Perfect Storms

• John Mauldin, Thoughts from the Frontline|
• August 27, 2021

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Hitting the Ceiling

Choose Your Poison

Stimulus, Inflation, and Monetization

Supply Surge

But Wait, There’s More

Right now, several potentially big storms are brewing. They could be minor annoyances or catastrophic disasters, or anywhere in between. I truly hope they all resolve with minimal fuss. But they may not. They could even combine into a perfect storm of even greater magnitude… so now is the time to prepare.

Hitting the Ceiling

I’ll describe several related but independent problems. The first one is US federal debt, which is approaching its limits. Literally so; the statutory debt ceiling, which Congress suspended for two years back in 2019, took effect again this month. The Treasury is now shuffling books to buy some time but we will reach the $28.5 trillion limit in the next few weeks.

Unlike the Federal Reserve, Treasury can’t create money. It manages the government’s cash flow by issuing new debt as needed to pay for the spending Congress approves. It has discretion on when to borrow, and in what amounts, so “cash on hand” can vary a lot. Treasury built up a huge cash balance last year and has been drawing it down in 2021, as this Gavekal chart shows.