If US Fossil Fuel Fracking Dies, Kiss Goodbye to Affordable Home Loan Interest Rates

Guest essay by Eric Worrall

One thing which wasn’t made clear during the recent US election was how important domestic US energy production and fracking is to reducing the trade deficit, which in turn feeds through to inflation, interest rates and the continuance of affordable home loans.

The following is from 2019, but it is just as relevant today.

Growing U.S. trade deficit points to suppressed inflation: Kemp

By John Kemp
MARCH 7, 2019

LONDON (Reuters) – The United States ran a trade deficit on goods and services of $621 billion in 2018, up more than 12 percent compared with the previous year, but still below the record $761 billion set back in 2006.

The steadily worsening merchandise deficit is a sign domestic demand is outstripping the economy’s productive potential, with excess demand leaking abroad through a widening trade gap and a higher exchange rate.

The deteriorating external position is being masked somewhat by the shale revolution and the associated surge in domestic oil and gas production, which has slashed the bill for petroleum imports.

The petroleum deficit was just $53 billion last year, down from a peak of $386 billion in 2008 and $271 billion in 2006 (“U.S. international trade in goods and services”, Census Bureau, March 6).

Increasing deficits are a sign of suppressed inflation, as domestic consumption and investment outstrip the growth in the economy’s productive capacity.

The federal government has significantly loosened fiscal policy over the last two years, cutting taxes while government spending has continued to increase at more than 4 percent per year.

The Federal Reserve has responded by tightening monetary policy to keep inflation in check, pushing up the exchange rate and exacerbating the trade gap.

Read more: https://www.reuters.com/article/us-usa-economy-kemp-idUSKCN1QN2BF

The point is, the trade deficit is a major driver of inflation, which in turn puts upward pressure on interest rates.

The US annual trade deficit is around $600 billion. This is not great, but it would be a lot worse without fracking. Fracking ended the need for around $300 billion per annum of fossil fuel imports, because fracking allowed the US fossil fuel industry to produce vast quantities of domestic fuel which previously had to be imported.

As the economy falters in the wake of Coronavirus, political and Fed focus will be on the recovery. Nobody will care in the short term what happens to the US trade deficit.

But sooner or later the structural US trade imbalance will have to be addressed, either by bringing home manufacturing jobs, or by cooling down the domestic economy through rate rises and tax hikes.

Any rise in interest rates would in time be passed on to home buyers.

The fracking premium, the $300 billion per annum or so which the USA does not have to spend on fuel imports, makes a big structural difference to the US balance of trade and the productivity of the US economy. By driving down the trade deficit, fracking helps to mitigate the need for future interest rate rises and tax hikes.

Note: the article mentions that rate rises at the time the article was published exacerbated the trade deficit. This is because the rate rises lowered the price of imports by raising the value of the US dollar, but rates did not rise enough to cool the economy by squeezing people’s hip pockets, so people started buying more imports.

President Trump appears to be steering a narrow path to permanently increasing the productive capacity of the US economy by bringing manufacturing jobs home, which could reduce or eliminate the trade deficit by addressing the $900 billion imported goods deficit, without the pain of having to slow the economy by imposing tax hikes or further rate rises.

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November 6, 2020 6:35 pm

I predict a great deal of buyers remorse in the US

Martin C
Reply to  DavidF
November 6, 2020 7:16 pm

Can i change that . .? how about a great deal of ‘biden remorse’ in the U.S. . . ! 🙂
I think that’s what it will be . . . BUT, you never know what may happen in the coming weeks on the election – especially when seeing THIS article:
. . get out the popcorn . .

Reply to  DavidF
November 7, 2020 6:35 am

Massive voter fraud wss committed by the Democrats as the third prong in a 4-yr long coup against a very effective president.

Exposure of Biden’s vadt criminality was curtailed by censorship imposed by big-tech giants in support of the coup. Based on what we know now, the electorate will have the worst case of buyer’s remorse in US history if somehow the Marxist Democrats somehow shoehorn Biden in, because it certainly won’t be the popular vote that elects him. Not even close!

Reply to  DavidF
November 7, 2020 9:12 am

If this actually happens, which could hinge on what happens in Georgia in two months, all that will happen is that secession will be way sped up.

November 6, 2020 6:57 pm

“the trade deficit is a major driver of inflation”

Everybody want dollars all over the world. There is no risk of inflation with the trade deficit. Inflation will come from within the United States. Too much money has been printed by the Fed. Too much federal debt has been accumulated. Taxes will have to be raised to pay the debt. Inflation will come from higher taxes.

Reply to  Eric Worrall
November 7, 2020 5:28 am

It’s impossible to issue the world reserve currency (in a broadly inflationary milieu) and not run a trade deficit; look up Triffin’s Paradox.

Reply to  Eric Worrall
November 7, 2020 10:02 am

There is no need to “trade” out of debt, whatever you think that means, when current Treasury bond, note and bill interest rates are well below the inflation rate.

The government gets nearly free money when selling short term Treasury bills.

And Treasury bond interest rates are way under the inflation rate, so the government bonds mature for investors with less purchasing power dollars … even including the interest received.

It is the Treasury bond investors who get screwed (voluntarily) … which means borrowing money at such low interest rates, and low relative to the inflation rate, is a financially sound decision for funding government spending.

Even with all the new Treasury debt sold in 2020, total interest expense on the US debt in 2020 will likely be lower than in 2019.

The main problem with borrowing money, in general, is that governments / politicians tend to waste too much of the borrowed (“free”) money … mainly because taxpayers don’t seem to care about government spending, even Republicans, unless their taxes go up.

You can click on my name to view my economics and finance blog, since 2008. I also edited the financial newsletter ECONOMIC LOGIC from 1977 to June 2020.

tsk tsk
Reply to  Richard Greene
November 7, 2020 1:45 pm

which means borrowing money at such low interest rates, and low relative to the inflation rate, is a financially sound decision for funding government spending.

Not really, no. Unless you have a means of retiring that debt, eventually the creditors aren’t going to be willing to finance you at below market rates.

But the Fed can always buy more! Sure, but that has the effect of expanding the money supply and is a textbook way of creating inflation. Maybe you have enough productivity gains (deflation) either domestically or through trade to offset that. Or maybe you don’t. Eventually it’s pretty much guaranteed that you don’t.

Reply to  tsk tsk
November 7, 2020 4:05 pm

Task Task
The M2 money supply was up +23.6 percent in the year ending November 6, 2020.

So where is the inflation?

US government debt will never be “retired” — the interest will be paid, and maturing bonds will be ‘rolled over’ into new bonds.

Will Treasury securities become less attractive to bond investors, and require higher interest rates in the future? Probably.

US Treasury securities compete with Treasury securities from other nations … meaning our bonds just have to be more attractive than their bonds, to be sold to investors.

Michael S. Kelly
Reply to  tsk tsk
November 7, 2020 8:16 pm

“US government debt will never be “retired” — the interest will be paid, and maturing bonds will be ‘rolled over’ into new bonds.”

Wow! I wish I could max out all of my credit cards, reaching the point where my monthly payments exceeded my income, and then get more credit cards to pay the interest! It sounds too good to be true!

And it is.

Reply to  tsk tsk
November 8, 2020 12:13 pm

Richard …

“The M2 money supply was up +23.6 percent in the year ending November 6, 2020.
“So where is the inflation?”

In ASSET PRICES … everyday (consumer) inflation is constrained by cost of production … the velocity of money has plummeted with all the QE, offsetting the increase in M … an indication of the effect – money is stowed at the Fed, not being spent by consumers … yet.

Izaak Walton
November 6, 2020 7:05 pm

I doubt President Trump will be steering the US for much longer. And it seems weird that you have to
go back over a year to find an article that allows you to complement him. Has he done nothing in the last
year worth celebrating apart from letting over 300 000 American citizens die needlessly of COVID?

Reply to  Eric Worrall
November 7, 2020 7:57 am

The minute a Biden Bragger uses the Marxist talking point of how many Americans died from Covid because of Trump, you know there is little substance to anything else they have to say.

Reply to  Chelsea
November 7, 2020 10:24 am

Chelsea, you are hereby banned from the internet for one week. Your “crime” : Responding so politely to Izaak “challenged” Walton. The internet was invented by Al Gore, with the goal of PROMOTING vicious arguments and character attacks from home computers. Leftists believed that would reduce personal tensions, without harming anyone, leading to less actual crime on the streets.

Reply to  Izaak Walton
November 6, 2020 8:29 pm

Half of those died because Democratic governors sent infected folks into senior homes.

Interested Observer
Reply to  Catcracking
November 6, 2020 11:00 pm

And yet all of those who died still voted for Biden!

Reply to  Izaak Walton
November 6, 2020 9:20 pm

“300 000 American citizens die needlessly of COVID?”

Yep , those Democrat governors should NOT have sent CV-19 patients into nursing homes, should they !

Thank goodness Trump shut the borders as early as he did,instead of listening to the leftist WHO.

Wouldn’t you agree, Izzy!

Izaak Walton
Reply to  fred250
November 6, 2020 9:36 pm

Trump closed the borders far too late and failed to do it properly. After the supposed ban on
travel from China over 400 000 people traveled to the US from China. Similarly when he banned
travel from Europe he still let people from the UK in. And by that time the virus was spreading
rapidly in the US and it is worth noting that most cases in the US come via Europe.

Look at NZ for what happens when you close the borders properly and in time. The US’s response has been a disgrace at all levels and it seems that at least another 100 000 people will die before Trump leaves the whitehouse.

Reply to  Izaak Walton
November 7, 2020 12:20 am

You would love to live under martial law in NZ wouldn’t you Izzy !!

You would still be on the bottom rung there, too. !

Yes the DEMOCRAT states have handle the Covid-19 situation extremely badly !

NY.. sending infections into nursing homes

Allowing BLM riots etc etc..

Reply to  fred250
November 7, 2020 3:45 pm

Fred, I generally tend to see things your way, but you are wrong about this. There was never any suggestion of misuse of Police power in New Zealand, by and large they acted with sensitivity and restraint. You are confusing us with Australia, which many do, and in particular with Victoria, which seems to be doing its best to recreate Communist East Germany.
There are those of us over here that are not at all convinced we did the right thing, and that the price has yet to be paid. Sadly, we seem to be in the minority. There are many sheep in New Zealand, some of them have wool.
In the meantime, we cower behind our borders. Tourism has been destroyed, and that is a very big deal in our economy. We cant get enough seasonal workers to harvest all our produce, much of which is exported, another very big thing. That is particularly stupid, as most of those workers come from Pacific island nations, which have even less community Covid than we do.
But, all of this has been done with a great deal of social cohesion – even those that dont agree, have agreed to follow the decision of the majority. New Zealand will be a great deal poorer, but we remain civilized. I look at the US, Victoria, China and its neighbors, and I cant help but think that many places in the world are in imminent danger of descending into violent conflict.
And of course, the International left are hell bent on dragging us to whatever they imagine in their delusions will be a utopia – for our own good of course!
Definitely feeling somewhat despondent – are we witnessing the beginning of the end of the Enlightenment?

Reply to  Izaak Walton
November 7, 2020 2:25 am

Delusional. Reality is a matter of record.

Reply to  Izaak Walton
November 7, 2020 5:33 am

New Zealand didn’t close the borders “on time”. Jacinda’s tean waited until the virus arrived and then imposed months of punishing lockdowns and are now hostage to big pharma developing a vaccine.

And comparing NZ – which has a huge moat – with the US, which has highly porous borders, is ridiculous.

Reply to  Izaak Walton
November 7, 2020 7:55 am

Monday morning Democrat quarterback. US infection and death rate falls in the middle of the pack. Stop the nonsense of blaming Trump for people who died from COVID.

Reply to  Grantbfs
November 7, 2020 9:23 am

Back in something like March or April, Birx said that if we did everything perfectly, 200,000 would die. So I guess Izzak is saying we did everything perfectly?

Clyde Spencer
Reply to  Izaak Walton
November 7, 2020 9:00 am

You said, “Look at NZ for what happens when you close the borders properly and in time.” The small island nation of NZ is hardly the financial capital of the world. While NZ gets fewer tourists than the US, NZ will pay a significant price for their abundance of caution.

Dennis G Sandberg
Reply to  Izaak Walton
November 6, 2020 9:39 pm

Any chance that your liberal mind will let you admit those NY deaths were the Governor’s fault not the President’s?

Joseph Zorzin
Reply to  Izaak Walton
November 7, 2020 4:15 am

“letting over 300 000 American citizens die needlessly of COVID”

oh, I had no idea it was all Trump’s fault- thanks for informing us

Reply to  Joseph Zorzin
November 7, 2020 5:34 am

Not a single person would have died if #ImWithHer was president!

Reply to  Joseph Zorzin
November 7, 2020 6:11 am

I voted for Trump, both times. In spite of the fact he is a deeply flawed individual. But my decision point was the known failures of “Socialism” vs Corporatism. It should be easier to reduce greed in Corporate Capitalism than to overcome control (a la “1984”) from Socialism. ****************
But, Government and the Medical Industry have obviously failed us. Besides the fact that distant early warning mechanisms in China (and worldwide) were overridden by political considerations, standard techniques of problem solving were not observed.
I have spent over 60 years in various phases of intense problem solving in multi-disciplinary teams, and have seen that the SARS-CoV-2 crisis worsened by people like Fauci who “speak for the team.”
A technical problem solving team (TST) has a number of rules. The “moderator” is a facilitator, not the ruler. Members of all levels of input have and equal voice, Argumentum ad Hominum is forbidden, and the group’s consensus is agreed upon by all. Each formal meeting issues an action plan, with the recommended steps (usually of further information gathering) agreed upon by the members, not issued by the “boss.”
By the way, a “Boss” is necessary. He needs to be an individual member with the political capability to get things done, when the TST agree on a recommendation. He can vote, but his vote is only worth one point in team consensus.
Religious statement: Wouldn’t it have been marvelous if Trump understood this process, listened to others that fit this model, and hadn’t had to fight Russiagate for three wasted years? Political failures hurt us all.

Reply to  Enginer01
November 7, 2020 4:11 pm

Enginear sez:
“I have spent over 60 years in … multi-disciplinary teams”

Does that sort of discipline involve bondage?

Reply to  Richard Greene
November 8, 2020 5:07 am

Only as a short time as a Rent Slave.

Reply to  Izaak Walton
November 7, 2020 7:49 am

The opposite is not provable in any way. The opposite being that if he had done “something”, then those 300,000 Americans would still be alive. Or if another person had been president those 300,000 Americans would still be alive. Neither of those are provable.

This is a common argument I’ve seen thrown around the Internet but trolls and frothing liberals and even conservatives. It’s a hypothetical situation and arguments cannot be made from hypothetical situations.

Clyde Spencer
Reply to  Izaak Walton
November 7, 2020 8:56 am

Because you aren’t an American, you may not be able to answer my questions. I’ll take that into consideration.

According to Worldometer, there have been 242,000 COVID deaths in the US. Why did you significantly inflate the numbers? Your number isn’t even a rounding error!

Why is it Trump’s responsibility that the city of New York had the greatest loss of life? The city of New York is primarily the responsibility of the mayor and secondarily the governor. In the UNITED States of America, there is a division of responsibilities.

Trump did act appropriately within his capacity when, a day after WHO proclaimed COVID to be a pandemic, he restricted travel from China. For that, he was accused of being a racist and xenophobic. What would you have had him do? Act like a dictator?

Throughout the whole situation the US has been about in the middle of the pack with respect to deaths per million population. Why are you so critical of Trump when half the world’s countries have done worse?

You asked, “Has he done nothing [sic] in the last year worth celebrating …?” Why do you think that, as someone who doesn’t live here, you are getting an objective picture of his actions? The world Media is so biased that he is criticized for virtually everything he does. I don’t remember ever seeing a compliment from the Media. I’m a little surprised the professional whiners haven’t criticized him for the way he brushes his teeth! Why do you jump on the band wagon when it isn’t really your problem?

Reply to  Izaak Walton
November 7, 2020 10:14 am

Izaak “not MENSA material” Walton — 300,000 Americans have not died yet. At least get the number near reality. Trump had almost no control over the virus. In speeches he merely repeated what government bureaucrats told him — the often wrong predictions and advice from Dr. Grouchy come to mind first. State governors took control, and many over-reacted.

What Trump did do, banning incoming flights from China in late January, was brilliant, and CERTAINLY reduced COVID-19 cases and deaths in the US.

You are entitled to your own opinios, Walton, but not your own facts — “letting over 300,000 American citizens needlessly of COVID” is your leftist fantasy. Comments like yours remind me that half of Americans have below average IQs. I tried hard to get through 2020 without calling anyone online “not MENSA material”, but you certainly qualify.

November 6, 2020 7:08 pm

Hard to kill what is already dying of natural causes. Even with the Trumpian YUGE cost communizations from the E&P’s to the rest of us, US fracking is the hot house flower that won’t survive in the real world. Now, it WILL resurge, to some extent, in a generation, when the lower cost mideast and FSU hydrocarbons are produced off. But not before.

The best bet for the US fracking infrastructure is to sell themselves off to the Saudi’s, for their gas shale campaign. Post COVID, they will resume this effort, and the increased gas they will use for domestic AC will slightly remediate our AGW problem, versus the oil they would otherwise burn. Not a big solution – ~5% of our frac resources will be redeployed – but between that, and Biden’s GREAT plan to plug wells as an infrastructure project, we can soft land a few of us.

For the rest, man up McConnell, and go along with Biden’s plans to retrain the rest of us oilfield trash. Sure beats making us sell PWC’s on payment plans, to our grade school buddies…

Dennis Sandberg
Reply to  bigoilbob
November 6, 2020 9:52 pm

bigoilbob, and the Saudi’s huge cash reserves will make it quick and easy /sarc
If you think Biden is going to retrain oilfield trash for a real job I have to wonder if you really are oilfield trash. I was for 46 years, 2 months and 3 weeks and most of those I worked would know better.

Reply to  Dennis Sandberg
November 7, 2020 5:41 am

“bigoilbob, and the Saudi’s huge cash reserves will make it quick and easy”

You’ve obviously never worked there. Most of the frac hands will be minimally trained, $300/monthers. The equipment will be Chinese low bid, and/or surplus from us, for a penny on the dollar.. Safety, environmental, out the window. They will hire a few Yanqui engineers, trainers, blender tenders, frac van bosses, etc., to get things going. And you overlooked my timing. “Post Pandemic”. Demand will return for them. Not for the Permian….

Glad you survived your career. Hope you saved up, unlike so many of our cohorts…

Dennis G Sandberg
Reply to  bigoilbob
November 7, 2020 1:02 pm

Thanks, those 5 years were “fruitful” and long lasting. I was there 1991-1996, but not on the rigs, worked directly for Saudi Aramco (ras Tanara and Dhahran), but a lot of time in the field (mostly cathodic protection for tanks). Where I worked the Saudi contractors favored Indian Engineers, Filipino supervisors, Bangladesh labor. I always spec’d USA materials, but that was then. I don’t see Biden paying Continental to shut in the 4 Bakken wells I have a tiny interest in. I suspect the oil companies will keep a dozen rigs going in the Bakken to appease their creditors concern that they maintain reserves, but never two dozen rigs in the next 10 years. My crystal ball gets awfully dim after even 5 years, but ditto the Eagle Ford, just a few more rigs (but I know nothing about the Eagle Ford except production numbers a couple times a year).

Reply to  Dennis G Sandberg
November 7, 2020 1:52 pm

“I don’t see Biden paying Continental to shut in the 4 Bakken wells I have a tiny interest in.”

Nor do I. Wells already on, “PDP wells”, cost so little to produce that you will get your checks for awhile. Biden doesn’t care about them.

” I suspect the oil companies will keep a dozen rigs going in the Bakken to appease their creditors concern that they maintain reserves, but never two dozen rigs in the next 10 years.”

That ships sailed. Very little new investment will be made. Pretty much the only drilling will be to satisfy lease obligations.

Google Saudi shale drilling or testing. It might just happen. When I was in Dhahran, my consulting gig was to assess gas operational improvements. The Iranians hacked ARAMCO, so NO data was being exchanged between groups, including geological/reservoir data. Which is my poor excuse for overlooking what has subsequently been shown to be real shale gas potential….

November 6, 2020 7:08 pm

Fracking will soon be dead anyway. It as a bad idea all along.
see https://www.saithgroup.com/gpm/ and if that’s not convincing see https://transition-one.eu/
to speed adoption along. Saithgroup will not be the only game in (Africa) town, for long.

Petroleum should be a raw material, not a fuel. As fooling as burning corn as Ethanol instead of eating it.

Splitdog Homee
Reply to  Eric Worrall
November 6, 2020 9:00 pm

Last yeer I kudn’t spel Engineer. Now I are won

Reply to  Eric Worrall
November 7, 2020 5:44 am

Already used by ???. By the way, a lot of doubt is being thrown on the Saith unit. At the same time, E-Cat private, commercial demonstrations are ongoing with Andrea Rossi (“a lot of doubt is…”) stating tests are going well, with very high COP (coefficient of performance) having been observed by the administrator of e-catworld.com.
If you follow http://www.researchgate.net/publication/330601653_E-Cat_SK_and_long_range_particle_interactions you will see the potential, and threat to conventional Quantum Physics Zero Point Energy presents.

Reply to  Enginer01
November 7, 2020 8:00 am

Omg, that again. If it was real, it would be explained and demonstrated and repeatable by now. He’s a Fraud

Bruce Cobb
Reply to  Enginer01
November 7, 2020 1:35 am

Nonsense. It most certainly can be both.

Reply to  Enginer01
November 7, 2020 6:45 am

the Saith Promo essentially said “we have a wonderful device that produces endless power out of thin air. Come, buy one!”

I’ll go ’em one better. I’ve got a marvelous machine that produces free electrical energy from the air. The down payment is only $1,000,000. Send money now and join the other buyers.

November 6, 2020 7:13 pm

Oh, sorry. If you missed a subtext in my last post.

comment image

November 6, 2020 7:25 pm

Remember when the economy was in such bad shape that you could buy houses for almost nothing? The Democrats could bring back those good ole days.

Izaak Walton
Reply to  commieBob
November 6, 2020 9:40 pm

those days caused by Republicans deregulating the banking industry and allowing them to sell morgage
backed securities.

Pat from kerbob
Reply to  Izaak Walton
November 7, 2020 9:42 am

The root cause was social policy, Govt forcing financial institutions to give mortgages to those who had no ability to repay.

These financial institutions then tried to protect themselves by packaging this garbage and selling it to get off the books.

No (Democrat) social policy, no future problem

Deal with it, this was a government created crisis in every way

Reply to  Pat from kerbob
November 7, 2020 2:12 pm

That is why there was no mortgage crises in Canada. They require 20% down, you know, skin in the game. In the US, even today after the collapse, you can again get a home loan for 5%, and in some cases 3% down.

I have bought multiple houses over the years, never with less than 20% down. When the mortgage crises hit I had 2 rentals with mortgages. Neither was a problem because they were rented continuously at the market rate and the rent more than covered expenses.

In Canada they have not, amazingly, extorted their banking industry into loaning money to those who can not pay it back.

BTW this goes back to Bill Clinton and Eric Holder threatening to “investigate” any bank who did not get on board using % of loans issued compared to racial numbers, you know, quotas.

Tony Griffiths
Reply to  Drake
November 7, 2020 3:59 pm

Spot on – I was just explaining that to my wife and came across your post. Clinton has a lot to answer for.

Reply to  Drake
November 7, 2020 4:35 pm

The joke about the Liberal party is that it runs from the left and governs from the right. I wish to heck that he-who-dances-with-unicorns would get back in line. As it stands he’s trying to create a landed gentry comprised of …

… the notoriously ragged self-defined communities of partially pre-European descended people in Canada. link

In America, you call such people Indians and Eskimos. In fact, they’re trying to rewrite the oath to include reference to those people.

… I will faithfully observe the laws of Canada, including the Constitution, which recognizes and affirms the Aboriginal and treaty rights of First Nations, Inuit and Métis peoples, and fulfil my duties as a Canadian citizen. link

For as long as I can remember, the Canadian mantra has been that a Canadian is a Canadian. Even if you just got your citizenship, you are just as important as those whose ancestors have lived here for hundreds (or thousands) of years. How would Americans feel if they had to take an oath acknowledging that Black Lives Matter?

November 6, 2020 7:27 pm

Inflation is caused by the Feds printing too much money. The trade deficit is merely an accounting ledger entry and is balanced by foreign capital surpluses flowing in to the country.

Izaak Walton
Reply to  Eric Worrall
November 6, 2020 9:49 pm

actually the best way to get rid of debt is through inflation. With inflation your debt is worth less
every day. Since the US debt is payable in US dollars the more inflation there is in the US the less
the US government has to pay off as a percentage of the tax revenues. And there is no clear or obvious connection between the US trade deficit and the size of the federal debt.

Moderately Cross of East Anglia
Reply to  Eric Worrall
November 7, 2020 1:30 am

Eric – as indeed the example of how Germany deliberately created massive inflation to engineer a way out of its reparations debts after 1919. The policy worked in that much of the debt was ditched or rescheduled: the down side was it paved the way for the Nazis who squeaked into power before most Germans understood a recovery was starting. We all paid the price for that piece of economic manipulation.

Reply to  Izaak Walton
November 7, 2020 8:09 am

No, the best way for a nation to get rid of debt is to grow you’re economy, lower your expenditures and pay it off. Inflation will make your debt easier to pay, but will also make savings worth less. There’s no magic bullet for debt except to stop obtaining more of it

Reply to  Eric Worrall
November 7, 2020 4:20 am

Capital inflows are not debt, it is literally the money we spent on foreign goods coming back to us.

tsk tsk
Reply to  Eric Worrall
November 7, 2020 1:57 pm

The capital inflows aren’t the problem. The deficit spending is the problem.

Reply to  Eric Worrall
November 7, 2020 4:25 pm

More Worrail nonsense:
US Treasury currently sells 10 year bonds with about a 0.8 percent interest rate (November 6, 2020 close). Credit cards typically charge about 20 to 25 percent interest. There is no comparison of the two.

US economic growth has been constrained by the slow growth of the US labor force in the past two decades, which was caused by the low birth rate.

The US debt will never be ‘paid down’.

Even in a good “year” , like 2019, about 25% of government spending is financed by selling Treasury securities.

What hope is there to pay down the federal debt when we are so far from a balanced budget? Much worse for fiscal year 2020.

The US Treasury should take advantage of the the historically low interest rates to do more long term borrowing, and locking in interest rates that are currently much lower than the inflation rate.

November 6, 2020 7:33 pm

This article is nonsense.

The current US trade deficit is high
US Inflation is low
US Treasury interest rates are near record lows.
US mortgage rates last week were at or near record lows

Where is ANY attempt in this article to prove that changes in US trade deficits have ever caused changes in mortgage rates? There is none. That claim is merely asserted and assumed to be true. Just like climate alarmists assert there is a coming climate crisis … which we have been hearing for 50 years.

The US fracking level is a loser: Cumulative debts disclosed by 490 US oil and gas companies, in their bankruptcy filings from January 2015 through September 2020, has now jumped to almost $300 billion.

Reply to  Eric Worrall
November 6, 2020 8:35 pm

Professional economists have a hard time predicting what will happen in six months, even after much larger changes than the life or death of Fracking. It would be hubris by an economist to suggest they know the effect on inflation, let alone someone with an obvious (pro fossil fuel) axe to gring.

Even economist can barely do better than chance in suggesting what the economy is going to do, yet, Eric is apparently giftted with such foresight that he knows exactly what will happen. Truly impressive.

Reply to  Tony
November 7, 2020 4:54 pm

As a group, US economists have NEVER predicted a recession.

Reply to  Eric Worrall
November 7, 2020 10:47 am

Wikipedia is a laughingstock. It is a majority ruled (run by leftists) pretend encyclopedia.

There is no “trade” deficit when you include the flow of capital (balance of payments).

We buy goods from China (voluntarily) and they get US dollars.

If they lend those dollars to the US by buying 10 year US Treasury bonds paying 0.8 percent interest, as one example, and US inflation remains low, as it has been for many years, then we got a good deal.

As a libertarian, I believe there has been excess spending since the 1960s. Mainly on wars, but on welfare too.

You are merely asserting, again, that the US is taking on too much debt. The low interest rates on Treasury securities show that investors do NOT agree with you.

I pointed out in a prior comment that when interest rates are so low, it is wise for governments to raise money by selling debt (preferably long term debt) rather than raising taxes. What is done with the money borrowed is a different story. We would probably agree more on excessive government spending.

The connection between fracking and home mortgage interest rates is just an opinion, not a fact. You offer no proof of any relationship other than an appeal to authority (an economist) logical fallacy.

tsk tsk
Reply to  Richard Greene
November 7, 2020 1:56 pm

“Mainly on wars” Right, the $20TT spent on the welfare state in that time is more than the total cost of every war in US history.

I pointed out in a prior comment that when interest rates are so low, it is wise for governments to raise money by selling debt (preferably long term debt) rather than raising taxes.

Dear sweet God, no. And you call yourself a libertarian. Governments should only engage debt to finance projects which are grossly inefficient for the private sector and have very long time horizons(hard infrastructure), or existential threats (wars). Deficit spending might be superior to increased taxation-funded spending, but neither are desirable. You do understand that that debt, no matter the term, must be repaid at some point, right? Governments only have one mechanism for doing that (unless you want to go the Roman tribute route). Deficit spending is just deferred taxation plus interest.

Reply to  tsk tsk
November 7, 2020 4:49 pm

Task Task
You are very confused, conflating government spending with how the government gets funds for their spending.

You are also failing to adjust war spending for inflation, and you exclude any value for all the lives lost and soldiers permanently injured or crippled ion those wars. I suppose they don’t matter?

Wars that we lose, or at least don’t win, with lots of lives lost, such as Korea, Vietnam and Afghanistan (where the actual loss is ahead) are “excess spending”.

10 year Treasury debt sold at an 0.8 percent interest rate is a great way to finance government spending. That’s finance.

Wasting the money you get on services that should be provided by the private sector is another subject.

Libertarian are concerned about the power and spending of governments, not the best way to get the money for the spending.

This is a rare time in history that borrowing money long term (10 year T-bonds or 30 year T-bonds) makes sense with inflation at 2% and the 10 year Treasury bond interest rate at only 0.8 percent.

The US debt will never be repaid. It does not have to be repaid. By “repaid” I mean a significant decline in the total debt held by the public. The debt only has to be serviced.

Welfare programs include Social Security, Medicare, Medicaid, and many others — most Americans say most of the programs are not excess spending when they help poor American individuals and families. Libertarians would disagree.

Reply to  Richard Greene
November 7, 2020 5:46 am

“The US fracking level is a loser: Cumulative debts disclosed by 490 US oil and gas companies, in their bankruptcy filings from January 2015 through September 2020, has now jumped to almost $300 billion.”


Per the old drunk driving commercial, “DON’T TAKE THE CAR! YOU’LL KILL YOURSELF!!!”


Splitdog Homee
November 6, 2020 7:55 pm

I see the idiots out in full force are emboldened by the successful election fraud.

Reply to  Splitdog Homee
November 6, 2020 10:03 pm

It’s not successful when it’s blatantly obvious to anyone who spends more than a few minutes looking at the numbers.

Reply to  MarkG
November 7, 2020 9:30 am

It absolutely IS successful. They have shown that they can commit blatant fraud that is clear for anyone to see, and still the media will cover for them and half the country will ignore it even if they DO see it. Expect even more in the future.

Splitdog Homee
Reply to  TonyG
November 7, 2020 1:50 pm

That is the problem. Criminal behavior is rewarded. Do Republicans start cheating now? Where does it end?

Reply to  Splitdog Homee
November 7, 2020 3:26 pm

That is the problem. Criminal behavior is rewarded. Do Republicans start cheating now? Where does it end?

It’s been that way for quite some time, it’s just they don’t care to hide it anymore, since they don’t need to. Republicans won’t get the same cover, so that won’t work.

Where does it end? Orwell had a vision about that. Something about boots and necks.

November 6, 2020 8:34 pm

Half of those died because Democratic governors sent infected folks into senior homes.

November 6, 2020 9:09 pm

So what about the employment and business brought on by the US fossil fuel boom? Temporary? Short lived? Minimal? Maybe, but we will only know when its’ cut off. And if Biden holds true to the word that the Progressives gave him it will end and along with reinstatement of Obama era edicts that killed the economy and gave it to the Globalists we’ll have lean years to make the Marxists happy. As near as I can tell Marxism could never exist without Capitalism paying its’ way.

Reply to  Eric Worrall
November 7, 2020 11:55 am

“As near as I can tell Marxism could never exist without Capitalism paying its’ way.”

We see this in every counry where marxism takes hold

Its a RACE.. to the very bottom !

US-zuela.. here you come. !

Robert of Texas
November 6, 2020 10:54 pm

Most “Biden” voters are going to be too stubborn or too stupid to understand how the liberal politics are effecting the economy. The economy will likely be on course for a while; it takes some time to change the course of such a big massive economy. As it begins to steer away from success the voters will be fed a list of other things they can blame so that they never have to cope with being “wrong”.

Therefore, even if things start going badly in the next 4 years I don’t know if there will be enough light bulbs going off in people’s heads to change any voter decisions. By they time it becomes apparent, the liberals have generally entrenched themselves so well there is not path back out. Valenzuela is a perfect example of turning a great economy into a socialist tyranny through the tried and true liberal deceptions.

Hopefully I won’t have to live through too much of this before dying off, but I pray for the young folk who are going to learn the hard way that freedom has a cost. There is and always will be a single George Washington – a man of moral backbone who turned down the chance at tyranny to give birth to this great country.

Reply to  Robert of Texas
November 7, 2020 3:39 am

The light bulbs won’t be “going off”, i.e lighting up, in people’s heads, Robert, they’ll be “going off”, i.e. not working, in people’s houses due to no electricity.
Unless you live in SA or California where that is apparently happening already.

Reply to  Robert of Texas
November 7, 2020 9:32 am

Most “Biden” voters are going to be too stubborn or too stupid to understand how the liberal politics are effecting the economy.

See California, for one example. All the failures are still blamed on the Republicans opposition – no matter how ineffective it actually is.

tsk tsk
Reply to  TonyG
November 7, 2020 2:00 pm

Every totalitarian state needs its Emmanuel Goldstein.

November 6, 2020 11:28 pm

Money poured into the Biden election bid in the last two weeks before the election on the back of favorable (wrong) polling. Americans who voted from home have sold you out and don’t even know what you are in for – they do! Only the USA would be stupid enough to let your states run the federal elections – now you have to put up with the result.

November 7, 2020 12:46 am

Best thing Trump can do is give them all the rope they need. He can get reelected in 2024

Carl Friis-Hansen
Reply to  MatthewSykes
November 7, 2020 5:26 am

Who says Trump wants to fight the deep Green state again?

The funny thing is that during the presidency of Biden’s partner in crime, Obama, the fracking (horizontal drilling) really accelerated. So will Obama allow Biden to shutdown fracking?

Richard Greeme
Reply to  Carl Friis-Hansen
November 7, 2020 4:58 pm

O’Bummer was busy trying to kill the coal industry.

Joseph Zorzin
November 7, 2020 4:28 am

Biden hasn’t the balls to try ending fracking. He knows its a good thing.

I look forward to a Biden presidency. It has been tiring every day watching the MSM attack Trump as an ignorant liar. Biden won’t be any more successful in solving problems. Let’s see how the MSM treats him. And it’ll be fun to watch Trump supporters rip into a Biden presidency.

I hope the SCOTUS soon revisits their “finding” that CO2 is a pollutant. If they throw that one out- it might be the biggest thing to happen in the next 4 years. It’ll be Trump’s revenge.

Reply to  Joseph Zorzin
November 7, 2020 11:57 am

“He knows its a good thing.”

So what,.. Biden won’t be in charge of anything,

Harris and the ultra-left will be

Biden is NOTHING except their dumb dementia puppet.

November 7, 2020 8:16 am

It is amusing that the planned Great Green Reset, well underway using the COVID crash to put through emergency powers, will run smack into fracking, the Obama attempt to save wall street after the 2008 crash/bailout.

BlackRock, the worlds largest hedge fund has endorsed this, which means green vetting of even their investments, hugely fossil fuel at the moment. They are taking flack for not being green enough, already.

I would not bother to predict how this scuffle will play out – much better to put these green finance schemers through restructuring, Glass-Steagall, now!

November 7, 2020 6:47 pm

There is no such thing as the “trade deficit”.

First, dollars out have to equal dollars in, unless someone is burning dollar bills. This is not like gold and silver. This is fiat money.

Second, the figure usually quoted for “trade deficit” is cook-the-books fraud, in not counting dollars invested, only counting goods. Count those, and the numbers match.

This is bog-standard econ 101. A good starting place is Henry Hazlitt’s “Economics in One Lesson”, which, contrary to the name, is a textbook-sized freely available download from many web sites. It is an easy read but more like a semester lesson than a one-nighter.

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