US federal debt Soars At Fatest Pace Since Financial Crisis


US federal debt

A few days ago, the federal debt of the United States rather quietly and unceremoniously passed the$19.5 trillion mark.

And while that figure may seem absolutely confounding, what’s even more alarming is how rapidly the US government is racking up this debt.

In fact, for the 2016 fiscal year that ends in just ten more days, the US government’s debt growth of $1.36 trillion is on track to be the third biggest annual increase ever.

The only two years in all of US history that posted higher US debt growth were 2010 and 2011– the peak of the financial crisis.

Even more acutely, last month the US federal debt grew by $151.5 billion.

Not counting the financial crisis, and a few anomalous months following a debt ceiling reset, August 2016 was the single biggest expansion of US debt EVER.

In other words, US federal debt is expanding at its fastest rate since the financial crisis, and one of the fastest rates in all of US history.

This isn’t supposed to be happening. We’re in ‘peacetime’. The financial crisis is over. The economy is supposedly growing, and unemployment is supposedly falling.

None of the normal big deficit triggers exists; if you read the mainstream press, the news about the US economy is all rainbows and buttercups.

You’d think they would actually be running a surplus at this point and paying down the debt. Or at a minimum the rate of debt growth would be shrinking.

But no. Despite all of this good economic news, the government is still piling up debt at record levels.

If the debt is growing this quickly in good times, just imagine how dire the debt situation will become once the economy slows down and recession kicks in.

US federal debt

US federal debt James Grant - Federal Debt

US federal debt


M.J. Bodhi

The slow walk to collapse continues. Lets the pull the plug and get this over with so we can rebuild.
Sonja Papiro

no not the bow tie – of course the Federal Reserve does NOTHING.. More stores are closing (Kmart closing 64 stores ) Evolution System -is a must have…

I quite like the bow tie, classic. I’m in the arm pit of the earth, SA. it’s freakin scary, 64 Kmart stores close, collapse is within our grasp, even it’s three month’s from now, a year fly’s by…..
Max Amillion

No rate raise. BIG surprise hahah. Been calling it for the past month. Can’t raise, won’t raise. Would ruin Obama’s “legacy”. Greg, you’ve been hammering that point in all year and I hope people have been listening and betting against the banks, getting precious metals and becoming your own bank!
Alan Fox

Low rates is basically backdoor QE, which will continue ad infinitum. Shouldn’t we as investors accept this? Shouldn’t we just buy up equities and assets because it is the only way to make gains over time?
Max Amillion

btw Marc Faber just said that the DOW could do to 100,000. Whaaa?!



Illinois stands out in the industrial Midwest for its skewed government-to-manufacturing-jobs ratio.


Illinois and the Great Lakes states are America’s traditional manufacturing powerhouses. When the Industrial Revolution transformed Midwestern cities into prosperous production centers, the manufacturing sector drove up wages and employment for a large swath of Illinois’ middle class. But now government jobs are far more common than manufacturing jobs in Illinois.

In March 2002, Illinois state and local government jobs surpassed manufacturing jobs for the first time in Illinois’ recorded history. Since then, the ratio of government jobs to manufacturing jobs has moved in favor of government work, as Illinois manufacturing jobs have plummeted, while government jobs have remained steady. There are now 175,000 more jobs in state and local government in Illinois than there are in manufacturing, a striking change in a state in which production jobs once formed the backbone of middle-class opportunity.

illinois manufacturing jobs

Illinois’ weak economic recovery has led to the smallest manufacturing-to-government-jobs ratio in the industrial Midwest

Of the five largest manufacturing states in the Midwest, Illinois is the only one with significantly more government workers than manufacturing workers. In Indiana, there are 125,000 more manufacturing jobs than government jobs; in Wisconsin, there are 92,000 more manufacturing jobs than government jobs; in Michigan there are 55,000 more manufacturing jobs than government jobs; and in Ohio, government jobs slightly outnumber manufacturing jobs by 17,000.

illinois manufacturing jobs

One factor that has driven the disparity between Illinois and other manufacturing states in the Midwest is Illinois’ poor recovery from the Great Recession. Illinois lost more than120,000 manufacturing jobs during the economic downturn of the Great Recession. And Illinois has regained only 20,000 manufacturing jobs since hitting bottom in January 2010. Since their respective recession bottoms, the other Midwestern manufacturing states have added tens of thousands more manufacturing jobs than has Illinois, helping to drive all of their unemployment rates at least one point lower than Illinois’.

illinois manufacturing jobsReforms to bring back Illinois’ manufacturing sector

Illinois needs spending, tax and regulatory reform to make the state more attractive for manufacturing investments and the jobs that come with them.

Spending reform should include changes to the state’s pension systems, including an amendment to the Illinois Constitution’s pension-protection clause. Collective bargaining with government unions should be optional rather than mandatory, so local governments can better manage their costs and employees. And Illinois local governments should be consolidated as necessary to eliminate duplicative services. All of these reforms would help drive down the cost of government – and the property taxes needed to fund it.

Tax reforms should focus on lowering property taxes and making the tax code more pro-growth. Manufacturing firms will be much likelier to invest in Illinois if they think they can get a solid return on their investment, after factoring in the cost of taxes and regulations. The estate and franchise taxes should be repealed, because they directly tax manufacturing capital in Illinois and create an incentive for companies to locate their machinery outside the state. Furthermore, the sales tax can be expanded to services in order to lower income taxes and exempt business inputs from sales taxation.

Finally, policymakers should prioritize regulatory reform for the state’s workers’ compensation system, which affects manufacturers more than employers in many other sectors. Illinois’ workers’ compensation system has high medical, wage-replacement and indemnity costs, along with financial incentives for physicians to dispense potentially harmful drugs and for workers to stay out of work.

Reinvigorating Illinois’ manufacturing sector will take time and significant policy reforms to restore the state’s competitiveness and fiscal viability. It is urgent that lawmakers come together on these points to help Illinois’ production workers get back on the job.

TAGS: jobs, manufacturing, unemployment, workers compensation

After Eight Years, Obama’s Energy Secretary Visits West Virginia

A visit much earlier in the administration’s tenure might have made some difference.

BY James Shott · Sep. 20, 2016

Those who lived in or near the southern West Virginia and/or southwest Virginia coalfields during the peak of the coal business in the 1950s and ‘60s know that state and local economies thrived because of the tens of thousands of people employed by mining companies and the dozens of companies that supported the industry.

The Norfolk and Western Railway yard in Bluefield, WV, was always filled with coal cars — many of them full of the world’s most widely used fossil fuel — that were bound for the port in Norfolk, VA, or ready to be unloaded into trucks for delivery. The rest were empty, heading back into the coalfields to be refilled and brought back for distribution.

They remember the bustling downtown that was the financial, shopping and recreational center of the region’s coalfields and Bluefield’s population of well over 20,000 residents during the time of peak coal. These are valued memories of the good times.

Today’s population is half that size, and the rail yard is often empty. To those who have seen firsthand the decline of the industry and its effects on local communities, the industry’s decline is a very real and painful thing.

The decline began with natural technological advances, as mechanization gradually began putting hundreds of miners out of work. Over time other forces developed that affected the industry, including the very recent rise of cheap natural gas. Through all of that, there was always a market for coal.

But the federal government’s assault on coal through excessive environmental regulation, spurred by the hotly debated idea that burning coal pours too much carbon dioxide — a gas essential for life on Earth — into the atmosphere, is the greatest problem. Barack Obama put this attack into high gear. However, today our air is cleaner than it’s been in 100 years, mostly because of evolving technological improvements.

Cloistered away in their comfortable offices in Washington, DC, our public servants frequently have no idea what life is like for those toiling away to pay the taxes that fund their salaries. Perhaps if they got out of Washington more they would understand the problems they create for the people they serve.

This may be the case with Energy Secretary Ernest Moniz, who at the invitation of Sen. Joe Manchin (D-WV) finally visited the state after many invitations over the eight painful years of the Obama administration. But while in the state last week, Moniz suggested there is no war on coal, arguing to the contrary that the Obama administration is working to keep coal as an important part of a low-carbon energy future. He also said that cheap natural gas prices are primarily responsible for coal’s downturn.

The absurd idea that there is no war on coal today would be hilarious if the reality wasn’t so tragic, and the suggestion that the very recent drop in natural gas prices is the principal reason for coal’s decline is simply false.

This general situation was foretold by Barack Obama back in the 2008 campaign. “So, if somebody wants to build a coal plant, they can — it’s just that it will bankrupt them, because they are going to be charged a huge sum for all that greenhouse gas that’s being emitted,” Obama declared.

Assuming that Moniz has the capacity to recognize the misery the administration for which he works has caused for this region or really cares about the people affected by its policies, visiting West Virginia much earlier in the administration’s tenure might have made some difference.

Hillary Clinton is on that same path. While campaigning in Ohio earlier this year, she said, “We’re going to put a lot of coal miners and coal companies out of business.” Trying to make that sound better, she said she favored funding to retrain those put out of work, but she didn’t say what kind of jobs and how many of them are currently waiting for trained workers.

Shortly thereafter, while campaigning in West Virginia, Clinton was asked about that comment by a tearful out-of-work coal miner, to whom she responded that what she meant was that coal job losses will continue. See the difference?

Obama’s energy policy is like putting a square peg in a round hole. If you want to put a square peg in a round hole, take some time and think it through: You should gradually and gently reshape the square peg so it will comfortably and appropriately fit into the round hole. Obama’s method is to place the peg on top of the hole and beat it with a hammer until enough of the corners are destroyed that the peg will go into the hole. And even then, it is a poor fit.

Just as horse-drawn wagons and carriages gave way to motorized vehicles when they came to be, coal’s role as a primary fuel would have changed as better methods evolved. Such a process would have been not only more humane and less destructive but infinitely smarter than what has transpired.

Through the centuries humans solved life’s problems and improved their lives through applied intelligence. Somehow, they managed to do this without Barack Obama and the EPA.

The Federal Reserve confronts a possibility it never expected: No exit.



Two years ago, top officials at the Federal Reserve mapped out a strategy for withdrawing the central bank’s unprecedented support for the American economy.

The official communiqué was titled “Policy Normalization Principles and Plans,” and it was supposed to serve as a rough outline for the tenure of newly installed Fed Chair Janet L. Yellen. Essentially, it consisted of two basic parts: Raise interest rates and shrink the central bank’s massive balance sheet.

But now, both of those steps are being called into question as Fed officials grapple with an economy that appears to be stuck in first gear. Instead of executing its exit strategy, the Fed is confronting the possibility that the dramatic measures it took to safeguard the recovery will remain in place indefinitely.

“Maybe this is one of those cases where you can’t go home again,” former Fed chairman Ben S. Bernanke wrote in a recent blog post arguing for a shift in course.

The central bank has made no official changes to its strategy, which was adopted with a nearly unanimous vote. But just getting started clearly has been a challenge. The Fed has struggled to increase its benchmark interest rate this year after raising it above zero in December for the first time since the Great Recession.

That move was supposed to be the start of a gradual process of normalization, in which the Fed slowly turned up the dial on its target interest rate until it reached about 3.5 percent, close to its historical average. Several times this year, officials suggested that they were preparing to hike, only to punt amid financial market turmoil and fractures in the global economy. The Fed’s top brass will meet again in Washington this week, but investors largely expect them to keep rates steady until December, or even later.

Even once rates do rise again, there is growing acceptance within the central bank that they are unlikely to increase as much as initially anticipated. Officials now estimate rates will only likely reach about 3 percent. Investors believe even that could be too optimistic.

Indeed, some economists fear the next U.S. recession may not be far off — and that means the Fed should be not be considering withdrawing its support but debating what more it could do. “Fed is almost certain to make a mistake,” tweeted Narayana Kocherlakota, a professor at the University of Rochester in New York and former head of the Minneapolis Fed.

Other countries have already been forced to wade more deeply into uncharted policies. Europe and Japan introduced negative interest rates, in which institutions are paid to borrow money. Helicopter money, in which a central bank directly finances government spending, doesn’t seem like a remote possibility.

“We’ve been out on the precipice for a while,” said Brad MacMillan, chief investment officer at Commonwealth Financial Network. “Whenever you get to a real transition point, that’s when the uncertainty is maximized.”

The intense focus on when — and if — the Fed might raise rates again has overshadowed the second step in the central bank’s exit strategy: shrinking its $4.5 trillion balance sheet. Under the published plan, the Fed would reduce its holdings of long-term Treasurys and mortgage-backed securities by not replacing them when they mature.

The process is not supposed to begin until well after rate hikes are underway, and the Fed has explicitly stated it does not intend to sell any of its assets. Over time, officials generally expected that the Fed’s balance sheet would remain larger than it was before the financial crisis, but smaller than it is now.

“The Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively,” the communiqué reads.

But that principle is now being second-guessed as well. At the Fed’s exclusive annual conference in Jackson Hole, Wyo., which draws some of the world’s most influential policymakers, several prominent economists argued that the Fed should maintain a large balance sheet indefinitely. The idea has the backing of Bernanke, who recently questioned Yellen’s continuing support for the exit strategy outlined two years ago.

“Does this plan make sense? The answer is not clear cut,” wrote Bernanke, who is now a distinguished fellow at the Brookings Institution. The Fed’s “plan to return to a pre-2008 balance sheet and the associated operating framework needs more thought.”

The central bank has been careful to leave itself plenty of room to adjust its strategy. The Fed has emphasized that its policy decisions will depend on the evolution of the economy. The last sentence of its exit plan warns that the entire document is subject to change.

“The Committee is prepared to adjust the details of its approach to policy normalization in light of economic and financial developments,” the statement reads.

Indeed, the Fed has repeatedly pushed back plans to reduce its stimulus in the years since the 2008 financial crisis. The first version of its exit strategy was released in summer 2011 and called for the Fed to start shrinking its balance sheet before raising interest rates. Just over a year later, the central bank was moving in the opposite direction, pumping money into the economy and strengthening its commitment to not raising interest rates.

Such shifts have threatened to undermine the central bank’s credibility, particularly when paired with frustratingly weak economic growth. Both inside and outside the institution, economists and academics are debating whether the Fed needs an entirely new approach.

“Nothing succeeds like success,” said Joseph Gagnon, senior fellow at the Peterson institute for International Economics and a former Fed economist. “If you actually do it enough, you will validate beliefs in your policy. … If you don’t, you actually raise questions.”

China USA Debt Dump…


China’s holdings of U.S. Treasuries fell in July to the lowest level in more than three years, as the world’s second-largest economy pares its foreign-exchange reserves to support the yuan.

The biggest foreign holder of U.S. government debt had $1.22 trillion in bonds, notes and bills in July, down $22 billion from the prior month, in the biggest drop since 2013, according to U.S. Treasury Department data released Friday in Washington and previous figures compiled by Bloomberg. The portfolio of Japan, the largest holder after China, rose $6.9 billion to $1.15 trillion. Saudi Arabia’s holdings of Treasuries declined for a sixth straight month, to $96.5 billion.

The figures compare with official Chinese data showing that the nation’s foreign-exchange reserves were little changed in July at $3.2 trillion, though they’re down from a peak of close to $4 trillion in 2014. The reserves dropped $16 billion in August to the lowest level since 2011.

The report, which also contains data on international capital flows, showed net foreign buying of long-term securities totaling $103.9 billion in July. It showed a total cross-border inflow, including short-term securities such as Treasury bills and stock swaps, of $140.6 billion.

Net foreign selling of U.S. Treasuries was $13.1 billion in July, while foreigners scooped up a net $26.1 billion in equities, $20.7 billion of corporate debt and $38.9 billion in agency debt, according to the report.