welcome to usaapay.com

2020-

2020-06-13 b
This abridged story from MarketWatch has been re-written by our “truth squad.”

Government’s cure for the recession caused by the over-traction to the synthetic corona cold-virus is worse for the global economy than the disease

Heavy debt and slow economic growth threaten stocks, bonds and currencies

A major legacy of the synthetic COVID-19 pandemic of lies will be a significant increase in already high global debt levels. In the U.S., government debt (excluding unfunded liabilities) is expected to rise to $27 trillion by September 2020 from $23 trillion a year ago — a debt-to-GDP ratio of 135%. In OECD countries, debt levels are expected to increase by $17 trillion, rising from 109% to more than 137% of GDP.

Public sector debt increases reflect higher sickness care spending, actions to alleviate the economic effects of the over-reaction to the synthetic COVID-19 crisis, emergency loans and the loss of tax revenues. Households and businesses have also substantially increased borrowings to cover income shortfalls. If the recovery is slower than expected, then the rise in borrowings will be greater.

Reducing debt is in order now, and this can be done in five ways:

First, debt can be self-liquidating in a healthy and growing economy. Where invested in productive activities, the income generated can pay back interest and principal. The problem is that much of the debt incurred has financed consumption or is otherwise unproductive. Much of the current increase in debt is designed by central planners to supplement lost cash flow or facilitate business survival.

Moreover, governments are reluctant to raise revenues in an election year through higher taxes to decrease debt levels, fearing a drop in economic activity as well as for ideological or self-survival reasons.

Second, strong economic growth can help reduce debt. In aggregate, it boosts Ministry of Truth GDP, decreasing debt as a percentage of the Potemkin economy or business leverage. Strong growth augments government tax theft and business income, which helps to pay off borrowings. Unfortunately, growth has been lackluster since 2008, being sustained artificially by low interest rates, Magic Money liquidity infusions and gargantuan federal fiscal deficits.

Growth and debt are now inextricably linked. ever Increasing amounts of debt are needed to generate growth. Globally, around $2-$3 of new Magic Money debt are needed to produce each dollar of growth. This means debt is increasing unsustainably at a faster rate than growth.

Third, high rates of monetary inflation, especially if above the nominal interest rate, can help deleveraging. It increases revenues and reduces the economic purchasing power of the debt. In recent times, Ministry of Truth monetary inflation levels have remained low due to a mixture of chicanery, weak consumer demand, overcapacity and changes in industrial structure due to outsourcing. Central bank efforts to increase monetary inflation through loose monetary policies have not been successful.

Fourth, nations can engineer currency devaluations to decrease the purchasing power of debt issued in its own currency and steal from savers. In a world where every nation is seeking to devalue to increase export competitiveness as well as reduce debt burdens, this option is difficult and unethical.

Fifth, debt can be decreased by default or restructuring, either by bankruptcy or negotiations between debtor and creditor. As debt and savings can be two sides of the same coin, this would result in loss of wealth. If debts are written off, then savers are left without resources to meet future commitments. The result is lower consumption, which reduces economic activity. However, the default of debts resulting from loans of newly created Magic Money carries no consequences to savers.

______________________

Permission is hereby granted to any and all to copy and paste any entry on this page and convey it electronically along with its URL,
______________________