In this video, we’re going to discuss the failures in policy that have exacerbated this economic collapse, and the reasons why Fed spending won’t pull us out of a recession anytime soon. We’ll tell you what experts predict for the future of US markets, and the dangerous tipping point that the global economy rests at, just moments from devastation.
Back in February, the United States Treasury predicted that the national debt would actually decline by $56 billion during the second quarter of this year. But that was before the period between April and June saw the most dramatic slump in GDP in US history as a result of the economic devastation wrought by months of lockdowns and business closures. Instead of relieving some of its debt, the government actually borrowed nearly $3 trillion in that time.
But despite this staggering figure, the price and yield of US Treasury bonds hardly flinched, because the Federal Reserve had already headed off any volatility weeks prior, when they announced the monetization of all gross debt issuance through unlimited quantitative easing.
A jump in debt issuance also allowed for greater cash flow into the Treasury balance, which in turn funded the many stimulus programs that kept countless American businesses and individuals afloat despite the shuttered economy. That’s precisely why the US Treasury’s cash balance skyrocketed from $400 billion at the start of April to an all time high of $1.7 trillion per the latest figures. This money is merely waiting for Congressional approval before it will be distributed across the country in further rounds of stimulus.
But the Treasury far overestimated the funding it needed, and now the department is stuck with a $1 trillion cushion that isn’t even necessary. Original predictions had anticipated the cash balance to reach $800 billion, a figure the Treasury overshot by a staggering $922 billion.
You would think that all the extra flexibility would allow the Treasury to do something positive, like lower its needed debt for this quarter and the ones ahead. But of course, that’s not how it played out.
Instead, the Treasury blew past their estimations of 3 months ago, which said the department would need to borrow only $667 billion in the fiscal quarter running from July through September. How much did it really borrow? A whopping $947 billion, $270 billion more than those May predictions. This comes even despite a cash balance that is nearly $1 trillion higher than it had anticipated in last quarter’s forecast. Furthermore, the Treasury said they would take on a cash balance of $800 million by the end of next month.
With so many billions and trillions floating around, it can be difficult to grasp just how much money the government is injecting into the dying economy. So here is the big picture.
If you add up the data already on record from the first 3 fiscal quarters this year, then incorporate the estimated figures for Q4, 2020 will see a staggering $4.5 trillion in borrowing, which shatters previous records.
If dollar debasement is part of the Fed’s plan to ride out this crisis, then there’s not much we can do. The US is struggling to keep its heavily indebted economy afloat and even wildly printing currency isn’t enough anymore.
While calls for a reboot of the US economic systems sound much more rational and deliberate, the reality is that we are spiraling into the devolution of the dollar, at a pace only intensified by the ongoing pandemic.
And if the dollar goes down, the world’s other major fiat currencies will go with it. After all, central banks in G20 countries follow the same rules as the US. In the meantime, the door is left open to powers like Russia and China to fill the gap.
With the world’s economic powers all falling behind, the globe will be left to tumble into a depression so severe it would take years and years to recover. According to a June report from the International Monetary Fund (IMF), the pandemic response in developed countries cost about 20 percent of their national GDP. For emerging economies, that figure plummeted to 5 percent, and for the world’s worst off countries, it was hovering below 1 percent.
If emerging markets don’t have the funds to prop up their economies in the wake of the global slump, and developed countries are too busy elsewhere to supply aid, debt will soar. Since approximately two thirds of global growth is generated in emerging economies, their collapse could set off a catastrophic chain reaction for the world markets.