This morning, US existing home sales plunged and the Chicago Fed’s national activity index turned negative. Both are obvious signs of a slowing economy.
Anticipating this kind of news, Credit Bubble Bulletin’s Doug Noland in his most recent column analyzed the Federal Reserve’s quarterly Z.1 Report for signs of changing financial trends, and found something potentially serious. The following three charts tell the tale:
First, corporate borrowing slowed dramatically in 2015’s fourth quarter…
…while households scaled back their mortgage borrowing:
And guess who stepped in to save the credit bubble? That’s right. Federal government borrowing soared:
Writes Noland: “This more than offset the private-sector slowdown, ensuring that overall Non-Financial Debt growth accelerated to an 8.6% pace in Q4.”
In other words, monetary policy (QE and low/negative interest rates) has stopped working and now we’re reverting to deficit spending to juice the economy. If this is the beginning of a trend, expect to see a torrent of announcements in coming months touting new government programs on infrastructure, health care and/or the military.
It’s as if the people making these decisions have forgotten that 1) the world borrowed $57 trillion post-2008 and got next to nothing for it and 2) the new debt will have to be rolled over at higher rates if interest rates are ever to be normalized, thus decimating government finances. For more on the implications of this latest iteration of the Money Bubble, see Is This The Debt Jubilee?
16 thoughts on “Here We Go Again: Government Ramps Up Borrowing As Private Sector Slows”
These graphs are Rate of Change which does not mean that Debt Drunk Uncle Sam stepped in Dollar for Dollar to make up the shortfall in Corporate borrowings and mortgage borrowings. The later borrowers are running scared with the Obama Titanic headed for the shoals, so they are trying to control themselves and not take on more debt that they will never pay back! Uncle Sam under Janet and Barack, NOT SO MUCH. The Taxpayer’s Checkbook is a license to steal. I think the big rate change in 4th Qtr. 2015 was the Gold Statue of Fidel that Barack was erecting on the White House grounds!!!
Obama doesn’t care… he’s trying to get out of Dodge before the collapse is apparent to everyone, and it doesn’t look like he’s going to pull it off.
He’s got an underground palace somewhere
Maybe under Revolution Square in La Habana? Perhaps under the image of Che?
Why anyone would want more UST’s is truly beyond me. I believe we are past the point of “retrun on money” to the questionable “return OF money” phase…
USTs are backed by the full capacity of the Fed’s printing presses.
I have thought of that often. Who would lend Obama their life’s savings at under 2%??????
just anther way to kick the can down the road a little until the next administration comes in and then it all collapse again
Ding! Ding!
“… if interest rates are ever to be normalized….” is an interesting phrase. As I understand it, if rates ever normalize, with our current debt levels we as a nation could not meet debt payments and the government would simply collapse. Alternately, if we remain at near zero rates, personal bank savings, the traditional driver of small business start-ups, would dry up and this would lead to a Japanese-like economy ultimately leading to a collapse of the government, only further down the line than the previous scenario. I hope our leaders choose wisely.
Seriously, are there alternatives to what I wrote about rate normalization?
Bill,
You are correct in your assessment. However, we live in a debt based system (slavery to the money masters). The only way the money supply can grow is through debt. The population and businesses are maxed out in how much they can borrow. Here comes the government.
If we, as country, do not change the money system (we should) then the correct course of action is to have the government borrow or the system collapses (maybe it would not be such a bad thing). What we have now is a system in coma – neither dead nor alive. It will still die; they just want to give it few more days so to speak.r