Tag: debt

Abolish the Fed: The Root of Inflation, Debt, and the Destruction of the Dollar

In 1913, the year the Federal Reserve was established, an ice cream cone typically cost about $0.05 (a nickel), while the average American home cost around $2,500 to $3,500 to purchase or build. Today, the national average cost of an ice cream cone is about $4.00 to $5.50 for a single scoop, while the median sale price of an existing single-family home in the United States is approximately $404,300.

In 1970, the year before America went off the gold standard, gold traded at an average price of roughly $35.96 to $38.90 per troy ounce. Today, the live spot price of gold is approximately $4,320 to $4,350 per troy ounce.

The Federal Reserve, through its artificial control of interest rates, credit expansion, and increases in the money supply, is the root cause of inflation and the weakening of the U.S. dollar. In the United States, a capitalist country, we trust the market to set the price of shoes, sandwiches, movie tickets, and cars. Why do we not trust the market to set a market-driven interest rate?

If interest rates were determined by the market, they would never be artificially too high or too low, and America could avoid the cycles of boom and bust fueled by cheap money. Whether during a boom or a bust, both periods ultimately result in a weaker U.S. dollar. Eliminating the Fed would make the dollar stronger and economy more stable.

Before examining how the Fed contributes to inflation, currency devaluation, and economic instability, a few common misconceptions should be addressed.

First, it is not a hidden secret that the Federal Reserve is not a direct agency of the U.S. government. This is publicly available information. The Fed is a federally chartered, operationally independent institution. Its Board of Governors is a federal agency whose members are appointed by the President and confirmed by the Senate, while its 12 regional Reserve Banks are privately owned by member commercial banks. Congress retains the authority to alter or abolish the Fed by legislation.

Second, this arrangement is not unusual. Nearly every country has a central bank, although it may operate under a different name. Central banks exist on a spectrum from fully independent to fully government-controlled, with most operating as hybrids that combine varying degrees of operational independence with government oversight and accountability. The Federal Reserve is simply the American version of a central bank.

The Federal Reserve, created by the Federal Reserve Act of 1913, operates through three primary mechanisms: setting the federal funds rate, conducting open market operations, and regulating reserve requirements for commercial banks.

The core of its money-creation power lies in open market operations. The Fed controls the monetary base, currency in circulation plus deposit balances that depository institutions hold at the Fed, by buying or selling securities. When the Fed buys a security, it pays by crediting the bank’s reserve account. No prior savings are required. The reserves are created by accounting entry.

Those reserves flow into the broader economy through fractional reserve banking. When you deposit $1,000 in a bank, the bank keeps a fraction and lends out the rest. That money, spent and redeposited elsewhere, is lent out again. Through this money multiplier effect, banks expand the money supply well beyond the original deposit.

Since March 2020, the reserve requirement floor has been set at zero, meaning US banks face no mandatory reserve floor at all. The only remaining brake on credit expansion is the interest rate the Fed itself sets and can raise or lower at will.

The federal funds rate is the rate at which commercial banks lend and borrow excess reserves overnight. The FOMC meets eight times annually to set this target. This single administered price, set by committee rather than by markets, governs the cost of capital for the world’s largest economy.

Keep reading

Phoenix Pride Files for Bankruptcy Ahead of ‘Pride Month’

Phoenix Pride, a prominent organization behind Arizona’s largest LGBTQ+ gathering, announced on the eve of “Pride Month” that it has filed for bankruptcy. 

“The filing, submitted Thursday in the U.S. Bankruptcy Court for the District of Arizona, showed that Phoenix Pride was seeking Chapter 11 bankruptcy protection, allowing time to continue operations while restructuring its debts under court supervision,” the Tucson Sentinel reported. 

The organization’s board of directors said in a press release that the decision “was not made lightly.” 

“Rising operational costs, economic uncertainty, shifts in sponsorship and fundraising partly due to the current political climate and administration, and increasing demands on nonprofit organizations have created circumstances we can no longer navigate alone,” the press release reads. “Like many Pride organizations and LGBTQ+ nonprofits across the country, Phoenix Pride has faced mounting financial pressures that threaten our long-term sustainability.” 

The local publication noted that Phoenix Pride’s financial woes come just months after Tucson Pride shut down “following years of financial strain and leadership problems.” 

“The sequence of events raises new questions about the sustainability of some of the state’s largest LGBTQ+ organizations as they navigate rising costs, strict budgets, internal struggles and community trust,” the report continues. 

Phoenix Pride said filing Chapter 11 gives the organization the opportunity to reorganize its finances while continuing to operate, with the board of directors saying, “Our mission has not changed.”

According to the local news report, residents at a January town hall questioned the organization’s finances, transparency, and long-term plan. In November, Phoenix Pride publicly announced that its budget was $350,000 short and blamed its troubles on waning festival attendance and the loss of major sponsors.

Court documents list three creditors or entities who allege the organization owes them money, including $11,770 to a Wells Fargo Business Elite Card account and $1,600 to Oracle Event Group, per the report.

“The largest debt is a disputed claim of $418,886.31 tied to Pride Group, LLC, an Arizona-based event services company. A disputed claim means the two organizations disagree about the amount of money owed. The details of the dispute have not been disclosed,” the report details.

Keep reading

The Financial Decline Of Miami Beach: When Pride Becomes Debt

Every time Miami Beach wants residents to accept another tax increase, another utility hike, another bond, or another excuse for why basic infrastructure still has not been fixed, the same pattern begins. First comes the whisper campaign. Then comes the friendly media narrative. Then come the professional politicians telling you there is no other choice. They want you to believe that more borrowing on your back is the only responsible path forward and that if you question them, you are somehow against progress, resiliency, public safety, or the future.

That is dishonest.

Miami Beach is not broke because the people have failed to pay. Miami Beach is in trouble because the political establishment has failed to lead.

For years, residents have paid more in taxes, more in fees, more in utility bills, and more through debt. The city has approved luxury development, expanded its budget, increased administrative costs, hired more staff, funded consultants, celebrated ribbon cuttings, and marketed itself as a global success story. Yet now we are told the city faces more than one billion dollars in infrastructure needs.

How?

Keep reading

Canada’s government debt projected to hit $2.44 trillion, nearly double since 2007: Fraser Institute

Canada’s combined federal and provincial government debt is projected to nearly double from pre-2008 financial crisis levels, reaching an estimated $2.44 trillion, according to a new report from the Fraser Institute.

The report, titled The Growing Debt Burden for Canadians: 2025 Edition, says combined government net debt has ballooned from roughly $1.21 trillion in 2007/08 to more than $2.3 trillion today, with debt continuing to climb. 

Researchers warn that the debt load is growing faster than the economy itself. The combined federal-provincial debt-to-GDP ratio has risen from 53.2 percent in 2007/08 to nearly 75 percent.

“Government debt — federally and in most provinces — has grown substantially over the past 17 years,” said Fraser Institute fiscal studies director Jake Fuss, co-author of the report. 

The report measures “net debt,” meaning total government liabilities minus financial assets held by governments. The study argues that persistent deficits today will translate into higher taxes and higher debt servicing costs in the future. 

Debt interest payments are already becoming a major expense. Another Fraser Institute study estimates federal and provincial governments will spend a combined $92.5 billion on debt interest payments in 2024/25 alone. 

On a per-person basis, the combined debt burden varies widely across the country. Alberta has the lowest combined debt per person at roughly $40,939, while Newfoundland and Labrador has the highest at nearly $68,861 per resident. Quebec and Ontario also rank among the most indebted provinces per capita.

The Fraser Institute describes itself as an independent, non-partisan public policy think tank.

Keep reading

Illinois Plans Tax Break for Billionaires and the Chicago Bears. Everyone Else Could End Up Paying More.

The Illinois Legislature is busy advancing a bill that’s one of the most egregious examples yet of the grift between professional sports teams and state and local governments. 

Under House Bill 910, projects designated as “megaprojects” would have their assessed value frozen at a base-year level, effectively shielding all new construction from property taxation for up to 45 years. Just two developments would qualify for the maximum duration under the current language: the proposed Chicago Bears stadium in Arlington Heights and the One Central mixed-use development near Soldier Field in Chicago.

Rank-and-file property owners in Illinois pay the highest property taxes in the nation, but middle-class taxpayers get no relief under the bill. Instead, it’s likely their taxes will go up even more. The language says “megaproject” developers (for projects that cost at least $100 million) would be able to negotiate a payment in lieu of taxes with local taxing bodies, with the duration of the tax break varying by the total cost of the development. For example, if a property tax analysis of the Arlington Heights stadium estimates it to be a $5 billion development on land currently valued at $100 million, this bill would reduce the developer’s annual tax liability from roughly $350 million to approximately $7 million.

What happens to the difference of $343 million in this example? Local governments can still count the full value of the megaproject when calculating how much they’re allowed to tax and borrow—they just can’t actually collect taxes on most of the megaproject. Given the record of local governments in Illinois, it’s a pretty good bet they’ll find that revenue elsewhere by raising taxes. The legislation, as it stands, does basically nothing to address this.

The bill passed the Illinois House in April. The bill passed 78–32, with 10 Republicans crossing party lines to support it. Democratic Gov. J.B. Pritzker is busy pressuring the state Senate to get it across the finish line before the end of May. Pritzker (and the rest of the Legislature) are feeling pressure to pass the bill due to the looming threat of the Bears moving to northwest Indiana. Hoosier lawmakers, especially Republicans, have a standing offer for the Bears to relocate just across the state line for over $1 billion in public subsidies. (At least Indiana is in better fiscal health than Illinois.)

Keep reading

The Bond Market Is About To Break Washington

The bond market is beginning to force reality onto Washington, and it may ultimately force an end to the Iran war long before politicians or diplomats are willing to admit it.

For months, investors have focused on missiles, retaliation headlines, oil chokepoints, and the possibility of a broader regional escalation from the Iran War. During the geopolitical noise, I urged readers not to overlook stress in financial markets that was happening before the war even started, namely in places like private credit and subprime auto lending. I called these “real crises” hiding behind record highs while “investors” chase gamma squeezes higher in an ongoing distortion feedback loop that is making things look far better than they are under the surface.

And now, beneath all the geopolitical noise, a much more serious, harder to ignore crisis is unfolding. As Cypher says in The Matrix: 

“Fasten your seat belt Dorothy, ’cause Kansas is going bye-bye.”

This crisis is in the Treasury market. Bond yields are moving sharply higher, and they are sending a message that policymakers can no longer afford to ignore: the financial system is becoming unstable under the weight of war spending, massive deficits, persistent inflation, and a debt load that was already unsustainable before this conflict began.

Keep reading

Mamdani’s ‘Balanced Budget’ Is an Accounting Atrocity

In mid-May, after extending the executive deadline, New York City Mayor Zohran Mamdani released his $124.7 billion Fiscal Year (FY) 2027 Executive Budget. 

After warning that NYC faces a budget crisis of “historic magnitude” in late April, Mamdani now assures the 8.5 million residents of the Big Apple that the city is on “firm financial footing” after he “balanced the budget” “without raising property taxes” or “slashing services.”

While it is certainly true that Mamdani did not slash services or raise property taxes even higher than they already are, it is ludicrous for him to declare that NYC’s budget is sound and sustainable.

Aside from Mamdani’s smoke-and-mirrors budget summary, the harsh reality is that the Big Apple is bankrupt. 

According to NYC Comptroller Mark Levine, the “$2.2 billion budget shortfall for FY2026 and projected $10.4 billion gap for FY2027… is the first time since the Great Recession that the City faces a budget shortfall of this magnitude.”

Based on Mamdani’s “balanced budget,” the FY 2026 and FY 2027 deficits are no longer a concern. 

Much of the gap has been taken care of by what Mamdani calls a “partnership with Albany.” New Yorkers outside of the Big Apple call it a bailout.

“Thanks to Governor Kathy Hochul, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie, the City secured an additional $4 billion in state support and actions to help stabilize the budget,” Mamdani bluntly put it.

However, Albany could not supply enough money to make the short-term math work.

Thus, Mamdani’s balanced budget relies upon accounting gimmicks and “new tax revenue.”

Keep reading

Causes of Uncontrollable US Public Spending and Debt

Annual US public spending has been in deficit for decades. As a result, total US debt continues to increase year after year with no end in sight. The end may not be in sight but the debt cannot continue to grow forever. We just don’t know when markets will shed the dollar, although the process may already be underway. In this brief essay, I will not point out all the disastrous consequences except that they are disastrous and will happen. Rather, I will point out how we got to this sorry state of affairs when it appears that other nations, such as China and Russia, have done a much better job of controlling public spending.

Gold Standard Takes the Blame

The main, and most obvious, reason that American spending has been in chronic deficit is that it abandoned the gold standard and appears to have no intention of reinstating it. Such is not the case with China and Russia. True, neither country is on the gold standard now, but both have been quietly accumulating gold for many years. Nor has either announced their respective total gold holdings or when and under what circumstances either would be prompted to tie their currencies to gold. Nevertheless, it is clear that both nations have a greater respect for gold than the US and appear to be preparing for its return at least for settling international trade accounts.

For millennia gold, and occasionally silver, were considered to be true money. Nations did go off the gold standard in time of war, but most quickly returned to a gold standard after the end of exceptionally high military spending. All nations, except the US, went off the gold standard in World War I, but eventually returned. The British returned to a gold standard in the 1920’s, but the monetary authorities made a glaring mistake. The British had increased the money supply by approximately double during the war, which made it almost impossible to return at the pre-war pound-to-gold ratio, but they did it anyway. This caused a severe recession in Great Britain as it required a drop in prices of 50 percent.

Labor contracts could not be honored and strikes ensued. Gold flowed out of the country, which Fed Chairman Benjamin Strong tried to ameliorate by inflating the dollar surreptitiously. This was but one factor that caused the US stock market crash and led to a sharp recession. Instead of ceasing monetary intervention and allowing business and prices to adjust, as was the policy of President Harding after WWI, first Hoover and then Roosevelt tried to cartelize the economy via price controls. The Great Depression followed. The gold standard took the blame for this debacle instead of Hoover/Roosevelt. In fact, it is a very common myth that Roosevelt’s New Deal saved America. Such is economic ignorance perpetuated.

Corrupting the People through Welfare

Secondly, in a gradual process, government became responsible for the people’s welfare, displacing the family and local friendly societies. The first large program was Social Security, truly the camel’s nose under the tent. Roosevelt sold the program to the citizens and to Congress using different rationales. To the public he claimed that the program was no different than a private annuity. The government took the people’s forced contributions, deposited them into earmarked accounts, and then distributed them plus interest to taxpayers upon reaching a certain age. Of course, the US Constitution enumerates no power to Congress to run a forced annuity program. So Congress and Roosevelt sold the program as merely a spending program, one of many. Social Security was never intended to replace the individual as primarily responsible for his own retirement income. It was sold as a supplement. Yet today 22 million Americans retire with no income stream except Social Security. This represents almost 40 percent of retirees. Obviously, the concept of moral hazard is unknown to government.

Keep reading

China Off-Balance-Sheet Debt Exceeds GDP of Most Nations

For decades, there have been claims that China had the fastest-growing economy, and that it would eventually overtake the U.S. as the world’s largest economy. However, the fastest-growing economies are always developing economies because mature economies do not have as much room to grow.

In other words, a country with a per-capita GDP of $80 per month, as China had in the year 2000, has far more room for rapid expansion than a country like the United States, where the figure now stands at around $7,000 per month.

There is also the concept of low-hanging fruit. When a country has no highways or rail infrastructure, building highways and railways causes GDP to skyrocket. But once all major cities are connected, building additional highways and rail lines has only a marginal impact on economic growth.

A case in point is China’s famous high-speed rail system. Once highways and conventional railways already existed in China, converting to high-speed rail represented a massive economic investment and a large accumulation of debt, while the resulting increase in GDP was relatively minimal. For one thing, high-speed rail cannot be used to carry freight.

While China is still building high-speed rail lines, linking small communities with other small communities, the world is moving toward a remote-work model, making the movement of people a smaller contributor to GDP. Moving freight, however, remains critically important. Despite having a population less than one-quarter the size of China’s, the United States operates approximately 220,000 kilometers of total rail, about 33 percent more than China’s 162,000 kilometers, the vast majority of which is dedicated to freight.

Along with this development boom in China came debt. Because of the centrally planned economy, the central government was able to order local governments to invest and develop by creating debt. That debt was financed largely through real-estate sales, as the Chinese government controls actual land ownership rather than simple lease arrangements, which is what individual “homeowners” in China actually possess.

In order to keep this debt from detracting from the appearance of investment and economic performance, large portions of the debt were kept off the balance sheet.

Keep reading

Japanese Are Feeling the Economy Collapse in Real-Time

Japan spent decades trying to convince the world that endless debt, money printing, and zero interest rates could continue indefinitely without consequences. Now ordinary Japanese citizens are beginning to feel the pressure directly as inflation rises, wages fail to keep pace, and living standards steadily deteriorate underneath the surface.

For the first time in generations, Japanese households are experiencing sustained cost-of-living stress while confidence in economic stability weakens sharply. Recent polling showed more than 80% of Japanese households now believe prices are rising faster than their incomes, while consumer confidence remains near recessionary levels despite years of government stimulus and intervention. Food inflation, utility costs, transportation expenses, and housing-related costs have all risen materially as the yen weakened dramatically against the dollar over recent years.

The psychological impact inside Japan is enormous because the country spent decades living through deflationary conditions where prices remained relatively stable. Japanese consumers became accustomed to stagnant prices and low borrowing costs. Once inflation finally arrived, the shock to household budgets was immediate.

Rice prices alone surged more than 20% year-over-year at one stage while basic food staples, imported goods, fuel, and electricity all moved sharply higher. Japan imports enormous quantities of energy and raw materials, which means yen weakness translates directly into higher consumer prices across much of the economy.

This is exactly what I warned would eventually happen once central banks lose control of sovereign debt cycles.

Japan now carries government debt exceeding 260% of GDP, the highest among major industrial economies. For years the Bank of Japan artificially suppressed interest rates and monetized government debt through massive bond purchases. The BOJ effectively became trapped because allowing rates to normalize aggressively would destabilize the government’s own financing structure.

Now Japan faces the consequences of that trap.

Keep reading