by Daniel Brouse
November 9, 2023
Attention armchair economists, investors, and homeowners:
the 30-year Treasury auction was “bad” today
… when I say bad, I mean bad for those not investing in Treasuries.
What does it mean? The government went to borrow money today, and people didn’t want to lend them money. The 30-year interest rate spiked higher. This is because the government is borrowing record amounts of money.
A Double Whammy
This has two negative feedback loops.
1) the higher interest rates mean the government has to borrow more money to make the interest payments… resulting in higher budget deficits… resulting in more borrowing… resulting in higher interest rates, etc.
2) the government is borrowing the current trillions of dollars over the next couple years… but they have yet to spend it… spending the trillions will result in inflation… which will result in higher interest rates… causing a larger deficit… requiring more borrowing, etc.
The Greatest Risks to the US Economy
- Climate Change
- Government Spending / Debt
- Lack of Immigration
Human induced climate change is an exponential component of an unordered system (chaos theory).
The Age of Loss and Damage is a new way of thinking about economics by combining economics, climate science, statistics, and physics. Until now, economic models have been unfit to capture the full extent of climate damage. Traditionally, “integrated assessment models” (IAMs) were used to forecast “shock” events. IAMs use “quadratic function” to calculate GDP losses by squaring the temperature change, yet ignore other methods (such as the exponential function) that are better suited for rapid change. “Climate change is fundamentally different to other shocks because once it has hit, it doesn’t go away,” said Thierry Philipponnat, author of a report by Finance Watch, a Brussels-based public interest NGO on financial issues. “And if the fundamental assumption is flawed, all the rest makes little sense — if any.”
Reuters reported, “Critics say this (IAMs) choice is doomed to underplay the likely impact – particularly if the planet hits environmental tipping points in which damage is not only irreversible but happens at an ever-accelerating rate.” Thierry Philipponnat’s report, Finance in a Hot House World, concludes: “Climate risk is growing to disruptive levels throughout the financial system and the guardians of financial stability urgently need to adapt their tools to regain control.” The report calls for economic models that do not mislead, scenario analyses that prepare the market, and a new prudential tool to address the build-up of systemic climate risk.
Traditional economics is based upon the “costs and benefits” to society. Since there are no known long-term benefits of climate change to society, the Age of Loss and Damage economics focuses on the exponential costs of climate change to society.
Loss and damage litigation against oil companies and governments will change world economics.
Real Estate and Infrastructure
A warmer world will present widespread challenges across many aspects of food-energy-water security and economic development. Infrastructure including roads, bridges, sewer and water plants will become unsustainable. Personal property will suffer loss and damage as homeowners and flood insurance become increasingly difficult to obtain.
In October of 2023 Dr. Sidd Mukherjee said, “Now I am thinking the violent rain will be a bigger problem before we die… still thinking it through. In the long run, yes, sea level rise will hit big. If you look at the history, it is episodic, and in the fast bits it can go up 3 feet every twenty years for five hundred years. But, the rain intensity is increasing faster today, and drainage cannot cope, whether in the city or out, culverts and such put in over the last hundred years cannot handle. So, I am paying a lot of attention to terrain and drainage far inland from the seacoast (like Ohio.) By drainage I don’t mean just human built. I mean that the natural streams and gullies and ravines have not evolved to a state that can handle the water volumes we see and the worse, larger volumes we will see. So expect huger erosion, steeper slopes to waterways, land collapses and such. Build out your drainage.”
In the spring of 2023, the USA suspended their national debt ceiling. Included in the debt ceiling suspension is a provision for unlimited emergency federal spending. The result is the government can continue to ignore the causes of climate change and instead give trillion-dollar subsidies to the fossil fuel industry through emergency disaster relief. Yes, another vicious circle — more fossil fuels subsidies result in more climate catastrophes resulting in more fossil fuel subsidies, etc. The end result will be additional trillions in government borrowing while the standard of living declines.
According to NOAA, in 2023 (as of November 8), there have been 25 confirmed weather/climate disaster events with losses exceeding $1 billion each to affect United States. These events included 1 drought event, 2 flooding events, 19 severe storm events, 1 tropical cyclone event, 1 wildfire event, and 1 winter storm event. This is the largest number of climate disasters recorded with a notable increase in extreme precipitation events (violent rain).
Meanwhile, the US politicians also fail to address the declining and aging population. By restricting immigration, the government is forcing the acceleration of AI and robotics technology. Although this is great for “productivity”, neither AI nor robots pay taxes. The US economy is based on population growth. Increased emergency spending and a declining tax base results in insolvency.