Chart: Total U.S. public debt under President Obama
The national debt has really soared in the last five years. When President Obama took office, the national debt stood at just under $12 trillion. Today, that has number has skyrocketed to $19 trillion. His successor – likely Hillary Clinton – will see that figure top $25 trillion (if he/she serves two terms).
This FRED chart shows the total U.S. public debt under President Obama since 2009. It’s terrifying to think that the incumbent was responsible for a considerable portion of the outstanding federal debt. Don’t expect the line below to significantly descend anytime soon.
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Alan Greenspan warns investors of ‘pending bond market bubble’
One of the kings of bubbles, Alan Greenspan, warned in an interview with Bloomberg Television that the United States faces a “pending bond market bubble.” This warning comes as the Federal Reserve continues to mull over raising interest rates from near zero in September, or delaying it until next year.
“We have a pending bond market bubble,” the former Federal Reserve Chair told the news outlet. “What ultimately will determine where it goes is to reach back and to ask ourselves where is the normal interest rate?”
“If we merely substitute the structure of equity prices, and we have the price of bonds, and instead of expected equity return we have expected interest rate return, that price earnings ratio is in an extraordinary unstable position.”
From Bloomberg:
Treasury yields have been anchored by the Fed’s policy of keeping its main interest rate close to zero since 2008 to support the U.S. economy. The Fed’s benchmark, the target for overnight lending between banks, has averaged about 2.70 percent in the past 20 years.Benchmark U.S. 10-year note yields fell five basis points, or 0.05 percentage point, to 2.18 percent as of 10:27 a.m. London time, according to Bloomberg Bond Trader data. The price of the 2.125 percent security due in May 2025 rose 13/32, or $4.06 per $1,000 face amount, to 99 1/2.Ten-year note yields are about half their average over the past two decades and are within a percentage point of a record low set in 2012. They will climb to 2.82 percent by the middle of next year, according to a Bloomberg survey of economists with the most recent forecasts given the heaviest weightings.
He likened the matter of interest rates to “behavioral economics,” nothing that the issue of what the optimal interest rate is “is a behavioral issue.”
Greenspan also touched upon low productivity levels as being a challenge to both the United States and other developed countries.
Moreover, he noted that he “knew something was brewing” in terms of the housing bubble but he “missed the actual date as in, frankly, did everybody else.” Huh? There were so many financial experts, notably Peter Schiff and Jim Rogers, who were correctly predicting a bubble and a burst.
Greenspan served at the helm of the Fed from 1987 to 2006.
Peter Schiff says impending U.S. dollar collapse should be getting attention, not China’s devaluation
Peter Schiff, CEO of Euro Pacific Capital and bestselling author of “Crash Proof,” believes the impending collapse of the United States dollar should be getting the attention of investors and news outlets and not the devaluation of the Chinese yuan.
Speaking in an interview with Newsmax TV on Tuesday, Schiff explained that the U.S. economy has an abundance of problems but China’s monetary policy (SEE: Donald Trump on China’s Devaluation: ‘They’re just destroying us’) isn’t one of them.
The contrarian investor stated that China’s economy isn’t experiencing a freefall and the current devaluation is minuscule. He noted that the yuan’s value has substantially increased over the past several years compared to the U.S. dollar.
“So this move was motivated not by the exchange rate between the yuan and the dollar, but between the yuan and all the other currencies because the dollars is in a bubble right now,” he said. “The dollar is very overvalued … and the dollar is a bubble. This dollar bubble is going to burst.”
He added that the U.S. economy is in a much worse situation right now than the Chinese. This is something, Schiff says, the Federal Reserve will have to admit. He also averred that the Fed won’t raise interest rates this year (SEE: Federal Reserve rate hike could cost indebted consumers $9 billion per year) and will have to do another round of quantitative easing.
“That’s going to sink the dollar and then the Chinese are going to have to revalue their currency much higher in the future against the dollar and it’s the dollar collapsing that’s going to hurt the US. Not this recent move by China,” Schiff posited.
The reasons why the U.S. dollar has been trading well since the financial crisis is because of hope, hype and speculation.
Schiff alluded to the immense trade deficit with China, and how China is producing all things the U.S. consumers and can’t produce. On the other hand, however, the U.S. doesn’t produce anything the Chinese want to consume.
Overall, Schiff asserts, the Chinese economy is “far more powerful” and “far more dynamic” than the U.S. economy. This is why the U.S. suffers from massive deficits.
“But people believe in the myth of this US economy, they believe that this bubble is genuine, they made the same mistake in the late 1990s, they made the same mistake right before the financial crisis of 2008. They’re making a mistake again,” said Schiff.
“We’re on the verge of a much worse financial crisis than the one we went through in 2008 and it’s going to take the form of a currency crisis. You’re talking about currency wars. American is going to win the currency war, which is a race to the bottom, and you don’t want to win a currency war because a currency war is different from most wars in that the object is to kill yourself and unfortunately, we’re going to succeed.”
At the time of this writing, the Dow Jones has fallen more than 200 points, while the Shanghai Composite Index has hiccuped just 40 points.
Peter Schiff: ‘America is going to win the currency war’ (video)
Peter Schiff is at it again. This time, he spoke with CNBC discussing China’s two percent devaluation, the United States economy and how the greenback will win the currency war, which Schiff warns means every American loses. Essentially, the fierce competition between the U.S. and China means Americans are racing to the bottom. We reportedearlier about comments Schiff made this week about the devaluation.
Here are a few interesting comments made by Schiff on the business news outlet:
“America is going to win the currency war.”
“I think we’re going to win, but right now you have a dollar bubble.”
“They are going to do QE4, they’re going to do QE5, they’re going to do QE’s indefinitely until a currency crisis ends the party and they can’t do it anymore. And that crisis is going to come. That is what the drug addicts on Wall Street want. They want another fix, and I think the pushers are going to provide it, unfortunately.”
“This economy will be in recession if the Fed raises rates, and it’ll be in recession even if they don’t raise rates.”
Is China’s currency manipulation a form of foreign aid for the U.S.?
China has been dominating the news cycle this week after it was announced that the People’s Bank of China (PBOC) would devalue its yuan by two percent. This generated shockwaves throughout stock markets, and prompted certain presidential candidates – ahem, Donald Trump, ahem – to vehemently condemn the move.
As we reported Wednesday, Trump feels such a move is meant to “devastate” and “destroy” the U.S. Trump has made China the centerpieces of his campaign strategy.
But as public officials, presidential candidates and financial experts criticize China’s move, one economist suggests that it’s actually a form of foreign aid for the United States.
Mark Perry, scholar at the American Enterprise Institute (AEI) and a professor of economics and finance at the University of Michigan, opines in a blog post that currency manipulation and yuan devaluation is actually very beneficial for Americans, particularly low-income consumers. He argues that undervaluation of the yuan and the overvaluation of the U.S. dollar is saving American consumers and businesses billions of dollars per year.
Essentially, China is sending hundreds of billions of dollars worth of clothing, footwear, furniture, electronics, toys and appliances – manufactured through its labor, resources and capital – to the U.S. at a very cheap price. Rather than giving it us to for free, China is providing bargain basement prices. Let’s face it: the U.S. doesn’t manufacture much like it used to so perhaps this is an attractive move.
Here are Perry’s four points:
1. China’s currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially low-income groups, and to the direct advantage of thousands of American companies buying inputs from China.2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, which would reduce our overall standard of living.3. Like other forms of mercantilism and protectionism, forcing or pressuring China to appreciate its currency would favor certain domestic producers over millions of consumers and import-buying companies, but would make the United States worse off, not better off.4. Finally, instead of complaining, we should be thankful for China’s foreign aid to Americans through an undervalued yuan and overvalued dollar, and for the undervalued goods that collectively save American consumers and companies billions of dollars every year.
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