Debt Be Damned
The U.S. National Debt is about to surge like never before, along with the rest of the entire planet’s gigantic pile of sovereign IOUs. America started with a $23.5 trillion debt before the Wuhan virus outbreak, with annual deficits running over a $1 trillion; and projected to be at least that amount for the next dozen years. But then, the stock market and economy crashed due to the catalyst of the COVID-19 pandemic, which pricked the massive bubble in junk bonds and equities that I have been warning about for years.
In addition to the automatic stabilizers that kick in during a recession, like unemployment insurance and food stamps, the Treasury is now buying commercial paper, suspending interest payments on student loans, and writing checks to small businesses. There are bailouts and a newly-passed stimulus package; the IRS is allowing taxpayers a deferment for three months of up to $300 billion. The government will soon be sending checks to nearly every American. Helicopter money is now coming, and both parties embrace it with alacrity.
A global depression is now here, but the question is for how long. A small taste of the miserable data that is to come came from the Empire State Manufacturing Survey for the month of March. The index plummeted by the most in history to an incredible minus 21.5. Since the survey was taken, we have seen entire counties shut down, U.S. schools and corporations shuttered, and at least 50 major retailers are shutting their doors, and that number is growing daily. The retail sector employs a total of 15.7 million people. There will be about 3.5 million jobs that are predicted to be lost if this economic slowdown turns out to be like the average since WWII. However, it is clear this economic contraction will be nothing like the typical recession. Indeed, when was the last time a great portion of the world’s population was told to shelter in place. Around 67 million Americans think they will have trouble paying their credit card bills due to the coronavirus, according to WalletHub. And, nearly 80% of Americans are living paycheck to paycheck—we really need this virus to dissipate quickly, but the probability of that outcome is impossible to know.
To give you further insight as to how bad the unemployment numbers could get, let’s look at where the jobs are now. In the U.S., most of the jobs created since the Great Recession ended back in 2009 have been in the Leisure and Hospitality sectors. According to the BLS, there are nearly 17 million people employed in those two sectors alone. But now, a great deal of those doors have been closed. Many of these people are 1099 employees and have no access to unemployment insurance. Those that are W-2 employees will see a huge reduction of their income and may not see an immediate request to be rehired once the economy begins to recover.
This is because there will be a serious degradation of consumer and business’ balance sheets. Coming into this crisis, there was a record amount of household debt and a record amount of corporate debt both in nominal terms and as a percentage of GDP. There is now a significant shock to the incomes of the public and private sectors, while all the existing debt remains and new debt is being accumulated. Government assistance can help, but it will not make people 100% whole.
But now the major averages have crashed by over 30%, and the Russell 2000 is down just shy of 40% in one month. Not only are all of the gains made last year now gone but the market has given back all the gains made since January 2017. As an aside, I was wondering how all those C-suite geniuses feel that levered up their corporations in record proportions to buy back stocks at record highs? I also wonder what public or private pension fund will be solvent since there has been no money made in the last three years, and the Benchmark Treasury yield is 1%? These retirement funds need to make at least 7-8% each year to come close to satisfying their obligations.
To combat these issues, global governments are reacting with massive fiscal and monetary stimulus. We already mentioned what the U.S. Treasury is doing. Also, the Fed cut rates back to zero, is buying commercial paper, openly admitted to launching Q.E. 5, and massively expanded its REPO facility—which it was supposed to draw down to zero beginning in April. In sharp contrast, Mr. Powell’s balance sheet has now exploded to an all-time high of $4.7 trillion. The Fed may also start buying corporate debt very soon and announced unlimited Q.E. on Monday, March 23rd.
Wall Street now needs a 50% increase in stocks just to get back to where it was a month ago. That’s how the math works when you are down about 35%.
At the end of this crisis, we will have an even bigger mountain of debt, interest rates than are even further into the twilight zone and the seeds of runaway inflation that have been fertilized with a gigantic pile of poop from a massive herd of government-fattened brontosauruses. That is the real crash still coming, which will occur after the market soars back to record highs on unprecedented money printing, interest rate manipulation, and debt-fueled stimuli. To be clear, the inflationary/insolvency crash of the bond market is dead ahead.
In the interim, we should continue to see wild swings in asset prices as the market struggles to reconcile with a temporary, yet brutal, depression that is being offset by Helicopter money. PPS models these cycles of inflation/deflation and growth/recession. That is your best chance to increase your standard of living, even during the increasing occasions when Wall Street burns.
Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check” and Author of the book “The Coming Bond Market Collapse.”
Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.
Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors.
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street. Earlier in his career he spent two years on the floor of the New York Stock Exchange. He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
Trending Now on Affluent Christian Investor
Sorry. No data so far.
The Affluent Mix
Biden Oblivious To Illegal Immigration Issues... August 2, 2021 | Frank Vernuccio

Rob Arnott On Bubbles, Inflation, And Once-In-A-Generation Investment Opportunit... August 2, 2021 | Jerry Bowyer

The Federal Reserve’s Massive Theft Of Stability... August 2, 2021 | Jim Huntzinger

What To Do About This Difficult Market? August 2, 2021 | David Bahnsen

Letter On The Politicization Of Corporations... July 26, 2021 | Jerry Bowyer

Peak Of The Fake Bull Market July 26, 2021 | Michael Pento

Woodrow Wilson’s Administrative State vs. Gold... July 26, 2021 | Jim Huntzinger

Dividends, Energy, And Crypto July 26, 2021 | David Bahnsen

Whose Side Are You On? July 26, 2021 | Frank Vernuccio

Media, Left Ignore These Dangers July 19, 2021 | Frank Vernuccio

Mark Skousen On FreedomFest And How To Measure The Whole Economy... July 19, 2021 | Jerry Bowyer

Quantifying The Quantitative, Or Making Easy The Easing... July 19, 2021 | David Bahnsen

The Gold Standard Means A Rising Standard Of Living... July 19, 2021 | Jim Huntzinger

Book Review: Brian Domitrovic Reveals The Monetary Genius Of Arthur Laffer... July 19, 2021 | John Tamny

Steve Forbes: Time To Worry About Inflation, Not Hyperinflation... July 12, 2021 | Jerry Bowyer

UFOs Rescue Biden July 12, 2021 | Frank Vernuccio

Read This Classical Economist’s 200 Year Old Warning About Paper Money... July 12, 2021 | Jim Huntzinger

How Central Banks Murdered The Markets July 12, 2021 | Michael Pento

Everything There Is To Know About The Stock Market... July 12, 2021 | David Bahnsen

AT&T CEO: We’re Ill Equipped For Politics, And We’re Spending A Lot Of ... July 6, 2021 | Jerry Bowyer

Internet Bias Distorts National Conversation... July 6, 2021 | Frank Vernuccio

The Halfway Point Of 2021 July 6, 2021 | David Bahnsen

Join the conversation!
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.