Overshadowed By The Trump Indictment

On Tuesday, The National Review reported that America’s long-term foreign-currency-issuer default rating has been downgraded. You may have missed this news because the media was focused on the Trump indictment. However, this news will impact more Americans and needs to be heard.

The article reports:

Fitch Ratings on Tuesday downgraded America’s long-term foreign-currency-issuer default rating, citing ongoing and projected future fiscal instability, an increasingly long and disruptive governance process, and rising debt and deficits.

The tumultuous negotiations and gridlock between Republicans and Democrats in June over raising the debt ceiling were evidence that “there has been a steady deterioration in standards of governance over the last 20 years,” Fitch, one of the “big three” U.S. credit-ratings agencies alongside S&P and Moody’s, said in a statement. That episode put the U.S. at risk of payment default and threatened to plunge it into a debt crisis. After weeks of back-and-forth, the parties agreed to suspend the debt limit for two years until January 2025, with a number of conditions and concessions made to both sides.

The government as of late has been operating under modern monetary theory.

Business Insider describes modern monetary theory as follows:

Modern Monetary Theory (MMT) is an economic theory that suggests that the government could simply create more money without consequence as it’s the issuer of the currency, according to the Federal Reserve Bank of Richmond. As part of this theory, the thinking is that government deficits and national debt don’t matter nearly as much as we think they do. 

This is the equivalent of the person who says, “How can I be overdrawn–I still have checks?” It is an avoidance of responsible spending and has gotten us into the mess we are currently in. Excessive printing of money creates inflation and hurts most Americans.

The article at The National Review notes:

Among the others factors the agency said were making the U.S. less reliable to honor its obligations are the Federal Reserve tightening monetary conditions via interest-rate increases to combat inflation. The central bank also continues to shed its massive balance sheet of mortgage-backed securities and U.S. Treasuries, furthering fostering an environment of tighter credit, Fitch said. The economy, the agency noted, is expected to slip into a “mild recession” in the fourth quarter of 2023.

Hang on to your hats. We may be in for a rough ride.

This Is Not Good News For America

Today, NewsMax posted an article about the most recent meeting of the Organization of the Petroleum Exporting Countries (OPEC).

The article reports:

OPEC and its allies met on Sunday to try to agree further cuts in production, sources told Reuters, as the group faces flagging oil prices and a looming supply glut.

The group, known as OPEC+, delayed the start of formal talks by at least three and a half hours due to members’ discussions on the sidelines of production baselines, from which cuts and quotas are calculated, sources said.

OPEC’s most influential members and biggest Gulf producers led by Saudi Arabia were trying to persuade under-producing African nations such as Nigeria and Angola to have more realistic output targets, sources said.

“Talks with African producers are proving to be difficult,” one OPEC+ source said. Gulf producer, the United Arab Emirates, was meanwhile seeking a higher baseline to reflect its growing production capacity, sources said.

OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, pumps around 40% of the world’s crude, meaning its policy decisions can have a major impact on oil prices.

Four sources familiar with OPEC+ discussions have told Reuters that additional production cuts were being discussed among options for Sunday’s session.

“We are discussing the full package (of changes to the deal),” one of the four sources said.

Three out of four sources said cuts could amount to 1 million bpd on top of existing cuts of 2 million bpd and voluntary cuts of 1.6 million bpd, announced in a surprise move in April and that took effect in May.

The article concludes:

Western nations have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West has also accused OPEC of siding with Russia despite Western sanctions over Moscow’s invasion of Ukraine.

In response, OPEC insiders have said the West’s money-printing over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export.

Asian countries, such as China and India, have bought the greatest share of Russian oil exports and refused to join Western sanctions on Russia.

OPEC has denied media access to its headquarters to reporters from Reuters and other news media.

According to a U.S. News article written in January 2021:

MMT (Modern Monetary Theory) argues that nations with the ability to produce their fiat currency can issue as much money as they need, and as a result, they have no pressures when it comes to financing. In other words, the government cannot run out of money and it essentially has no financial constraints. While the government should have a budget, under this theory, the government doesn’t necessarily have to worry about the deficit because it can fund projects by printing new money from its central bank.

That seems to be the theory that the government is currently operating under. It is a theory that will prove disastrous for America.

Modern Monetary Theory Ends In Ghana

Zero Hedge posted an article today with the headline, “Ghana Becomes First Country To Officially End MMT Experiment.” MMT is the abbreviation for Modern Monetary Theory. It’s basic tenet is that printing an endless supply of money and having a central bank fund the  deficit. Basically as long as the spending is kept within your own country, your citizens will not notice how worthless their money has become.

The article reports:

There are just two problems: MMT is neither modern, nor monetary, nor is it a theory, although economists – especially socialists – are delighted to define it as such as it validates their worldview that somehow society can get richer if only people print more money, as if nobody has thought of that before (spoiler alert: they have, and the consequences have been devastating every time).

We won’t waste readers’ time on the intellectually bankrupt garbage that is socialist philosophy (because it is nothing more than that) that is the “Magic Money Tree” (See “MMT: Not Modern, Not Monetary, Not A Theory“) but we will note that some countries are smart enough to know that going down the money printing route leads to disaster. We will also point out that it is not a western nation – all of those advanced countries are desperately printing money in hopes of sparking currency devaluation and at least modest hyperinflation – but an African country that is now the epitome of sound monetary practices.

On Friday, Bank of Ghana Governor Ernest Addison effectively shut down MMT in his country when he ruled out providing more loans to the government to help narrow the budget shortfall, saying it would put exchange-rate stability at risk (for those confused: virtually every single developed and developing central bank is currently doing just that – printing money to fund the government deficit).

The central bank shelved its zero-financing policy this year to lend the government 10 billion cedis ($1.7 billion) to help mitigate the impact of the coronavirus pandemic on the West African economy. The bank ended its explicit support of fiscal policy just as Ghana’s budget deficit is projected to reach 11.4% of GDP by the end of December, more than triple the initial target of 4.7% of GDP.

The article concludes:

And so one MMT experiment ends with a whimper, although since no other central bank is willing to to take “difficult decisions”, it will be a while before Ghana’s shining example is followed by other central banks.

Ghana’s cedi has had its most stable spell in more than a decade this year, weakening 2.6% to the U.S. dollar. That’s even as the global health crisis drove Ghana’s ratio of debt to gross domestic product to 71% in September, the highest in four years. And now that wanton money printing is out of the agenda, the cedi may soon well be one of the world’s most valuable fiat currencies.

Hang on to your hat. I don’t want to see the day when a loaf of bread costs ten dollars, but that is the danger on the road ahead.