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US is bound by these economic rules (RTT Plus)
Created on: 6/10/2021 8:01:06 PM   Last Update: 6/11/2021 12:45:37 AM Posted by: RTT

us-is-bound-by-these-economic-rules-rtt-plusThe US is managing its way through a 100 year sovereign debt crisis, and to avoid a financial collapse a few economic statistics must be managed.

The US is in a sovereign debt crisis, the proof is below. US debt is considered not attractive at the current interest and inflation rate levels. The FED has to buy US Treasuries (UST) to control the yield curve.



Debt




STATISTIC 1

The US can continue to avoid a sovereign debt crisis so long as US Nominal GDP percent (not adjusted for inflation) is greater than the interest rate.

Statistic to control: Nominal GDP YOY % rate > interest rate %.


The US has to pay these two important bills, (1) interest payments, (2) and entitlements with, 100% tax receipts. Failure to do so means money printing would be required to pay these, and this would not be good for confidence in US debt.

This is why BIDEN is announcing continuous spending programs: $1T here, $6T there, BIDEN must keep GDP growing at a good rate. This is also why the FED is suppressing interest rates with yield curve control management (see chart above).



STATISTIC 2

The US must deflate away its debt, while trying to avoid a debt crisis (that is US debt holders selling, because US debt holders are the biggest losers). To deflate away the debt, inflation must higher than interest rates. This requires the FED to allow inflation to 'run hot'. In other words, very easy monetary conditions. 

Statistic to control: YOY Inflation % > interest rate % (or Negative Yield).




POINT

The FED must not tighten monetary conditions (increasing interest rates or tapering the balance sheet in any meaningful way), the FED must not make a mistake. The US Gov't must keep GDP growing at all costs. A deflation shock (say like COVID March 2020) would multiply any fix exponentially.


MAJOR RISK

If inflation gets out of control and or the US dollar falls to fast this would create a PANIC in the voter base, voters would demand a 'fix', then politicians would force the FED to hike interest rates, hence breaking the economic formulas above. The result would be a 1929 style COLLAPSE!




FED DOES MAKE MISTAKES

The 1937 mistake, the FED hiked FED FUNDS rate twice, ooops. 



1937





 

   

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