Mnuchin Issues Warning To China? What’s He Thinking?

Chuck Butler’s: A Pfennig For Your Thoughts    

September 13, 2017

* Currencies & metals fight back!

* N. Korea does some saber rattling… 

* Oh, Lordy, Chuck talks about the debt! 

Good day…  And a Wonderful Wednesday to you! Another day yesterday, where I read articles, cleaned some dishes ( I haven’t used that many, while Kathy has been gone!) and before I knew it, the day was over. Kathy was home,  and the sunshine of the day had turned to dark clouds… Yesterday, I mentioned that the U.S. Current Debt was now over $20 Trillion, and I don’t feel I gave it justice, so… I’m going to spend a good portion of today’s letter talking about how awful this is for us… The Grassroots greet me today with their song: Let’s Live For Today… I remember when Busch Stadium II removed the astro turf and replaced it with natural grass, they brought back the Grassroots to play before the game! Now, that’s marketing!   

Before I begin to wail on our debt, I bring you up to date with what’s going on around the world… And that’s zilch! Well, there’s some saber rattling by N. Korea, who issued a warning that the new sanctions would propel them to a faster pace on becoming nuclear…  This is a situation that blows up, and then calms down, blows up and calms down, but one of these times when it blows up, I’m afraid that something bad is going to happen…   I’m just saying..    There’s also word that Jamie Dimon the Head Honcho of the largest holder of short paper trades in Gold & Silver, was out to call Bitcoin “a fraud”…   There’s some irony there, but I can’t quite put my finger on it…   

The currencies and metals fought back yesterday, and won some ground back from the dollar that it had lost on Monday’s Dollar Day.  To illustrate the small moves, the Dollar Index dropped to 91.77 from 91.89 yesterday morning.  Kiwi, rand, loonie, renminbi, and rubles all saw tiny downward moves though on the day…  

Gold was all over the place yesterday, up, down, sideways and then a rinse and repeat of the whole shooting match. But when all the dust settled, Gold had gained $4.40 on the day to close at $1,331.40…  The early morning trading today has Gold up to $1,338, so at least it’s starting out on the right foot and not the wrong one today! Are “the boys in the band” tuning up their instruments to put on a show today?  Alrighty then, you’re all up to date… let’s talk DEBT!

So… We passed $20 Trillion… And most Americans wouldn’t even know that we were close to $20 Trillion! Their day didn’t change, they pay didn’t change, and the cost of a 6-pack of their favorite flavor of beer, didn’t change. The dollars in their pocket didn’t disintegrate, like the tape at the beginning of the Mission Impossible TV Show. So why would they even care about this? Isn’t this something that’s good? As long as we’re spending money we don’t have, and people are lending it to us, what the heck? Party On Wayne, Party On Garth! Well, I hate to spoil the party so I’ll go… I would hate my disappointment to show… (Ahhh, The Beatles).. But in contrast to their song, I am not going to leave, I’m going to spoil the part, because, well… That’s my job! Hey! Wait a doggone minute here, Chuck, I thought you were retired, and no longer had a job… Ahhh, grasshopper, that may be true, but I still feel the need to keep everyone informed about real stuff, and not fake news that’s all over the cable news outlets.. So, there!

So… why should we be concerned with this debt? Well, just for starters, at $20 Trillion, our Current Debt is larger than our GDP! And while I’m thinking about this… Didn’t the Gov’t put a spending freeze on last March, that would last 6 months, until we extended it last week? So, if there was a spending freeze, why or how did the Current Debt continue to increase to surpass $20 Trillion? Well, have you ever heard of “extraordinary measures?” That’s what the Treasury Secretary said he was going to have to use… But let’s break that down a bit… in this case, extraordinary measures, means raiding Gov’t pension funds for money to keep the Gov’t going… And while it was kept going, tons of new loans were being held back until the freeze was over, and last week, once the freeze was over, all these deals got booked, and voila! We passed $20 Trillion!

OK, I’m going to borrow a line or two from Simon Black’s, Sovereign Man newsletter… Just Google Simon Black and you’ll find him to sign up for his letter… “Year after year after year, the US government spends far more money than it collects in tax revenue.

According to the Treasury Department’s own figures, the government’s budget deficit for the first 10 months of this fiscal year (i.e. October 2016 through July 2017) was $566 billion!

Now to be fair and balanced… If the economy grew rapidly, tax revenue would increase. And the national debt, at least as a percentage of GDP, would start to fall.

Here’s the problem: the national debt is growing MUCH faster than the US economy. In Fiscal Year 2016, for example, the debt grew by 7.84%.

Yet even when including the ‘benefits’ of inflation, the US economy only grew by 2.4% over the same period.” – Simon Black

So, when you find yourself digging a hole for no reason, or you’re digging in the wrong place, do you continue to dig? Well, not if you have half-a-brain… So, why is the U.S. continuing on this path of destruction? Because that’s what debt leads to… destruction! Now, like I said above, the rising debt hasn’t caused a flood of problems, unless you look at like I do, and the debt causes the Gov’t to have to deal with it and not deal with getting the economy back on track,  yet… But it will, eventually… and here I’ll use one of my fave phrases… What’s Evident, May Not Be Imminent… here’s a quiz for you… Name the top 4 line items in the U.S. Budget… Final Jeopardy music begins to play.. Ok, give up?

Well, it’s Social Security, Medicare, Military spending, and interest on debt…. Those 4 items by themselves equal 90% of the U.S. Budget… So, you want to make cuts to these? Let’s see, cutting Social Security and Medicare is political suicide, folks… (but if they followed Chuck’s debt solutions from a few years back it can be done) , and I just saw a proposal by the White House to increase Military Spending by 10%, so that’s not happening, and then the old interest on debt… Hmmm, the Fed has been raising rates, what does that do to the interest cost? That’s right it increases it! Looks like our deficit spending, which leads to the current debt, isn’t going to be reduced any time soon…

And finally… here’s the problems as I see them.. When you owe money to someone else, they are your master, you are their slave, and that’s why I’ve always said that Debt is Slavery! So, when you owe so much to China, per se, wouldn’t it be very easy for the Chinese to begin to dictate our monetary policy? All they have to do is not show up for a Treasury Auction, and all hell would break loose! I don’t like owing money to anyone, anytime, any place, and the U.S. should at least give it a try to achieve that goal! The other problem as I see it is this interest on the debt… Right now, tax receipts in the U.S. make up about 17% of our GDP… Think of it as the U.S.’s slice of the pie… But what would happen if all those tax receipts were used up in paying our interest on our debt? OH NO! 

And then, there’s this… Loss of faith… In 1985, finance ministers around the world met at the Plaza Hotel in NYC, to express their fear that the U.S. couldn’t pay its debts, which at the time were 2.5% of GDP…  Now they are more than 100% of GDP, where are the finance minsters now?  Well, they don’t have to physically meet anywhere to discuss their loss of faith in the U.S. and the dollar, folks… The show that with their wallets when it comes time to show up at the Treasury auction window…  I always have a hardy laugh at the pundits, economists, and what have you, that talk about how the Debt isn’t the cause of the dollar’s woes…   Like they could notice a man with a hatchet in his forehead walking down the street!  Of course it is one of the causes of the dollar’s woes… There’s no two ways about it! 

So, I gave you something to think about today… and why I’m such a debt watcher… I’m a debt watcher, I’m a debt watcher, watching the debt go high, my, my, my…  

The U.S. Data Cupboard yesterday had those two pieces of data that we only get to see once a year, and they were interesting in that the Median Household Income showed an increase to $59,039 in 2016, VS $57, 230 in 2015…  And the number of Uninsured Americans dropped from 29 Million in 2015, to 28.1 Million in 2016…   Yesterday, I talked about the increase in health care was bogging down Americans… These two data prints tie into that, perfectly…   

Today’s Data Cupboard has Aug. PPI (wholesale Inflation), and the August Federal Budget for us to see.. PPI is expected to rise by a small bit, and who knows what the Federal Budget will be? The July figure was a deficit of $107 Billion… There’s that darn deficit spending again…  

To recap…  Not much happened around the world yesterday… N. Korea did some saber rattling in response to the new sanctions the U.S. put on them, and Jamie Dimon called Bitcoin “a fraud”… Chuck is looking for the irony there coming from the head honcho of the largest holder of short paper trades in Gold and Silver… The currencies & metals fought back yesterday, and won back some of the lost ground they suffered in Monday’s Dollar Day…   

For What It’s Worth….  Since I spent so much time on the U.S. Debt today, this article stuck out like a sore thumb when I was looking through Ed Steer’s letter today. ( And it’s about the U.S. biting the hand that feeds them, and can be found here:     

Or, here’s your snippet: “The U.S. could impose economic sanctions on China if it does not implement the new sanctions regime against North Korea, the U.S. Treasury Secretary has warned. Steven Mnuchin said the restrictions could involve cutting off Beijing’s access to the U.S. financial system.

“North Korea economic warfare works,” Mnuchin said Tuesday at the Delivering Alpha Conference in New York City. “We sent a message that anybody who wanted to trade with North Korea – we would consider them not trading with us.”

The Treasury Secretary echoed the words of the U.S. envoy to the U.N., Nikki Haley, by calling the fresh round of sanctions against Pyongyang “historic.” Mnuchin added “if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system.”

Washington has, so far, been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy.” 

Chuck again…. Wait! What? I’m shaking my head in disbelief here, to think that the U.S. that owes China so much money would be taking this stance… What do they expect China to do now? China does not appreciate being backed into a corner, folks…  In my humble country boy opinion, this invites China to start exchanging their dollar reserves to Gold… 

Currencies today 9/13/17… American Style: A$ .8040, kiwi .7295, C$ .8237, euro 1.1986, sterling 1.3278, Swiss $ .9595… European Style: rand 13.0610, krone 7.8329, SEK 7.9645, forint 256.53, zloty 3.5583, koruna 21.7714, RUB 57.42, yen 109.97, sing 1.3419, HKD 7.8110, INR 63.97, China 6.5353, peso 17.75, BRL 3.1103, Dollar Index 91.77, Oil $48.32, 10-year 2.16%, Silver $18.01, Platinum $986, Palladium $951.48, and Gold… $1,338.50 

That’s it for today… Well, were you ready for my dissertation on debt today? HA!  The letter will be going out a bit earlier than usual today, as I need to get ready to take Kathy and her sister to the airport early this morning. So, more “alone time” for Chuck this week…  My beloved Cardinals remain 2 games back this morning, as they won last night but so did the team in front of them. They’ve put themselves into a position of having to win every night…  The great James Brown takes us to the finish line today with his song: Get On Up…  Fellas can I take it to the bridge? I’m gonna take it the bridge now…  taste… the piano…  You’ve got to love James Brown’s stuff through the years!  And with that, I’ll send you on your way today. I hope you have a Wonderful Wednesday, and Be Good To Yourself!