US Deficit $4T & Debt $28T – Where is the Money Coming From?

Will the Coronavirus be the catalyst of not just a depression but also major reduction in global population? The growth in world population since the 1850s has been explosive. In the 1850s there were 1 billion people and today we are 7.8 billion. Although many “experts” have extrapolated the growth to 10 billion and more in coming decades, this has in my view not been based on sound reasoning. Instead, as I been writing about and discussed many times the spike in population that we have seen in the last 170 years will not end well.

Anyone who can read a chart knows that a spike on a major sample doesn’t continue straight up. And it doesn’t just correct sideways either. At some point, a spike up is always corrected by a major spike down. I talked about this in my article from April 2018. Below is an extract from this article:

WORLD POPULATION WILL DECLINE

The world has had many crises of various degrees in the past, be it the Black Death in the mid 1300s when an estimated 75 to 200 million people died in Europe and Asia. Around 50% of Europe’s population is estimated to have perished. In WWI around 20 million people died and in WWII around 60-80 million. So major catastrophes are part of history and the coming one could also see a major reduction in world population be it from economic crisis, famine, disease, social unrest or war.

From the mid 1800s to today world population has grown from 1 billion to 7.6 billion. If we look at the graph it is a straight spike up in the last 170 years. From a technical perspective, spikes up are always corrected by a spike down. We can’t tell when exactly that spike down will come but it is likely to be connected to the coming collapse of the financial system. A reduction in global population of 3-4 billion in the next few decades is a real possibility.

As I have stated in many recent articles, Coronavirus is not the reason for the downturn in the world economy that is now starting but the catalyst. I did not forecast that a pandemic would be the trigger. But in retrospect, the end of the biggest economic bubble in world history really had to come with an unexpected and unconventional catalyst.

A NEW MIRACLE PARADIGM OR A DISEASED SYSTEM?

That the world economy for the last 100 years was totally dependent on credit and printed money is not a new miracle paradigm but a the sign of diseased system. Issuing fake money at zero cost always had to end badly. In a perverse way it is almost ironic that the trigger for ending this sick financial system would be a pandemic disease. But this is Murphy’s law. If anything can go wrong, it will go wrong in the worst possible way and at the worst time.

As I said in my article above, “So major catastrophes are part of history and the coming one could also see a major reduction in world population be it from economic crisis, famine, disease, social unrest or war.”

Now the world is in a situation when all of those factors will probably come to pass. We already have the economic crisis and we have a disease. There is not a major famine yet but this is likely to come. Social unrest and war are probable consequences of these problems. Hungry and poor people will rise against their leaders and against the elite. The differences in income and wealth between the rich and the poor have created an untenable situation. This is virtually without exception how every revolution starts.

WHERE IS THE MONEY COMING FROM

Central banks around the world are of course doing their best to stop the world from going into poverty. They are now creating unlimited amounts of money in order to assist small and big businesses as well as individuals. Everybody is expecting a handout whether it is a major US business or an unemployed individual. It is of course wonderful that everyone gets help but no one asks where is the money coming from.

Nobody worries about that THERE IS NO MONEY. The $ 100s of billions and trillions that are being given to the needy don’t exist. They are just created out of thin air. Since the crisis started in the early autumn of 2019 with the Repos, the Fed’s balance sheet has gone up by almost $3 trillion to $6.5T. But this is just the beginning. The forecast is that it will reach $9T in June and probably $12T a couple of months later.

What we must remember is that this crisis didn’t start now but in 2006 when the Fed’s balance sheet was $800K. By 2012 it had gone to $3T. So in the next few months, the balance sheet will explode by 3-4x to $12T.

As I discussed in last week’s article the budget deficit will also get out of hand. In the current year the US could easily reach a deficit in excess of $4T, taking the debt to $28T. If we just go back 3 months, who would have believed a Fed balance sheet reaching $12T and a US debt of $28T? These would have been seen like preposterous fantasy figures. The problem with most forecasters and economists is that all they understand is just to extend the current trend. But they don’t even do that because if they had, they would have realised that US debt has doubled every 8 years since 1981.

So the US is likely to have a debt of $40T in 2025 but that figure is most probably much too low. Because next we are going to see failures not just in the economy but also in the financial system. At that point, the current rescue packages of $2-5T will be dwarfed by bank rescues of $10s to $100s of trillions. And when finally the derivative bubble bursts we could be into the $quadrillions. Again, most people will today consider these figures as sensational scaremongering. But that is the risk the financial system is now facing and we are now in a phase when the surprises will be much worse than anyone can imagine.