Some Monday mornings are better than others. Others are worse than some. For one Amazon employee, this past Monday morning was particularly bad.
No doubt, the poor fellow would have been better off he’d called in sick to work. Such a simple decision would have saved him from extreme agony. But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.
Good-bye cruel world! On this our planet, ignoring air friction, wind and other buoyancy-enhancing obstacles for the sake of this example, someone jumping off a building that is high enough will eventually attain a terminal velocity of 122 miles per hour. The acceleration is 32.2 feet per second², which is why one has to start from an appropriate height (a skydiver in a spread-eagle position will typically reach terminal velocity after about 12 seconds, traversing a distance of 1,483 feet). Jumping without a parachute may provide an especially pronounced adrenaline high, but is generally not advisable; more often than not it will be a one-off experience.
From what we gather, upon arrival, he blasted out an email to hundreds of coworkers, including Chief Executive Officer Jeff Bezos, outlining several reservations he had with the terms of his “Performance Improvement Plan”.
After that, he executed a flawless swan dive off Amazon’s 12-story Apollo building, presumably to his death. Yet, somehow, he didn’t die. He lived. What now?
Quite frankly, we don’t quite know what this has to do with the economy by and large. But we have an inkling there may be some relevance. Perhaps it has something to do with an economy that is approaching self-destruct velocity, where every action has a far more negative reaction.
President-elect Donald Trump was blessed with a stout sounding last name. An onomatopoeia, of sorts. Various synonyms for Trump include winner, decider, trump card, outdo, undermine, outmaneuver, outplay, surpass, beat, go one better, and the like.
Throughout his life, Trump has always lived up to his name. As a reality TV star, for example, the stout man with a stout name made millions of dollars telling people, “You’re fired!” People loved it. They couldn’t get enough of it.
The Donald fires people left and right…
However, as President, Trump will inherit a steaming hot pile from his predecessors. After a combined 16 years of George Dubya and Barry Big Ears, the U.S. National Debt has jumped from approximately $5.5 trillion to about $20 trillion. That amounts to a 363 percent increase.
The Federal debtberg in all its glory. What seems “normal” now was considered unimaginable when GW Bush’s reign began. At the time, some people were actually worried that we would “run out” of treasury bonds, just because debt growth had flattened for a while under Clinton – which was primarily a bubble artifact – click to enlarge.
Yet, over this same time, U.S. GDP has only increased roughly 77 percent from about $10.5 trillion to about $18.6 trillion. In other words, debt is increasing 4.7 times faster than GDP. Similarly, the percentage of debt to GDP has more than doubled from about 52 percent to over 107 percent.
As President, part of Trump’s stated 100 Year Treasury notes.is to “create a dynamic booming economy that will create 25 million new jobs over the next decade.” To do this, Trump intends to run massive deficits. To finance the massive deficits, Treasury Secretary nominee Steven Mnuchin may have to issue
But what if this just accelerates the trend of rapid debt growth and lethargic GDP growth? Wouldn’t that, in a sense, be a policy of economic self-destruction?
US public debt to GDP ratio. The level it has now reached has historically been highly inimical to economic growth, not least because the much poo-pooed “Ricardo effect” is very likely quite real. We are referring to the idea that once government debt grows beyond a certain threshold, people in general, but especially entrepreneurs and capitalists, will take fewer risks and be more concerned with wealth preservation than wealth creation – for the simple reason that they all know the government will eventually have to get the money to pay for this debt from somewhere. Obviously, the entire citizenry will be in its cross-hairs – whether by taxation, debt default or inflation, the money will be forcibly taken. Prior to the advent of the modern welfare/warfare State, this was colloquially referred to as “theft” – click to enlarge.
Attaining Self-Destruct Velocity
One popular literary device of headline editors across the western world of late is to fuse the name Trump with another word. Just this week, for instance, we discovered that Bernie Sanders – the socialist with a grumpy face – is an expert on Trumpism. We also learned about the effects of Trumpflation and Trumpnado on the bond market.
Here Forbes clarifies the landscape with unequivocal certainty:
“Trumpflation is coming. Everyone knows it. It means higher interest rates in the U.S. It means the end of QE, negative and zero interest rates in Europe and Japan. It potentially means tariffs that will make prices of goods imported into the U.S. more expensive. And, if president elect Donald Trump gets his fiscal stimulus pass the deficit hawks in congress, it means more money for the economy which could lead to wage inflation. No American worker will complain about that.
But what do fixed income investors do now? Especially after sitting on lousy yielding U.S. Treasury bonds for years? Imagine those guys in Europe, holding negative yielding debt. How on Earth do you sell that stuff?”
Since the election, the approach to selling Treasuries has been to sell them. Hence, yields have gone up, prices have come down. For example, since the election the yield on the 10 Year Treasury note has risen from 1.86 percent to 2.44 percent.
Of course, rising interest rates will make financing the national debt more expensive. Moreover, as deficit spending ramps up – maybe even to $2 trillion per year – the cost to finance the debt will compound.
One popular rationale for deficit spending by economic policy makers is that the effects of the fiscal stimulus will allow the economy to achieve escape velocity. Under such a scenario, the economy would, somehow, be able to grow its way out of debt; the percentage of debt to GDP would come down.
However, over the last sixteen years, and even more so over the past eight, the grasp for escape velocity has come up empty handed. Debt has mushroomed while GDP has stagnated. Yet, regrettably, the effects of Trumpflation and Trumpnado will likely accelerate this trend.
Thus, rather than attaining escape velocity, like the Amazon jumper, the economy would attain self-destruct velocity. Prepare accordingly for the extreme pain and agony that are coming.
Charts by: St. Louis Federal Reserve Research, StockCharts
Chart and image captions by PT
MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
5 Responses to “Attaining Self-Destruct Velocity”
Most read in the last 20 days:
- Gold Sector: Positioning and Sentiment
A Case of Botched Timing, But... When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January...
- India: The next Pakistan?
India’s Rapid Degradation This is Part XI of a series of articles (the most recent of which is linked here) in which I have provided regular updates on what started as the demonetization of 86% of India's currency. The story of demonetization and the ensuing developments were merely a vehicle for me to explore Indian institutions, culture and society. The Modimobile is making the rounds amid a flower shower. [PT] Photo credit: PTI Photo Tribal cultures face...
- The Long Run Economics of Debt Based Stimulus
Onward vs. Upward Something both unwanted and unexpected has tormented western economies in the 21st century. Gross domestic product (GDP) has moderated onward while government debt has spiked upward. Orthodox economists continue to be flummoxed by what has transpired. What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity. Although the fat lady has so far only...
- March to Default
Style Over Substance “May you live in interesting times,” says the ancient Chinese curse. No doubt about it, we live in interesting times. Hardly a day goes by that we’re not aghast and astounded by a series of grotesque caricatures of the world as at devolves towards vulgarity. Just this week, for instance, U.S. Representative Maxine Waters tweeted, “Get ready for impeachment.” Well, Maxine Waters is obviously right – impeaching the president is an urgent...
- Welcome to Totalitarian America, President Trump!
Trump vs. the Deep State If there had been any doubt that the land of the free and home of the brave is now a totalitarian society, the revelations that its Chief Executive Officer has been spied upon while campaigning for that office and during his brief tenure as president should now be allayed. Image adapted from the cover of “Deep State #5” - depicting an assassin from the future President Trump joins the very crowded list of opponents of the American...
- Searching for Truth
Heresy or Truth? RANCHO SANTANA, NICARAGUA – In the fifth century, Christian scholars counted 88 different heresies. Arianism. Eutychianism. Nestorianism. If there was a way to “offend” God, they had a name for it. One group of “heretics” argued that there was no such thing as “original sin.” Another denied the trinity. And another claimed Jesus was not divine. Which one had the truth? Depiction of the first Council of Ephesus in 431 AD, convened by Emperor...
- Why the 21st Century Sucks - Turtles All the Way Down
A Truly Sucky Century BALTIMORE – What an awful century! Worst we’ve ever seen. Household incomes are down. Employment is down, with 7 million people in the U.S. of working age without jobs. Productivity growth is down. GDP growth is down – to only about 0.5% per capita last year. Even life expectancies are down. Drug overdoses are up. Suicides are up. One out of every eight children lives in a family getting food stamps. One of out every eight adults takes psychoactive drugs...
- Gold and the Fed's Looming Rate Hike in March
Long Term Technical Backdrop Constructive After a challenging Q4 in 2016 in the context of rising bond yields and a stronger US dollar, gold seems to be getting its shine back in Q1. The technical picture is beginning to look a little more constructive and the “reflation trade”, spurred on further by expectations of higher infrastructure spending and tax cuts in the US, has thus far also benefited gold. From a technical perspective, there are indications that the low at $1045.40,...
- The Unstable Empire – A Campfire Tale
Campfire Tale Caesar: The Ides of March are come. Soothsayer: Ay, Caesar, but not gone. — Julius Caesar, Shakespeare GRANADA, NICARAGUA – Today, we stop the horses and circle the wagons. For 19 years, we have been rolling along, exploring, discovering. We began with the assumption that we didn’t “know” anything - so we kept our eyes open. Now we know even less. Famous people who knew nothing and were not shy to admit it: Sergeant Schultz...
- Off the Beaten Path in Mesoamerica
Greeted by Rooster There’s an endearing quality to a steadfast rooster call at the crack of dawn when overheard from a warm country farmhouse. There’s a reassuring charm that comes with the committed gallinaceous greeting of daybreak that’s particularly suited to a rural ambiance. The allure of a morning cock-a-doodle-doo somehow falls flat in all other settings. Good morning everyone! Before meteorological forecasts were available on TV and smart phones, people...
- Why Silver Went Down – Precious Metals Supply and Demand
Rumor-Mongering vs. Data The question on the lips of everyone who plans to exchange his metal for dollars—widely thought to be money—is why did silver go down? The price of silver in dollar terms dropped from about 18 bucks to about 17, or about 5 percent. Reportedly silver was already assassinated in the late 19th century... so last week they must have assassinated its corpse. [PT] Illustration taken from 'Coin's Financial School' The facile answer is...
- Systematic Trading - Unwrapping the Onion
Lumpy but Robust [ed note: this article has originally appeared at the Evil Speculator and was written by trader and ES contributor Scott. We provide a link to Scott's past articles below this post for readers who want to get more familiar with his ideas and/or any unusual terminology used in this article] One continual theme in my trading is that every time I think I have it figured out, I get punched in the face by an unexpected problem. The tendency is to go more...