The Great Depression Part 18 – United States Treasury

Good day to each of you reading this column on the Great Depression from the last century and the Great recession of this century.

Let’s delve into the questions from the previous column and utilize some thoughts from those who are following this potential problem.

Before I begin, I remember one of my daughters, at a very early age, asking me to buy a toy for her and I had to say no, but why?” Because we had no money,” I replied. She looked at me and said, “Dad, you have plenty of checks.” “Well, I said, Yes, I do but don’t have enough money to back up the check.”

“OH, “she replied, “You must have money in the bank to back up what you wrote on the check.”

I wish the United States treasury would learn that lesson.

This leads us to the first subject on the list of printing more money and the cost to do business.

• Why not print more money?
• What about inflation?
• Will our next step be recession?
• Will the Federal reserve increase their rates?
• What are the factors of the depression and are we headed to the depression?
• Biblical Lessons on the depression.
• What does the Bible say about debt?

How would you like to be 28 trillion dollars in debt and zero savings? Guess what? We Americans are all in that boat as we all share a 28 trillion debt and our government has zero savings and a zero-emergency fund.

The bad news—We Americans are broke and the only ones we have to blame is ourselves. We Americans have mortgaged our children’s future and grandchildren’s future by spending taxes on their future earnings.

As one man said, A fool and his money are soon parted and boy oh boy have we parted ways. In fact, I have heard those on the airwaves say that debt is good since debt stimulates the economy.

People have become so calloused that when buying and financing a car, they finance the car for the maximum rate of months which maybe 72 or 84 months. Do they no know that New Car has just depreciated immensely when they first drove it off the lot and they will make payments for another 6 to 7 years.

Debt is slavery, simply put for the person that is in debt is the tail and the lender is the head. Look at Deuteronomy 28:43-44 (NIV) The alien or foreigner who lives among you will rise above you higher and higher, but you will sink lower and lower. He will lend to you, but you will not lend to him. He will be the head, but you will be the tail.

So let’s think about this, why not print massive amounts of money out of thin air? If we print these massive amounts of money, wouldn’t that destroy the value of money and make purchases more expensive?

By the way, who prints these massive amounts of money out of thin air? The Federal Reserve. The Federal Reserve buys a U.S. Treasury Bond in exchange for dollars that our U.S. government then spends. The U.S. Treasury Bond is a promise note to back the Federal Reserve with interest.

Wow! What a business—print money with the ability to add as many zeros as possible to fulfill the governments needs and does this with interest. The best part for the Federal Reserve—they don’t collect taxes nor provide goods nor services, just print money and get the interest on top of that money that keeps growing and growing and growing. He will lend to you, but you will not lend to him. He will be the head, but you will be the tail.

The United States is beginning to experience the “sour fruits” or great giveaway program that was created by our president. Per Doug Whiteman of Moneywise – 6/21/21 – Normally, jobless benefits are taxed like any other income. But the COVID-19 rescue package Biden signed in March has made up to $10,200 in 2020 unemployment compensation tax-free for individual taxpayers. Couples filing jointly get a $20,400 exclusion.

If you collected unemployment last year and filed taxes ahead of Biden’s relief law, you may have overpaid based on what you thought you owed. So, you may have a refund coming, though only if your adjusted gross income (total income minus a few deductions) was under $150,000.

Some 40 million Americans received unemployment payments in 2020, according to the Century Foundation, and the average beneficiary got $14,000. Of that, $10,200 is now tax-free — leaving only $3,800 that’s taxable.

In early June, the IRS said it had identified 13 million taxpayers who were potentially eligible for the adjustment. If you’ve been hoping for a fourth stimulus check, one of these refunds might be the next best thing, for now.

Which is better—work or stay at home and receive a check from the Federal Government? Why is it that so many businesses are publicly advertising for Help Wanted and are receiving zero applicants? What will happen when the unemployment benefits disappear? Is it the intent of the government for people not work?

Please tell me why the press has not covered the subject of those who do not want to work and why they should receive benefits under the COVID-19 rescue package.

Biblically, we are told that we are to work by the sweat of our brow and if we don’t work, then we don’t eat.

To put this into perspective, the United States government distributed money to both individuals and businesses due to our very government shutting down most of our economy and putting many small businesses out of work. The reward—government direct cash handouts to individuals.

The $6.4 trillion dollars consisting of the Coronavirus Aid, Relief & Economic Security Act, the Consolidated Appropriations Act and American Rescue Plan partially went to unemployment benefits, grants to businesses and other uses. Lots of uses and in return, many “Help Wanted” signs, gasoline prices on the “rise”, grocery items on the “rise”, housing prices on the “rise”, grocery items on the “rise”, and shortages for products such as lumber, various foods, new cars, rental cars, chicken wings, beef, computer chips, plastics, toilet paper, furniture, bacon, hot dogs, chlorine, coffee, olive oil, corn, and the labor force.

It is time to awaken for the dreaded word “inflation” has reared its ugly head and all Americans are feeling the repercussions of this word.

As one goes to the grocery store, look at all the bare shelves and when you are ready to check out, look at your bill and see how much you are paying for items that you paid for last year.

Inflation is everywhere you turn from cars to homes to products to essentials and the only thing not inflating is your take home pay. By the time you get your net paycheck, taxes have eaten close to 50% off your take home pay and the end result is inflation.
The Unites States is arguably the richest country in the world and yet is burdened by nearly 50% taxes and God’s response- He will lend to you, but you will not lend to him. He will be the head, but you will be the tail.

History does repeat itself, for in 2008 or “The Great Recession” massive amounts of money were printed to divert from this recession and yet, it failed. Throwing money is not the answer.

Here is what Jim Puplava at Financial Sense Wealth Management says, “Two years, we will be at $40 trillion in debt, and in two years after that, if we continue this stimulus we are going to be at $50 trillion. At some [point], these debt levels are unsustainable.”
“If you are spending $6 to $7 trillion per year to stimulate the economy now, when the economy is recovering, what do you do when you get into a recession?”Puplava said. “How big will the stimulus have to be to get out of the next recession or depression?”
Inflation is here and it is striking fear into Americans as I write. It is a problem that could be solved, but those who are” the moneychangers” are in control and tightening the rein on the dollar.

Biblically, we will touch on ” the moneychangers” and their ramifications as they have been around for centuries, but I wish to finish the subject of inflation.

Here is what Gwynn Guilford of the Wall Street Journal reported on June 10, 2021:
The U.S. economy’s rebound from the pandemic is driving the biggest surge in inflation in nearly 13 years, with consumer prices rising in May by 5% from a year ago.

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992.

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

The Fed expects the inflation rate to rise temporarily this year. A sustained, large increase in inflation could compel the central bank to tighten its easy-money policies earlier than it had planned, or to react more aggressively later, to achieve its 2% average inflation goal.

More companies also have started passing on to consumers the higher costs they are facing for raw materials and wages.

Food makers said their costs are climbing at an alarming rate, prompting them to raise some prices.

Let’s examine inflation rates before the “Great Depression”

The source article from InflationData is available here and contains all the links to their sources.

Inflation and CPI Consumer Price Index 1920-1929

Inflation During the “Roaring 20’s”

The period from January 1, 1920 through December 31, 1929 in the United States was called the “Roaring 20’s” but all was not roses. This was considered the decade of economic recovery from the high inflation and wartime devastation of the teens but there were a few thorns. The “roaring twenties” began with a depression. Inflation in 1920 was a deflationary -1.55%. 1921 the first year of Warren Harding’s presidency saw prices decline -11.05% and by 1922 prices were basically flat losing only -0.59%.

It is hard to believe today, but when the income tax was first established in 1913, (coincidentally the first year that we have official inflation data for) the average person paid only 1% or less and highest marginal tax rate on those making over $500,000 was only 7 percent! But it didn’t take long for the government to crank it up. By 1917 the lowest bracket was 2% and those making over $2,000,000 had to pay a whopping 67 percent to help finance World War I. After the war was over, President Harding started the ball rolling on reducing the tax rates and by 1925 top rate taxpayers “only” paid 1/4 (i.e. 25%) rather than 2/3rds (i.e. 67%).

One of the primary reasons the 1920’s are considered “roaring” is due to F. Scott Fitzgerald’s classic novel, The Great Gatsby which illustrated the lives of the rich but did not reflect the everyday lives of the average family. It was a great time to be rich as tax rates were coming down and investors enjoyed a booming stock market.

However, not everyone enjoyed the boom. Over 50% of the American population still lived on farms, and didn’t own stocks. The twenties was a terrible time for farmers. World War I had allowed farmers in the U.S. to boost production to feed war torn Europe. To meet this increased demand many farmers had taken out large loans to buy tractors and increase acreage under cultivation. But as the war ended, European farmers began producing again and American farmers suddenly faced a glut of agricultural products which resulted in falling prices (deflation) for commodities like corn, wheat and cotton. For many in rural America the Great Depression began not with the stock market crash in 1929 but a full ten years earlier with the agricultural product crash in 1920. The 1920’s had a much greater divide between “haves” and “have-nots” than we have today. There was a great divide between the prosperity of the cities and the poverty of the country. And for those in the country the poverty continued for roughly two decades from 1920 through 1940.

This leads to the question of does inflation lead to a recession and how severe can that recession become?

On May 18, 2021, Veronica Kyrylenko of the New American (full source article available here) wrote the following:

Inflation Coming; Economists Warn of Severe Recession

Rising prices are putting increasing pressure on President Biden and the Federal Reserve to prevent inflation from derailing the recovery from the economic recession caused by the economic shutdown last year.

A surge of consumer demand unleashed by government stimulus and fewer economic restrictions is putting a strain on global supply chains. Manufacturers and other hard-hit industries are struggling to get back up and running, causing supply shortages and raising costs. The labor shortage, caused in part by the generous unemployment benefits paid by the Biden administration, is another factor that hinders the recovery.

The supply constraints affect almost all economic sectors. Prices for basic materials ranging from lumber to palm oil rose as several industries tried to quickly boost production through the month. Climbing commodity prices typically bleed into production costs and, eventually, the prices consumers pay at the register.

All of those factors pushed the Consumer Price Index (CPI) up 0.8 percent in April and 4.2 percent over the past 12 months, the fastest annual rate since 2008, the Labor Department reported this past week. When stripping out the more volatile prices for food and energy, the index registered the biggest monthly increase since 1982.

At the same time, the Producer Price Index jumped 0.6 percent last month. Economists polled by Dow Jones and the Wall Street Journal had forecast a 0.3-percent increase.

What’s more, the rate of wholesale inflation in the past 12 months climbed to 6.2 percent, from 4.2 percent in the prior month. That’s the highest level since the index was reformulated in 2009.

Federal Reserve Chair Jerome Powell claims the overall impact will be “transitory,” and stated the Fed would keep its benchmark short-term rate near zero, where it’s been pinned since the pandemic erupted nearly a year ago. The goal is to help keep loan rates down, for individuals and businesses, to encourage borrowing and spending. The Fed also said it would keep buying $120 billion in bonds each month to try to keep longer-term borrowing rates low, too.

Chair of the Council of Economic Advisers Cecilia Rouse urges people “to be patient,” and expect “choppiness” in the U.S. economic recovery as different sectors bounce back at varying speeds, saying that inflation will not be a long-term problem.

With U.S. government spending on track to top $9 trillion in 2021, while revenue flatlines, many prominent economists warn that the reckless spending would generate an out-of-control lasting inflation.

Bill Dudley, former president of the Federal Reserve Bank of New York, was one of the first to sound the inflation alarm in December — before Biden announced his American Rescue Plan — noting that the combination of explosive post-pandemic demand and federal stimulus could cause a “nasty” spike in inflation.

Harvard economist Larry Summers, who advised former President Barack Obama and was treasury secretary under President Bill Clinton, separately warned of “inflationary pressures of a kind we have not seen in a generation” latent in Biden’s economic recovery proposal, and was later defended by former International Monetary Fund chief Olivier Blanchard.

Blanchard suggested that economic output would need to surge as much as 14 percent to accommodate the demand glut that would follow Biden’s proposal.

“It would take the unemployment rate very close to zero,” Blanchard wrote. “This would not be overheating; it would be starting a fire.” The unemployment rate recorded in April is nowhere near zero — it’s a disappointing 6.1 percent, eight million jobs lower than February 2020.

Jim Paulsen, the Leuthold Group chief investment strategist, believes that “the overuse and abuse of economic policy” might cause severe problems in the near future. The result could be “a loss of confidence in government finances in this country,” warns Paulsen, as the national debt swells to nearly $28 trillion, the public portion of which now exceeds total GDP. That, in turn, could provoke a snapback in the market that brings about economic havoc, which would lead to a severe recession in 2022 or 2023 and will hurt “the same groups that everyone is trying to help today the most.”

Economic data continues to defy expectations, showing growth at a rate that would have been close to a record high even before the economic restrictions were imposed. The Atlanta Fed’s GDPNow tracker is projecting growth at a 7.5-percent pace in the fourth quarter, hardly indicative of an economy in need of a massive cash infusion.

Still, the Biden administration is sending more cash to Americans. The administration announced Monday that monthly payments of as much as $300 for each child under age six, and as high as $250 per month for children ages six to 17, would begin on July 15 and continue for the rest of the year.

We have established that inflation is upon each of us, so what is the next step? A very severe recession and then a depression will come.

Here is another article for you to ponder, the full article is here and contains links to their sources.

The US is facing a dollar collapse by the end of 2021 and an over 50% chance of a double-dip recession, economist Stephen Roach says

• The US dollar could collapse by the end of 2021 and the economy can expect a more than 50% chance of a double-dip recession, the economist Stephen Roach told CNBC on Wednesday.
• The US has seen economic output rise briefly and then fall in eight of the past 11 business-cycle recoveries, Roach said.
• Grim second-quarter data cannot be dismissed, he said, pointing out that “the current-account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration.”
• Roach last predicted a crash in the dollar index in June, when it was trading at about 96. He said at the time that it would collapse 35% against other major currencies within the next year or two.

The “seemingly crazed idea” that the US dollar will collapse against other major currencies in the post-pandemic global economy is not so crazy anymore, the economist Stephen Roach told CNBC’s “Trading Nation” on Wednesday.

Roach, a former chairman of Morgan Stanley Asia, also said he sees a more than 50% probability of a double-dip recession in the United States.

He based that prediction on historical evidence, saying that in eight of the past 11 business-cycle recoveries economic output has risen briefly and then fallen.

“It’s certainly something that happens more often than not,” he said.

Roach last predicted a dollar crash in June, saying it would collapse 35% against other major currencies within the next couple of years. At the time, the dollar index traded at about 96. On Thursday, the index traded at about 94.41.

He said on Wednesday that he expected the collapse to happen by the end of 2021, but he did not say by how much.

“We’ve gotten data that’s confirmed both the saving and current-account dynamic in a much more dramatic fashion than even I was looking for,” he said.

Explaining his outlook, Roach pointed to dire second-quarter data.

“The current-account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter,” he said.

“The so-called net national savings rate, which is the sum of savings of individuals, businesses, and the government sector, also recorded a record decline in the second quarter, going back into negative territory for the first time since the global financial crisis.”

Lingering vulnerability and the aftermath of the initial decline are two factors driving the dollar’s ominous future, he said.

“Lacking in saving and wanting to grow, we run these current-account deficits to borrow surplus saving, and that always pushes the currencies lower,” Roach said. “And the dollar is not immune to that time-honored adjustment.”

I wish I had a crystal ball for the question of “The Biden Bounce” as various economists and trends analysts have used for the stimulus package and when the bubble bursts.
I welcome your thoughts on the above matter as we have entered into a very turbulent time with plenty of “free money” and the premise that the United States Federal Government will take care of those out of work.

Why work when you can receive federal and state unemployment benefits and make more by not working? Why not put millions of small businesses out of business because they can not match the federal/state unemployment benefits.

Here’s another point to be made—the federal government and our current president wants to raise taxes to the wealthiest people in our nation and large corporations. Is this a “pipe dream”?

Huge corporations and wealthy individuals maneuver around this potential “land mine” by passing along most of those tax increases to you and I and each of us are getting the bad end of the deal. Wealthy individuals hire tax and or investment advisors to “shelter” their earnings.

Lest we forget about those “secret banks” in the Cayman Islands or in Switzerland where wealthy individuals and large corporations can place their vast sums of wealth.
When reading the above article, one must ask if this is capitalism or socialism? What has happened to the American work ethic and to be paid properly for services rendered? Where is the initiative to work hard and to “render what is Caesar’s and what is God’s?

Is the United states being “homogenized” into the World Economy and could the US Dollar be replaced as the world currency?

The most important part of this column will come in the next column which is the Biblical Implications.

Tune in as I tackle what the Bible has to say on this subject.

Jeff