The Democratic Party Betrayed its Poor Constituency

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Operation Disclosure | By David Lifschultz, Contributing Writer

Submitted on May 19, 2022

THE DEMOCRATIC PARTY BETRAYED ITS POOR CONSTITUENCY

Compliments of the Lifschultz Organization founded in 1899

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THE US AS WEIMAR GERMANY

Compliments of the Lifschultz Organization founded in 1899

Interest rates in the US have been held artificially low by a massive expansion of Federal Reserve credit.

Here bank credit is started to accelerate which is inflationary.

https://fred.stlouisfed.org/series/TOTBKCR

Because of massive Federal Reserve acquisition of US debt to finance the monumental budget deficit.

Federal Reserve Board – Recent balance sheet trends

Inflation is around 7% but looks to exceed 10% soon.

Let’s look at history:

In 1979 the US national debt was 827 billion dollars and in 2021 28.43 trillion dollars. In 1979 the tax revenue was 439.6 billion dollars with a 60.6 billion dollar deficit and in 2021 an estimated 4.047 trillion in revenue with a 2.770 trillion deficit. The 2020 deficit was 3.132 trillion. The 2020 and 2021 deficits were financed by Federal Reserve purchases of 5 trillion dollars of debt driving interest rates so low that the return on bonds was negative after inflation. Interest rates below were not compensatory.

The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, an important economic measure, eventually reached 21.5% in June 1982. That was a consequence of the Volcker plan to stop inflation that I wrote for him.

In 1977 while the prime remained at 61/4 percent industry-wide—a persistent prime-paper- rate spread of 11/2 percent.

Now, let’s say the interest rates were raised to 20% in 2021 to stop the inflation as Volcker did. About five trillion of the US debt is owed to ourselves or government agencies so the actual debt is about 24 trillion. 24 trillion times 20% per year interest is 4.8 trillion dollars which is more than the tax revenue. In 1979 20% of 827 billion dollar Federal debt was 165 billion against tax revenue of 439.6 billion dollars.

Now all the Federal debt in 1979 or 2021 will not rise to 20% as much of it is longer term which will stay at the lower rate of interest until it matures. But we have to remember that the same principle applied in 1979 but in proportion in 1979 the economy was much healthier in that the tax revenue in relation to the debt was much, much lower. If the Federal Reserve wants to raise interest rates to stop the inflation it does not have much room before disaster strikes when it starts to impinge on expenses like Social Security.

Now, much of this credit went to Wall Street as in 1929 as stocks soared while bonds were in trouble until the Federal Reserve started its massive buying of bonds. If the Federal Reserve tightens credit, then as bond interest rates rise the hot foreign and domestic money that shifted from bonds to stocks will return to bonds. Stocks will crash as in 1929 and bonds will rise.

The US central bank is trapped in a monstrosity of its own creation much worse than when I wrote the Volcker plan which worked. The so-called reset will instead be like 1929-1933 period when we saw the consequences of such mishandling of central bank credit with the rise of revolutionary forces as no one knows what they are doing in Washington, D. C.. In the US the revolutionary fervor was channeled into Roosevelt in 1932 but in Germany where the government was not highly regarded, as here in the US today, it tore down the entire philosophical basis of the Weimar Republic that was totally corrupt.

David Lifschultz
THE LIFSCHULTZ ORGANIZATION
DAVID@LIFSCHULTZORGANIZATION.COM

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