The U.S. is about to embark on a very ominous journey into hyperinflation with record amounts of debt and deficits.
The latest Q2 2020 budget deficit numbers for the United States have been released, and they don't look pretty.
Federal government expenditures (annual rate) have ballooned to $9 trillion while federal government receipts (annual rate) have dropped to $3.5 trillion.
This has resulted in an annually adjusted budget deficit of $5.5 trillion, which is shown in the chart below. This is completely unprecedented, and it doesn't look like the expenditures are going to ease down as many businesses (airlines, event sector, hospitality industry) still struggle due to the pandemic.
If we calculate the deficit to outlay ratio, we get 60%, which is higher than the 40% hyperinflationary threshold.
The latest Q2 GDP data was equally abysmal. The U.S. economy shrank 31.7% while the U.S. stock market kept rising. This has resulted in a surge in the total market cap to GDP (Buffett indicator) to 183%, which clearly indicates stocks are very overvalued here. Q3 2020 GDP is expected to rise 26% according to the Atlanta Fed, so this ratio could come down going forward.
Ultra-low interest rate policies have created a stock market and bond market bubble at high valuation multiples, but the underlying economy is not improving much. For example, small businesses aren't reopening as witnessed on the chart below from Opportunity Insights.
The Federal Reserve has only managed to drown U.S. businesses in more debt as delinquencies are rising on record corporate business debt levels.
In fact, the Federal Reserve is not done yet. On August 27th, Chairman Powell announced that he will let inflation run hotter than normal and keep interest rates at 0% for an extended period (~5 years). In order to achieve this, the Federal Reserve will have to
