Fiscal Cliffs And The Self-Destructing Treasury

But there is a good reason for D.C. to panic. The Labor Department reported that the total number of people claiming benefits for unemployment insurance in all programs (including PUA) for the week ending June 13th was 31,491,627, an increase of 916,722 from the week prior. To put this number in context, continuing jobless claims are now 4.7 times higher than they were at the peak of the Great Recession in 2009. To make matter worse, the total number of people claiming benefits in all programs for the week ending June 20 was 32,922,335. This crucial figure is going in the wrong direction. Hopefully, the real continuing claims number will shrink significantly in the near future; but it must get much better just to get back to the worst level during the financial crisis.

There is little doubt something will get done in Washington, as both parties have shown an intense proclivity to spending money. But adding more debt to the insolvent Treasury pile is very dangerous for the world's reserve currency. And, even if one more round of fiscal prolificacy does get passed, all that will do is temporarily reset the clock on the inevitable fiscal timebomb. The U.S. already has a $4 trillion deficit and $26.5 trillion in National Debt. Our debt has grown to a daunting 850% of revenue.

The problem is, Washington needs to pass another multiple trillion-dollar fiscal boost just to maintain the economic growth rate and to prevent consumer and business balance sheets from suffering further damage. But by doing so, it will pour more incendiary fuel on the Treasury’s balance sheet that is already self-immolating. Making matters worse, the gigantic pile of new debt being added is of the unproductive variety. Meaning, it was not incurred to generate capital goods, but rather merely printed to try and prevent consumption levels from falling off a cliff.

Our government has once again managed to defer the ultimate reconciliation of asset prices and the economy by taking on trillion of dollars in new debt that is primarily monetized by the Fed. But, it has also destroyed any vestiges of capitalism that remained in the process. The markets are now completely dependent on Fed purchases of government and corporate debt, while the economy is completely reliant upon consumers receiving a stipend from Uncle Sam to keep up the pace of consumption. In other words, without exploding deficits that are monetized by our central bank, the whole economy will meltdown in a spectacular and devastating fashion.

View single page >> |

Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,  more

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Angry Old Lady 9 months ago Member's comment

Are those of us who are retired eligible for PUA?