A GLOBAL REFLATION ROCKET HAS BEEN LAUNCHED
It is easy to lose perspective with the financial recovery and stimulus numbers currently being bantered around - Millions, Billions and now Trillions! Lets try and put them into some sort of context.
The IMF recently outlined how the COVID-19 pandemic and associated lockdowns have prompted unprecedented Global fiscal actions that have now amounted to:
- $11.7 Trillion, or close to 12%of global GDP, as of September 11, 2020.
- Half of the fiscal actions consisted of additional spending or forgone revenue, including temporary tax cuts,
- The other half liquidity support, including loans, guarantees, and capital injections by the public sector.
- In 2020, Global government deficits are set to surge by an average of 9% of GDP,
- Global public debt is projected to approach 100 % of GDP, a record high,
To combat the economic fallout from the Great Financial Crisis of 2008 central banks printed $12 trillion between 2008 and 2016.
They've printed more than HALF of this ($7 trillion) in the six months from April to September alone.
In the US between stimulus payments and central bank lending facilities directly to small businesses/ Main Street, much of the money appears to be going straight into the economy:
- In the U.S., we've already seen one stimulus program of $3 trillion.
- On top of this, the Fed has put over $1.6 TRILLION in actual real money into the U.S. economy in the form of credit facilities.
- Add that up and you are talking about $5+ trillion in new money entering the US economy this year.
- And now Congress is talking about another stimulus program somewhere close to $1.8 trillion being funneled into the economy sometime in the next three months.
- That would put the total money printing for 2020 in the ballpark of $7 trillion.
Again, let's put this into perspective.
The U.S. economy is roughly $22 trillion in size. So, in the span of a single year, policymakers will have funneled an amount of money equal to nearly 33% of U.S. GDP directly into the economy.
In March of this year, to offset the catastrophic hit the Chinese economy had suffered from the Covid-19 pandemic, China injected a record 5.2 trillion yuan ($732 billion) in new total social financing - China's broadest credit aggregate. Five months later Beijing once again surprised to the upside when in August China injected a whopping 3.58 trillion yuan into its economy ($520 billion).
The ~$1.4 in 5 months is a historic rate and only comparable to two previous shocks where the Chinese Impulse helped save the global economy.
This is how you begin to reflate a MASSIVE GLOBAL Bubble!
"While the financial punditry is preoccupied with the Fed and its $7 trillion balance sheet, whether Powell is purchasing bond ETFs or has enigmatically stopped doing so (as it did in August), and whether the US central bank has any hope of sparking inflation (with or without the help of Congress), what most are forgetting is that when it comes to any global reflationary spark, China - and its $40 trillion financial system which is double that of the US - has been a far more critical driver than the US ever since the financial crisis."
OCTOBER LONGWave Video
ADDENDUM TO THE OCTOBER LONGWave VIDEO
TRIFFIN'S PARADOX & THE CRITICALLY IMPORTANT US CURRENT ACCOUNT
TRIFFIN'S PARADOX: The Triffin's Paradox is a theory that when a national currency also serves as an international reserve currency, there WILL BE conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit. The use of a national currency (i.e. the U.S. dollar) as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the USCurrent Account.
THE TRIFFIN PARADOX
The US Council on Foreign Relations aptly describes why Triffin's dilemma becomes unsustainable: "To supply the world's risk-free asset, the center country must run a Current Account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened."
Since we released our first video on the Triffin Paradox in 2012, we have written many time's how US Debt is a global driver via the Triffin Paradox -
Charles Hugh Smith and I discuss in detail the Triffin Paradox as well as how free money from the Federal Reserve has resulted in the erosion of the Rule of Law. In fact the Federal Reserve has unwittingly become the world's largest money-laundering machine as it continues to fulfill the needs for more global US Dollars, which is central to the Triffin Paradox.
THE US' EXPLODING CURRENT ACCOUNT WILL IGNITE MASSIVE GLOBAL REFLATION
THE FIISCAL BUDGET DEFICIT
- The US Fiscal Deficit came in at $3.1 trillion, twice the previous record of $1.4 trillion in 2009, which was set during the Great Recession, and three times the 2019 deficit of about $1 trillion.
- Federal spending hit $6.5 trillion, one-third of U.S. gross domestic product, a share unrivaled except for the later years of World War II when federal spending exceeded 40% of GDP.
- The U.S. national debt, $14 trillion when Donald Trump took office, now stands at $21 trillion, roughly the same size as U.S. GDP.
- In fiscal year 2021, the deficit could be of the same magnitude as 2020. Why so? First, the economy is not fully recovered from the 2020 depression. Unemployment is still near 8%. Nancy Pelosi has already proposed $2.2 trillion in new spending to battle the effects of the coronavirus pandemic in the first month of this fiscal year. And COVID-19 cases are spiking again.
THE CURRENT ACCOUNT DEFICIT
The U.S. current account deficit
soared to its highest level in nearly 12 years in Q2 as the COVID-19 pandemic hurt exports of goods and services. According to the U.S. Bureau of Economic Analysis, the U.S. current account deficit widened by $59.0 billion, or 52.9%, to $170.5 billion in Q2 2020. This represents 3.5% of GDP, up from 2.1% in the first quarter.
Looking ahead, the monthly data we have so far for international flows in Q3 isn't encouraging. The U.S. Census Bureau reported earlier this month that the July trade balance of goods and services
fell to -$63.6 billion, the biggest deficit since July 2008. The services balance, where the U.S. maintains a surplus, fell to its lowest level in eight years; at the same time, the goods deficit fell to an all-time low of $80.9 billion (balance of payments basis). While both exports and imports have recovered somewhat in recent months from their recent lows, exports of goods and services remained down 20.1% in July compared to a year ago while imports were off by 11.4%.
What this means is the US is effectively igniting Global Reflation!
This Will Stimulate Global Economy and Produce Inflation Pressures
MATASII'S STRATEGIC INVESTMENT INSIGHTS
The Global Reflation Rocket ignited by the US Current Account Explosion and driven via the Triffin Paradox is Likely to Take Markets Higher in 2021!
THE LONG TERM "PRIMARY TREND" S&P 500
The S&P 500 May Have Been Given The "Ignition" for a Final Historic Blow-Off in 2021!
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MONTHLY MATA UPDATE - OCTOBER 2020