Advice from J.P. Morgan bank

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Here’s an example of how high the bullshit rises. This is what J.P. Morgan tells its most sophisticated investors. I shall quote verbatim from the J.P Morgan Asset Management Department…

5 Myths about U.S. government debt

Myth 1: The U.S. will default on its debt

Although much hype surrounds the possibility of a U.S. debt default, the likelihood is infinitesimally small.

One of the reasons the U.S. has been—and continues to be—a traditional safe haven for global investors is that investors know very well that the U.S. has nearly unlimited taxing power and a huge asset base. The federal government could—if needed—force liquidation of these assets to pay its entire stock of debt nearly 10 times over before defaulting. This is before even considering increasing taxes on the private sector.

Garbage. First of all, the likelihood of a U.S. debt default is financially zero. Is it politically possible, if politicians order the Fed to stop paying interest on T-securities. But this would cause so much chaos that the money masters (the true rulers) would never let it happen.

Second, taxation is irrelevant, since taxes do not pay for the U.S. federal government’s operations.

Third, there is no need to liquidate assets. The “national debt” is simply the amount of money that various parties (including the Fed and the U.S. government) have deposited in Fed savings accounts. To “pay off the debt,” we simply give depositors’ money back to them. The U.S. government could erase almost half the national debt by simply cancelling the debt the government owes itself.

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Myth 2: The U.S. debt is out of control

The U.S. debt is at somewhat elevated levels, but the current debt-to-GDP ratio is quite manageable.

In absolute terms, U.S. government debt, measured as total debt held by the public, is $13 trillion—a record high (as of June 30, 2015). The debt-to-GDP ratio stands at approximately 74%; an elevated level, but hardly a record. The Congressional Budget Office (CBO), a non-partisan government organization, projects only a slight increase in net debt as a percentage of GDP—from 74% in 2015 to 77% in 2025.

Considering government debt from the vantage point of the annual federal budget, the federal budget deficit has declined steadily from 9.8% of GDP in fiscal year 2009 to an estimated 2.7% of GDP in 2015.

More garbage. The debt-to-GDP ratio is irrelevant, since the size of deposits at Fed accounts has no effect on the U.S. government’s ability to keep creating money. And notice how the comment shifts from “debt” to “deficit,” which are two different things.

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Myth 3: Rising rates will explode the debt

While rising rates would certainly cause the government’s net interest expense—its cost to service the debt—to increase, it won’t cause it to explode.

Any rise in interest rates would almost assuredly be the result of a healthier economy and inflation expectations. This matters a lot, because if both GDP and the debt rise in lockstep, the debt-to-GDP ratio does not actually grow. In addition, much of the U.S. government debt that was issued in the past seven years was done so at record low rates. This cheap debt has locked in coupon payments, which will not increase as interest rates rise.

T-securities do indeed pay a low rate of interest. A ten-year note pays about four percent. So after ten years, each hundred dollars will have earned only four dollars. And they’re only issued about four times a year (although 2,3,5, and 7 year notes are issued monthly).

But even if interest rates were much higher, the U.S. government could pay it, since the government creates infinite money out of thin air.

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Myth 4: The budget problem cannot be fixed

The budget problems facing our country are not difficult to solve from a mathematical perspective. The bigger challenge is finding the political will and the level of compromise and collaboration that would be required to make progress.

For example, according to a 2015 report from the Medicare Trustees, the trust fund supporting a significant part of Medicare costs is projected to be depleted by 2030. However, the present value shortfall over the next 75 years could be entirely covered if Medicare payroll taxes were increased by just 68bps, from 2.9% to 3.6%. Changes in the age of eligibility or the amount of benefits received are other feasible tweaks to handle the shortfall.

There is no budget problem! There are no “trust funds”! I’m so sick of this bullshit that I won’t even make a satirical image here.

Myth 5: The biggest risk to investors is the federal debt

In fact, I’m going to cut off this entire post, since the rest is garbage that you already heard a million times before.

This is what J.P. Morgan tells its investors! What a load of nonsense…

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