The global economy has been facing significant macroeconomic difficulties for quite some time now
The US balance of payments and funding problems have left US policymakers with some tough decisions. Either the Fed has to keep raising interest rates to slow down the economy and inflation, or it has to stop another US market crash. However, raising interest rates further will have a severe impact on the economy, which could push it off the cliff.
The FED’s survey of US lending standards shows that tightening lending standards has a lag effect that will soon be felt in the economy and banks. This means that credit will become tighter, making it difficult for businesses and consumers to access loans and other forms of credit. This can have a significant impact on the economy, as it can slow down the rate of growth and lead to a recession.
The debt-to-GDP ratio in the US is currently at 125%. A mild recession is not an option, and there will be no soft landing. This means that the government will have to do a lot to keep the economy from going into a recession, which would make the economy less stable.
So, we can see that the US Treasury Department has already started to step in and change direction in October 2022 by making the dollar less and pumping money into the US economy.
The job market in the US has added fuel to the inflation numbers, as we are showing signs of improvement since the start of the COVID-19 pandemic. The job report for December 2022 and January 2023 showed that the economy added 800,000 jobs, which is a significant improvement from the previous months. However, while the job market numbers may appear strong, the reality is more complicated.
One thing that might be affecting the job market numbers is that they don’t take into account people who are too sick or dead to work. This means that the job market numbers may not be an accurate reflection of the overall state of the economy.
Another factor that may be impacting the economy is the fact that tax receipts were down in December 2022 and January 2023. This is a puzzling trend, as it would seem counterintuitive for tax receipts to be down when the job market is improving.
One possible explanation for this discrepancy is that the jobs that are being created are not high-paying jobs and are therefore not generating as much tax revenue. Additionally, the job market may be tight, but the aggregated labor market may be down, which means that there are still many individuals who are unemployed or underemployed.
Another factor that may be impacting the US economy is the high rate of car repossessions. This reflects the fact that many individuals are struggling to make ends meet and are unable to keep up with their car payments. This could be a sign that the economy is still struggling, despite the apparent improvements in the job market.
In summary, while the job market numbers may appear strong on the surface, the reality is more complicated. The job market may be tight, but the aggregated labor market may still be down, and tax receipts may be down despite the improvements in the job market.
The question is how long the US economy can run with massive debt, sky-high inflation, and high-interest rates before the economy breaks. Then the second question is: how long before we start seeing devaluations in equities, real estate, and wealth across the nation?
The BIG QUESTION is: What needs to change in order for the US economy not to crash?
As in previous years, the FED decided to intervene and ensure that the CPI is lower by the end of 2023 by changing the CPI calculation in February 2023 to a rebased lined CPI, which is a new methodology that takes changes in consumer behavior into account. This means that the CPI now reflects changes in what consumers buy and how they buy it, rather than just changes in prices.
The Consumer Price Index (CPI) is a measure of the average change in prices over time that consumers pay for a basket of goods and services. The FED uses the CPI to gauge inflation and make monetary policy decisions.
The FED made this change because it was in a corner in terms of inflation and the current deficit situation. The Fed wanted to increase liquidity while keeping inflation low.
The impact of this change on the economy is that it may affect how the FED makes monetary policy decisions. If the new CPI calculation shows that inflation is lower than it is, the Federal Reserve may be less likely to raise interest rates to combat inflation. This could result in higher inflation in the long run, which could lead to a decrease in the purchasing power of the dollar.
Also, if the changes to how the CPI is calculated are seen as a way to change the data, this could make people lose faith in the FED and the US economy. Investors and consumers may doubt the FED’s ability to control inflation, which could make them less willing to spend and invest.
In summary, the change in the CPI calculation has had an impact on the FED’s ability to make monetary policy decisions and may have long-term effects on the economy. It remains to be seen how this change will affect the economy and how the FED will adjust its policies in response.
Getting the USA to move toward a digital economy could help the macroeconomy in a number of ways, especially since the country has a lot of debt and inflation is high.
Just as farmers carefully guide their cattle towards a new location, policymakers and treasury officials in the US are working to guide the economy towards a more digital future.
Firstly, a digital economy has the potential to increase efficiency and productivity. By digitizing different systems and processes, businesses and people can speed up their work, cut costs, and save time. This increased efficiency can lead to higher economic output and growth, which could help mitigate the impact of the debt cycle and inflation.
Secondly, a digital economy has the potential to foster innovation and new industries. Digital technologies like blockchain, AI, and the Internet of Things are changing many industries, such as finance, healthcare, and transportation. This could lead to the creation of new jobs and industries, which could help spur economic growth and offset the negative impacts of the debt cycle and inflation.
Thirdly, a digital economy could help to increase financial inclusion and accessibility. Digital technologies like mobile banking and digital payments could help reach people and places that traditional financial institutions haven’t been able to reach before. This could help make the financial system more stable and reduce differences in income, which could be good for the economy as a whole.
Finally, a digital economy could help reduce the impact of inflation. Most of the time, digital assets like cryptocurrencies and asset-backed securities are less affected by inflation than traditional fiat currencies. This means that as the economy becomes more digital, there may be more ways to protect against inflation and lessen its effect on the economy as a whole.
Just as with a cattle drive, the transition to a digital economy is not without challenges.
Many people have said that the SEC and policymakers don’t give clear rules about cryptocurrencies.
In the United States, there have been several bills proposed related to cryptocurrency and digital assets, such as the “Crypto-Currency Act of 2020” and the “Digital Asset Market Structure and Investor Protection Act.”
However, these bills are still in the proposal stage and have not been passed into law.
We have recently seen an increase in the number of legal enforcement actions taken by the United States Securities and Exchange Commission (SEC) against cryptocurrency companies.
- Libra: In June 2019, Facebook announced its plans to launch a new digital currency called Libra, which was met with significant regulatory scrutiny from various government bodies, including the SEC. In October 2019, the SEC issued a statement saying that it had not approved any digital asset trading platform, and warning potential investors to be cautious of the risks associated with digital assets. The SEC also initiated an investigation into the Libra Association, which is a group of companies including Facebook that is responsible for developing and managing the Libra digital currency
- In February 2020, the SEC obtained a temporary restraining order against Telegram Group Inc. to stop its initial coin offering (ICO), alleging that the company had conducted an unregistered securities offering.
- In December 2020, the SEC charged Ripple Labs Inc. and two of its executives with conducting a $1.3 billion unregistered securities offering through the sale of digital assets. The case is still ongoing and will ultimately determine the new Harvey test.
- The SEC sued LBRY Inc. in March 2021, saying that the company sold unregistered securities in the form of digital tokens. According to the SEC, LBRY raised $11 million by selling its tokens to investors and marketed them as an investment opportunity that would appreciate in value as the company’s platform grew
- The SEC’s complaint, which was filed on February 16, 2023, says that Kraken has been letting people trade “security tokens” on its platform without registering as a national securities exchange or getting an exemption from registration, which is against federal securities laws.
However, this case highlights the ongoing regulatory uncertainty surrounding the cryptocurrency industry, as authorities seek to apply existing securities laws to the rapidly evolving world of digital assets.
In summary, steering the USA towards a digital economy has several potential benefits for the macro economy, including increased efficiency and productivity, fostering innovation and new industries, increasing financial inclusion and accessibility, and reducing the impact of inflation. While there may be challenges and risks associated with this transition, the potential benefits could help mitigate the impact of the current economic difficulties that the USA is facing.