through many posts, Tweets and comments over the years, we are staring, with jaws agape, at the greatest, most horrific confluence of policy mistakes in the history of economic theory, financial management, and National Security.  We should have installed rock solid capital controls, shut down anonymous tax havens, developed redundant supply chains and developed a monetary and tax policy that supported real economic growth long ago.  We needed to treat the anonymous Dollar Grab, not as some technocratic oddity to be supported at all cost through Central Bank globalist agendas, and a collection of tax dodging elitists, criminal money launderers and despots who would move heaven and earth to harm us (and make a few bucks for the effort), but we should have recognized this as a highly coordinated assault by Chinese, Russian, other anti-America actors and their surrogates/designees.

Rather than respond with unlimited rules-based money printing and debt creation, we should have treated this like a crime scene, seizing assets and stopping money movement and access to the US Banking system, from the very beginning, because that’s exactly what was, is and will continue to be.

As I’ve described above, thus far, the ratio of dollars and stimulus spent on the American people (10%) and real economic growth, versus the dollars spent on supporting markets, bailouts and fake asset values (90%) are woefully out of kilter and will eventually spell the end of Western Dollar hegemony if we don’t soon change course.  No wonder Professor Powell strongly suggested in his presser last week that Congress needs to “think big” and act decisively.  It’s no secret that Senate and Congressional Democrats are pushing for yet another $3 Trillion spending bill, in hopes that perhaps, at least this time, some of the money might actually make it to Main Street without being diverted by the gate keeper banks.

Even Jay seems to understand that the lions share of the money he prints gets stuck in our banking system and never “trickles down” to American’s who will spend it…..and the little that does indeed make it into the wallets of the “little guy” usually arrives with a usurious, onerous interest rate attached to it.  Today, in an environment of free money, half of all credit cards in America have an interest rate north of 20%.  How can this possibly be happening?

Moreover, if we don’t change course, the political fall-out from this will be enormous.  If the “asset support” to “jobs, food and shelter” ratio doesn’t improve soon, the good, patient, middle-America “Kudlow supporters” might just get a bit ornery once they figure out what old Larry has has done to them.  They will have lost faith in their deity.  When they finally figure out that very little of Larry’s $9 Trillion, is actually making its way into their pockets, and worse the lion’s share of it is finding its way off shore to the waiting arms and clenched fists of Chinese, Russian, Saudi, etc. bankers, Committee members and oligarchs, I would guess that there’s going to be, as we say….”hell to pay”.

Fortunately, America is blessed to have an plethora of really smart, honest, hard-working, tough farmers, businessmen, entrepreneurs, bookkeepers, engineers, scientists….and, of course,  insurance agents, who are really smart, gifted and astute seekers of truth, fully capable of smelling a rat…. and dealing with it.

As we all recall, the First Constitutional Convention summoned and coalesced 55 delegates, of varying backgrounds, levels of success and walks of life, all dedicated to the survival of their country, liberty, freedom and way of life, protecting America from its enemies….”both foreign and domestic”.  I’d imagine that we’ll be going down that road again sometime soon, likely accelerating once “we the rabble” finally figure out what’s happening to us.

Here’s some hidden-camera footage of my recent discussion with Mitch, Hunter, Joe, Don, Bill, Nancy, Diane, Steve, Mike, Elaine, etc. when I was grilling them about their close, personal relationships with the Russians and the Chinese Communist party…..and how the world has evolved to where we are today…

Again, what’s happening here is no accident.  This isn’t some unexplainable, completely unpredictable Black Swan event that nobody could have possibly seen coming….again (See: 1987. 1999, 2008, ibid).

There are many of us who have been writing about this for years….(…although my style requires me to add a little levity and comedic flair to this financial Armageddon when I feel it’s warranted)….all of this machinery has been designed, cultivated, built an delivered over decades and now it’s all coming home to roost.

If our economy, asset values and financial system were all truly “the greatest in history” this COVID19 “inconvenience” would have been a barely noticeable speed bump, a pimple on the ass of progress so to speak, rather than the beginning of the end of Western hegemony.  The pandemic would have been a non-factor, requiring a rate cut and a few trillion dollars of stimulus, to be recovered via taxes levied on increased productivity and middle class wealth over time, rather than an incendiary, flash-point accelerant, lighting the blaze of financial anarchy.

Again, I’ve been writing about this for years, hoping  and praying that I’ve been totally, completely dead wrong.  I’ve even penned a “Geezzz….I was so stupid, our leadership had a handle on this all along and I just didn’t get it!” piece all ready to publish.  Unfortunately, every day that goes by provides more data and another series of unfortunate events, which, sadly, tells me I’m on the right track and my mea culpa will likely never see the light of day.

Of course, I’ve always hoped that our leadership would get on the train, understand that the bridge is indeed out, and hit the brakes well before it’s too late.

As an alternative, once we’ve gone off the rails and into the ravine, I’d like to propose that we revisit that “Government of the people, for the people and by the people” thing that used to work pretty well.  Let’s schedule a “new” Constitutional Convention, to be held sometime in 2021, perhaps in Oklahoma City. Omaha or Des Moines, or some other place centrally located and easy to get to by car, Micro-Bus or Winnebago (ROAD TRIP!).

We can pick our “new” government at that time….current Executive Branch Appointees, Congressmen, Senators, Lobbyists and Bankers need not apply…..