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The US Treasury publishes its balance sheet annually. The most recent, for FY 2020 is Assets $5.95-T Vs Liabilities: $32.74-T. Net Position: -$26.80-T
All figures above have been rounded to the nearest billions. The net position also factors in -$3.1-B in “unmatched transactions and balances.
But the focus of the next series of Fed interventions and the US economy is the fact that liabilities outweigh assets more than 5 to 1.
The Big Q: How will the U.S. government try to correct this imbalance?
The Big A: It will use the tool it has: Inflation.
The latest official inflation numbers have come in, which continue the trend of rising price inflation, most recently 5.4% as per the US Bureau of Labor Statistics.
Fed likes to focus attention on the lowest lowball inflation measure that ignores Key prices food and energy.
If we use the measures the Fed employed in 1990 the picture gets worse.
July PPI surged to historic extremes, July CPI-U held at 13-yr highs for a 2nd month running, a bit off a 41-yr high. These numbers are based on the Fed’s historic metrics that were retired in favor of the current, less-alarming measures.
Almost every important consumer item is still rising in price. According to the American Institute of Economic Research (AIER), this trend will not be temporary: We will see the next domino fall when it becomes clear that the recent spate of inflation is not temporary. People will clamor for the Fed to rein in inflation, but it will be unable to do so. Federal borrowing is now so great that the Federal Reserve’s monetary policy has become a servant to politicians’ fiscal policy.
If the Fed being unable to stop the already rising inflation is not bad enough, the same report went on to explain why that outcome appears inevitable:
The annual interest expense on the debt is over $0.5 trillion. If the Fed were to slow money growth in an attempt to combat inflation, interest rates would rise. And if interest rates rose merely to their historical average, the annual interest on the debt would exceed $1.3 trillion. Runaway government spending has put the Fed in the position of having to choose between sustained and significant inflation and government insolvency. And government insolvency is not a viable option.
“The sequence of falling dominoes is too far along to stop,” wrote Antony Davies, the report’s author. It is hard to disagree once you wrap your head around the economic “gluttony” that has taken place over the last 18 months.
In the end, the disparity between assets and liabilities combined with out-of-this-world costs just to service this debt could amount to a “last stand” for The Powell Fed.
Fed’s only recourse to bankruptcy would be to inflate the money supply to pay off that debt with increasingly-worthless dollars notes LTN economist Bruce WD Barren: “The Fed’s only recourse to bankruptcy would be to inflate the money supply to pay off that debt with increasingly-worthless dollars. It seems that Washington elite forgets this hurts the lower income families but thinks that all of their extra benefit and stimuli packages will offset this negative factor. Perhaps, the forthcoming 2022 elections will correct this and bring the people’s inflation concerns more into priority with them.”
And if that’s how this plays out, it might leave the US debt-free, and put most Americans in the poor house.
It is not likely the spending will stop any time soon, as evidenced by the recent infrastructure bill and resulting $3.5-T budget proposal. Economist Barren added, “inflation is not likely to return to Earth any time soon, because it seems no one wants to pay the bills.”
That means you need to: “Expect the best, plan for the worst, and prepare to be surprised.”
So, now is the time to take stock of your financial plans. Examine your retirement savings, and analyze your exposure to risk. Create a strategy that is diversified and resilient enough to endure the worst-case scenario, just in case.
Include digital assets and physical precious metals, gold and silver as your safe haven assets
Do it now, because once those dominoes start falling, there are going to be an awful lot of desperate people scrambling for the exits.
Make sure you and your family are in the best possible position to thrive even after the Greenback becomes a another piece of worthless paper.
Have a prosperous weekend, Keep the Faith!