This Is Why The Gov Cannot Afford a Recession: Mark Moss

➡ Mark Moss talks about how the government doesn’t want a recession because it would make things really hard for them. They keep spending money, even though they’re not getting as much back in taxes. If a recession happens, they would have to borrow even more money, which could lead to bigger problems. This is why they’re trying to avoid a recession, even though many people think it should have happened by now.

➡ Many older people are retiring and need money, so they’re taking out their savings. This means places like pension funds and banks have less money. To make up for this, they might have to sell things like US government bonds. If this happens too much, it could cause problems for the US economy, like making things cost more.

This is why the government can’t afford a recession. Now, investors and market analysts, they’ve all been calling for a recession in 2022, 2023, and now in 2024. And so far they’ve all been wrong, even though the economic indicators are all screaming it should be here. But they all seem to be missing something big. And it’s been the key to my research in getting this call right over the last, I don’t know, 16 months or so.

So in this video, I’m going to break down two reasons why the government cannot afford a recession. If they hope to stay in power, then there’s just one outcome. Now, we’re going to look at several charts, we’re going to look at some graphs, and I’m going to show you exactly what I’m talking about and what I think is the inevitable outcome. But warning, it’s not what most people are expecting.

So make sure to watch until the end and let me know what you think. So let’s go. All right. Welcome to the channel if you’re new. My name is Mark Moss. I make these videos to change the way you think about money because it’s hard to know what the heck is going on. You sure as heck didn’t learn about it. Your leaders are all trying to gaslight you.

But don’t worry, I’m going to break it all down for you. And like I said, investors, analysts, headlines, they’ve all been calling for a recession and it hasn’t come true. Now, I think there’s two reasons why it hasn’t come true. One, the government can’t stop printing. We know that. I talk about it all the time. More importantly, number two, they can’t afford it. All right, what does that even mean? First, let’s just start with number one.

What does this mean? Well, we already know that the governments can’t stop spending, and this is part of the reason why while everyone’s been calling for a recession, they’ve all been wrong. Even though we’ve seen the Fed’s most aggressive rate hiking campaign in history, we see numerous indicators, from the leading economic index to the inverted yield curve, all suggesting a very high probability of an economic recession. But no matter what, it just won’t seem to come.

Now, two of the most common reasons why analysts think this hasn’t happened yet are, they say, like, one, it’s probably because of the sugar rush. That’s what I like to call it, the sugar rush, which is the surge in federal spending since the end of 2022. Most of it was coming from all the stimulus programs like the IRA, the Ridiculous Inflation Reduction act, of course, there’s the Chips act, all this government spending.

The other reason they give is the second one is for the lag effect. The lag effect is that the GDP was so grossly elevated from the $5 trillion of bazooka spending that went on that it’s just a lag effect. And it takes a long time for this money to work its way through and to return back to historical norms and to resolve itself. Now those two things, certainly they contributed, certainly.

But as you can see on the chart that I have up on the screen right now, and if you’re looking at the red line, you’ll notice that while federal expenditures are rising, federal tax receipts are falling. That’s the problem. Just like, you know, with your own personal budget, if your spending is going up and your revenue is going down, that’s going to be a problem. And this is exactly why the national deficit is increasing.

It’s like you spending on your credit cards. That’s what the government’s doing with deficit spending. Now I’ve been talking about this since the fed rate hike started, that if you just watch the tax receipts, then we could see that they were predicting that there was a warning in advance. I’ve talked about it in California and I’ve talked about it from a national level. We can see that the change in federal receipts, it’s important to watch because since the government’s revenue comes from us, me and you, the productive people, then the taxes from both corporate and individual incomes are going down.

Right. Since they come from us, then it makes sense that if revenues and incomes fall and then asset prices stop going up, then of course the tax receipts are going to fall with them. Now as you can see from the chart I have on the screen right now, there’s a very high correlation between the annual change in federal receipts and economic growth. Now historically, when the yearly change in federal receipts falls below 2% annual growth, it always leads to an economic recession.

And since federal receipts yearly rate of change is currently a negative 5%, it makes sense that most people expected we would have a recession by now. So then why haven’t we, why haven’t we seen the big recession yet? Because while tax receipts suggest that economic weakness is worse and it’s longer lasting than headlines lead us to believe, the government can’t stop spending and it’s the government spending specifically.

Now the deficit spending flows that are keeping the economic growth from becoming recessionary. Now the government’s Kenzian economists, they love this. They love deficit spending. And we really saw it start picking up back in the 80s under then President Ronald Reagan. And it’s only accelerated since then because you know how government politicians are spending your money. If a little deficit spending is good, then a whole lot more should be better, right? I mean, at least for them.

Why for them? Because it provides a short term boost in economic activity which gets them, of course, reelected to office. But in this case, more isn’t better. More isn’t always better. And it creeps up slowly until it starts running away, starts going parabolic. And we’re getting close to that point. Eventually the dollar loses so much power that it collapses under its own weight. And as the dollar loses purchasing power or it weakens, then things just get more expensive, both for producers and sort of like a snake eating a rat.

It works its way through the system and eventually gets to you and I, the consumers, we get stuck with the higher prices and the dollars in our accounts buy us less goods and services. And as the dollar continues to weaken because of the government debt, then we see movement in capital start to slow down. We start to see inflation rise and we see economic growth just continue to decelerate now because instead of using the debt to actually fuel growth like it’s supposed to if it had been borrowed for legitimate productive purposes, instead it’s diverted away from growth and into just servicing the massive debts that continue to grow.

And of course, this massive growing debt forces them to keep the rates low because interest expense magnify the problem. And as we’ve seen, just watching the Fed trying to bring them back somewhat to normal and felling now, the one thing that deficits have not led to is surging interest rates and the massive increases in borrowing costs. Now that we went through that, let’s go back to the economy and the recession while economic growth continues to defy expectations on the surface.

And no matter how much the Fed tries to make you and I broke, it’s the increases in deficit spending that keep the economic growth chugging along. So as long as the deficit spending continues, then the economy could keep chugging along. But there’s something else. The second thing is the number two thing, and that is that the government, the economy, can’t afford a recession. What does that mean? Well, if we look at the deficit, we can see that a recession is not a policy option for them.

The US fiscal deficit, which is already at recession level spending, could easily explode to 3. 9 to 5. 5 trillion if a recession were to hit. Because as we discussed, earlier, a recession would cause tax receipts to plunge even further than they are. So in addition to the deficit exploding to 3. 9 to 5. 5 trillion, which the government has to take on more debt in order to service that, in order to borrow, they have to issue more us treasuries.

And they’re doing that at a time when international demand and appetite for those treasuries is dwindling. They would be also stuck trying to do that. At the same time, they’re trying to roll over and refinance 9 trillion of debt in the next twelve months. So if that’s not bad enough, trying to now sell between 13 to 15 trillion in us treasuries in a dwindling market. At the same time, many of the domestic us treasury buyers which the US policymakers have forced and regulated into buying these treasuries over the past decade, they had most likely become sellers of U.

S. Treasuries as well. Because in a recession, they would need to raise their us dollar liquidity, which would of course add to the net effective US treasury issuance. Now, for example, banks suffering credit losses and or deposit outflows might need to sell us treasuries to raise capital, which is exactly what we saw back in March of 2023 when the banks collapsed, forcing the Fed to implement the BTFP facility.

We could also see pensions suffering investment losses, combined with increased withdraws because of demographics. People are getting old, people are starting to retire, and they need the cash and the pensions need to pay them back. Now, for example, we’re already seeing this. The second largest us pension, Calstars, recently announced plans to borrow 30% of the fund. Borrow 30% of the fund just to pay back, just to address the lack of liquidity.

Also, hedge funds. Hedge funds have currently been buying us treasuries, but they would likely be selling them as well, because they’re trying to offset losses somewhere else. And what about the money market funds? Right? Everyone’s been moving their money from their banks to the money market funds to make that high interest. But they might also have to sell the t bills to meet global liquidity demands. And that’s not all.

Remember, the US dollar tends to rise in a recession. And foreigners now feeling the pinch from that strong dollar, could also start to sell some of their 7. 6 trillion in US Treasuries to pay back the 18 trillion in us dollar assets that they owe. And then things really start to accelerate when the US fiscal problem becomes acute, which is when the now stronger dollar and the rising rates sends the US true interest expense over what they collect in tax receipts.

When the interest expense, the true interest expense is more than the money they bring in. Now, like I said, we’re talking about true interest expense. That’s just mandatory spending, which is basically the interest on the debt and entitlement spending money they owe. Social Security, health care, things like that. Now, as you can see from the chart I have up on the screen right now, we’re already almost back to where we were in 2020 when the Fed pulled out the money bazooka and flooded the market with basically unlimited amounts of free money.

Now, what we want to watch here is the US insolvency ratio. This shows us when the US fiscal problem becomes urgent, which is when the US insolvency ratio is greater than 30%. And as you can tell from the chart on the screen, we’re just about there. Now. The last time we got this close, the US and the world moved in a coordinated fashion to actually devalue the dollar.

This was known as the Plaza Accord, which was signed in September of 1985. And while a much weaker us dollar would get the US out of this increasingly acute us fiscal problem, which is what we saw during the pandemic, the weaker us dollar creates an everything bubble. It turbocharges inflation and of course, it turbocharges tax receipts, which is what they need. And it also reduces US treasury issuance.

But failing a, I don’t know, productivity miracle as soon as possible. This is what the US policymakers are going to be facing. This is what they’re going to have to deal with again this year. Now, that’s if they want to avoid treasury market disruption like we saw at the end of last year. So there you go. The US government can’t afford a recession. They have to keep spending because that’s what governments do.

They keep spending more and more and they have to keep borrowing. But unfortunately, they’re borrowing from less and less people that want to lend. And if there’s a recession, which they can’t afford, it only makes it multiple times worse, not better. Which is why I’ve been bullish on the reverse market crash I’ve been talking about for a while. What do you think? Do you understand these one and two? Do you think we’re in for a first market crash or is recession still in your cards in 2024? Leave me a comment down below.

Let me know what you think. Of course, as always, thumbs up if you like the video. If you don’t, you can give me a thumbs down. That’s okay, but at least tell me why subscribe if you’re not already subscribed to the channel? And that’s what I got? To your success. I’m out. .

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.