Posted 7 months ago | by Ben Armstrong
US Federal Deficit Explodes – USG on-track to Spend $3tln Over Receipts in 2020
Do numbers matter anymore?
Based on what the US government and Federal Reserve are doing – one is inclined to say – no.
2020 has been a wild ride, and the political reaction to COVID-19 has created record federal deficits in the USA. Earlier this year there was a monthly deficit spend of over $800bln, and it appears that the USG will be at least $3tln over receipts for this fiscal year.
Treasury auctions have also been looking a little ugly. Unlike previous times of global financial stress, new US debt isn't being bid (although any debt from the US, Japan or EU seems to be doing pretty well).
One thing to keep in mind is that central banks are encouraging negative interest rates – which makes price discovery in the bond markets tricky – at best. We may be looking at a situation where central banks are effectively 'blinding' investors to the actual monetary situation, which won't have a happy ending.
So – are DeFi Rates High or Low?
The interest rates that are on offer in the DeFi lending space are a lot higher than anything one would find at a local bank – or even in the government bond market.
Some people think that these rates are artificially high, but that may not be the case at all. The thing is – the DeFi space is still extremely small, and more demand for DeFi assets could actually push yields up.
Assuming that more participants will make yields equalize to government bonds is a pretty big vote of confidence in the central planners at the central banks. Running massive deficits and monetizing them isn't necessary possible in the medium term – especially if banks don't offer fiat currency holders anything in the way of a return.
In short, higher yields in the DeFi space could actually create higher yields as more people enter the space, due to the fact that fiat currency is now 100% managed by central banks and their lap dog money center banks.
How Stupid is the General Public?
It's kind of a surprise that fiat currency has made it this far. People appear to be willing to go along with one of the biggest scams in history – and there isn't a good reason why they should support the system.
There are loads of people piling into stocks at record high prices – as others in the West burn the urban center to the ground. All of this is a serious wake up call for anyone who hasn't been sucked into madness – as these trends don't lead to a future that a sane person would want to be a part of in any way, shape, or form.
Money – as such – is best thought of as a call option on what a society is producing at any given moment. As the productive capacity of a social structure falls, that call option becomes less valuable. The kind of destruction in productivity we are witnessing at the moment calls into question the value of fiat currency – full stop.
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