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Thursday, September 28, 2023

Fiscal irresponsibility 31, Another US government shutdown, implications for PH and other countries

In two days, September 30, the US federal government will be in another "shutdown" due to absence of new spending law. During shutdown, thousands of federal employees who are deemed "non-essential" will be on furlough or suspension, some non-essential programs are suspended. 

I checked the US 10-year Treasury bond, Sept 2007 to Sept 2023 below. 
And further below is US Fed rates, Sept 2001 to Sept 2023. Charts from Trading Economics.


Some recent papers I saw.

JPM's Dimon Warns: World Not Ready For Fed's Stagflationary Response
Tyler Durden SEP 26, 2023
https://www.zerohedge.com/markets/jpms-dimon-warns-world-not-ready-feds-stagflationary-response

I am not sure if the world is prepared for 7%.
I ask people in business, 'are you prepared for something like 7%?' The worst case is 7% with stagflation.
If they are going to have lower volumes and higher rates, there will be stress in the system.
We urge our clients to be prepared for that kind of stress.

A Crisis Is Coming: Who Is Swimming Naked?
By Michael Lebowitz | September 27, 2023
https://realinvestmentadvice.com/a-crisis-is-coming-who-is-swimming-naked/


Government Shutdown: Toward the Brink
JAMES RICKARDS SEPTEMBER 26, 2023

This shutdown is different because it’s not about a specific policy issue such as Obamacare or the wall. It’s about the way the entire government finances itself and ways to cut spending to restore some fiscal sanity to Washington. Those are the biggest budget issues since the current budget process was enacted in 1976.

Peter Schiff: It’s the Beginning of the End of This Whole Phony Economy
BY SCHIFFGOLD SEPTEMBER 27, 2023  

In a nutshell, the economy is buried under trillions in debt. The cost of the debt is rising. The economy simply isn’t built to handle an even moderately high interest rate environment.

And what is the biggest factor driving that inflation risk?

It’s the size of government deficits. Because the bigger the government deficits are, the more inflation the government is likely to create. So, when you have large fiscal deficits, you would expect to have a higher premium on longer-term bonds.”
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Implications for the PH and other countries?

Prolonged high US interest rates means pressure on the PH Peso and other currencies will rise, their governments and central banks have to keep up with interest rate hikes or risk having more national currency depreciation relative to the US$ and other major currencies. Either way can lead to more inflation in other countries.

Another option (aside from raising domestic interest rates) for PH and other countries is to greatly diversify the forex reserves of central banks towards other major currencies, settle payments in goods and services in other currencies aside from the US.

More importantly, other countries should not follow what the US government is doing -- overspending, overborrowing, frequent govt shutdown due to high levels of spending and taxes/revenues needed to support spending.

US fiscal irresponsibility will continue for decades. Comedy in 2023, US will furlough tens of thousands of their employees while US keeps sending billions $ to Ukraine to pay the salaries of their civilian and military bureaucracies, on top of billions $ for military spending.
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See also:
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012
Fiscal Irresponsibility 29, On the so-called DBM "Underspending" in 2014, June 20, 2015
Fiscal Irresponsibility 30, Grexit is another socialist failure, July 08, 2015.

Cicero, welfarism and fiscal irresponsibility, August 11, 2016
Welfarism 35, Healthcare is not personal/parental responsibility, only state responsibility, February 14, 2020.

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