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Senior editor, Ash Bennington, hosts managing editor, Ed Harrison, to break down the recent price action in gold and bitcoin, and to analyze the health of the U.S. economy as COVID-19 continues to spread. Ash and Ed also consider how the dollar continues to weaken and where rates are headed, as well as speculate on what the next iteration of US fiscal policy will shape up to be. In the intro, Jack Farley takes a look at the plumbing of the gold market.

Authored by Daniel Lacalle,

The dramatic economic decline due to the Covid-19 crisis and the unprecedented recovery spending plans approved by President Trump will drive the fiscal 2020 United States budget deficit to a record $3.8 trillion, or 18.7% of U.S. gross domestic product, according to the Committee for a Responsible Federal Budget (CRFB). According to the same estimates, the fiscal 2021 deficit would reach $2.1 trillion in 2021, and average $1.3 trillion through 2025 as the economy recovers from the impact of the forced shutdowns.

To finance this staggering fiscal effort, the Democratic Party leader, Joe Biden, is announcing a massive tax hike that will neither help the economy nor reduce the deficit.

The solution to the United States budget deficit is not more taxes. Even in the most optimistic receipt scenario, there is no tax hike program that would even start to address the structural deficit, estimated at one trillion dollars a year, even less with the above-mentioned estimates.

More taxes will hurt the recovery, damage the job improvement potential, and reduce investment in the economy. More taxes mean less growth and no deficit improvement.

The Obama administration learnt this lesson quickly, and extended the Bush tax cuts in 2020, adding a new tax cut in 2013. Other United States misguided tax hikes in 2013 did nothing to reduce the debt and kept the economic and job growth below potential.

A wealth tax, often repeated by the most extreme politicians in America, would not only provide exceedingly small revenues for the Treasury, it would generate more negatives than any improvement in tax receipts. There is a reason why almost every European nation has abandoned the wealth tax. The receipts are negligible and the negative impact on investment, attraction of capital and job creation outweigh any revenue increase. The wealth tax revenue relative to GDP in the countries where it exists range between 0.07% in Finland to 0.22% in France. There is no way that a wealth tax would collect 1.4% of GDP as Senator Warren estimated. A wealth tax in the United States would make no visible reduction in the existing deficit, let alone finance the trillions in entitlement spending that Biden has announced.

So, how can the United States reduce the deficit?

US deficit is rising due to excessive spending increases, despite periods of rising tax receipts. The federal government’s revenue went up by 4%, to $3.46 trillion in the 2019 fiscal year, according to the Congressional Budget Office (CBO) report. However, spending went up by more than 8%, to $4.45 trillion.

The rise in 2019 deficit was not due to the “tax cuts”. If anything, the tax cuts helped the economy stay in expansion, creating jobs and increasing receipts at the same time. Corporate income taxes increased by $25 billion (+12%), while individual income and payroll taxes together rose by $107 billion (+4%). Overall, total receipts rose by 4% ($3,462 billion in the fiscal year 2019). Total receipts remained at 16.15% of GDP, which is the long-term trend figure and consistent with an economy that remained in expansion with moderate growth.

The main problem is that total outlays rose by 8% (to $4,446 billion), driven mostly by mandatory expenses in Social Security, Medicare, and Medicaid.

Those that say that the deficit would have been solved eliminating the Trump tax cuts have a problem with mathematics. There is no way in which any form of revenue measure would have covered a $338 billion spending increase.

No serious economist can believe that keeping uncompetitive tax rates well above the average of the OECD would have generated more receipts. Furthermore, no serious economist can believe that eliminating the Trump tax cuts would have generated more than $300 billion of new and additional revenues.

Remember that corporate tax receipts already fell 1% in 2017 and 13% in 2016, before the Trump tax cuts. The operating profit recession was already evident. If anything, reducing the corporate rate helped companies recover, which in turn made total fiscal revenues rise by $13 billion to $3,328 billion in the fiscal year 2018, according to CBO.

The problem of the United States budget is Mandatory Spending.

Mandatory spending was $2 trillion out of a total of $4.45 trillion outlays in fiscal year 2019.  This figure is projected to increase to $3.3 trillion. Even if discretionary spending stays flat, total outlays are estimated to increase significantly above any advance in tax revenues.

Printing money has not reduced deficits or debt. The Federal Reserve has increased its balance sheet to record-highs, on its way to $10 trillion, and purchasing Treasuries has only driven governments to continue to spend above budget and the trend of receipts.

Furthermore, if proponents of massive money printing tell us that deficits do not matter and that the United States government should spend all it needs because the Fed will acquire all the debt, then there is no need for higher taxes, is there? In fact, if Modern Monetary Theory (MMT) proponents were right, taxes should be cut, and deficits monetized to drive the recovery.

The problem is that the magic money tree does not exist. Monetary policy is only disguising a structural and dangerous spending problem and this reckless behaviour can only be maintained if the US dollar remains the world reserve currency. Therefore, not only there is a limit to how much can the Fed print, there is also a risk that if governments do not reduce spending, the US may lose its world reserve currency status.

Consequently, the only solution for America to reduce debt is to cut spending and entitlements.

Any politician should understand that it is simply impossible to collect an additional $3 trillion per year over and above the existing receipts. They should also understand that the trust in the US dollar may collapse if deficits continue to balloon.

It is completely impossible to double the receipts of a growth year like 2019 with higher taxes. Higher taxes will only wreck an already weak economy and delay the recovery.  It is completely impossible to reduce deficits printing money. Governments will only increase spending if they can monetize it at the expense of real wages and savings.

Believing that the deficit can be reduced by massively hiking taxes is not understanding the US economy and the global situation. It would lead to job destruction, corporate relocation to other countries and lower investment. Believing that the deficit will be reduced printing money is not understanding the perverse incentives of governments.

The proof that the US problem is a spending issue is that even those who propose massive tax hikes are not expecting to meaningfully cut the deficit, even less so reduce the debt, that is why they add massive money printing to their magic solutions. It will not work either. And this reckless policy may destroy the US dollar’s reserve status.

Debt matters, even if interest rates are low. Increasing debt and spending means lower growth and weaker real wages in the future.

We detailed earlier that a number of US universities will enforce mandatory COVID-19 tests for all students wishing to return to campus through the Fall semester — with some lately announcing that this will be at a rate of two nasal swabs per week — which is a policy, no doubt uncomfortable for those having to endure such “routine” swabs, also appearing among companies for on-site personnel.

And in many parts of the country, cities and counties currently have mask laws requiring them in all public spaces. Given that over the past months the race has been on to develop and fast-track a coronavirus vaccine, the logical next step will be that students and employees provide proof they’ve received the vaccine before returning to work or school. Naturally, the idea of fast-tracking this process also amid a deeply politically charged climate has people concerned. And they should be, if Bill Gates’ latest appearance on CBS is any indicator of where things stand.

British veteran journalist Neil Clark had this reaction to the Bill Gates interview, which came days ago: When anyone tries to gaslight you by calling you a ‘crank’ , a ‘tin-foil hat conspiracy theorist’ or ‘Flat Earther’ for having perfectly legitimate & sensible concerns over a rushed through ‘Coronavirus’ vaccine & its side effects, just send them this.

Even CBS pressures Bill Gates on the topic that almost everyone had side effects. He doesn’t seem to care.
pic.twitter.com/2SiBmowJo3

— An0maly (@LegendaryEnergy) July 26, 2020

Even the mainstream media correspondent giving the interview appeared momentarily exasperated and incredulous that Bill Gates shrugged off credible reports of side effects as ultimately no big deal. When the anchor pressed him again on the safety of the vaccine, his answer appeared to be simply, trust us. Gates was asked:

Side effects from the Moderna vaccine sound concerning… we looked. After the second dose at least 80% of participants experienced a systemic side effect, ranging from severe chills to fevers. So are these vaccines safe?

“The FDA, not being pressured, will look hard at that,” Gates said, addressing the issue of possible side effects. “The FDA is the gold standard of regulators, and their current guidance on this — if they stick with that — is very very appropriate.”

Gates even goes on to candidly acknowledge the likelihood of side effects from the vaccine, which he admitted would “improve” over time. Does this sound comforting? Add to this that as part of his explanation he argues that for a vaccine to be effective it would have to be administered to the population on a mass scale, and globally:

“If what you’re trying to do is block all the transmission, then you need to get 70-80% coverage on a global basis. So it’s unbelievably big numbers,” he said.

Gates, who has been warning about the threat of a global pandemic since 2015, admitted that “there will be a lot of uncertainty” about the efficacy of any vaccine, but stressed that it’s a solution “that will improve over time.”

When anyone tries to gaslight you by calling you a ‘crank’ , a ‘tin-foil hat conspiracy theorist’ or ‘Flat Earther’ for having perfectly legitimate & sensible concerns over a rushed through ‘Coronavirus’ vaccine & its side effects, just send them this. https://t.co/ghw3DVqc4T

— Neil Clark (@NeilClark66) July 27, 2020

Thus governments especially in the West and also private institutions will be under pressure to mandate it by law. 

Perhaps the most alarming moment in the CBS interview came when Gates bluntly admitted that current testing of the most promising “high dosage” vaccines are resulting in side effects:

“Some of that is not dramatic where it’s just super painful, but yes…,” Gates said.

Meanwhile, CNN reports Monday morning that the first Phase 3 clinical trial of a US developed coronavirus vaccine has begun. “The investigational vaccine was developed by the biotechnology company Moderna and the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health. The trial is to be conducted at nearly 100 US research sites, according to Moderna. The first patient was dosed at a site in Savannah, Georgia,” CNN writes.

“The trial is expected to enroll about 30,000 adult volunteers and evaluates the safety of the Moderna/NIH vaccine and whether it can prevent symptomatic Covid-19 after two doses, among other outcomes,” the report continues.

The rush for the rapid roll out of a vaccine has been driving headlines since March, and will continue, given that currently the United States leads the world in confirmed coronavirus cases at 4.2 million, including over 146,935 who have died of COVID-19.

Authored by Mark Glennon via Wirepoints.org,

If you read nothing else in recent news about the fight against coronavirus, read the Newsweek column from Thursday by a leading epidemiologist at Yale University, Harvey A. Risch headlined, “The Key to Defeating COVID-19 Already Exists. We Need to Start Using It.”

It might save your life. 

“Tens of thousands of patients with COVID-19 are dying unnecessarily. Fortunately, the situation can be reversed easily and quickly,” Risch wrote, and he detailed exactly why.

It’s about the most current scientific evidence that hydroxychloroquine, also known as HCQ, is safe and effective for many COVID-19 victims when used with the right combination of other drugs, particularly for high-risk patients who are treated early.

His conclusion:

For the sake of high-risk patients, for the sake of our parents and grandparents, for the sake of the unemployed, for our economy and for our polity, especially those disproportionately affected, we must start treating immediately.

Only if you follow national news on coronavirus have you already read about Risch’s article. It has been republished elsewhere there and widely quoted.

But not in Illinois, and most Illinoisans undoubtedly are unaware of the latest science on hydroxychloroquine that Risch summarized. Most folks get their news by a cursory glance at headlines, a few chosen stories and maybe an evening local TV program.

Search Illinois media sources and you will find that almost all reporting on hydroxychloroquine is at least 45 to 60 days old. At the time, the drug was being dismissed as ineffective based on studies that have turned out to be defective, for reasons Risch describes.

Worse, on Friday the Chicago Tribune published an exceptionally dishonest and irresponsible New York Times article that claims no value in HCQ and entirely ignores the most recent scientific evidence Risch wrote about.

And the last word on HCQ from the State of Illinois was on April 19 when Governor JB Pritzker said he would not prohibit doctors from prescribing it for COVID19, but that there was no evidence that it is effective.

HCQ “is being overused without a lot of testing to back it up.”

“I don’t disagree that it shouldn’t be used off brand unless you really know that it works and right now we just don’t know that it works,” he said.

Pritzker and the Illinois Department of Public Health should update that to present the current research.

Another reason HCQ hasn’t been widely used are concerns earlier expressed that it could cause heart problems.

But I was recently contacted by a leading Chicago area physician and researcher, Chad Prodromos, who has found no evidence of that. He suspected that concern was unfounded based on his familiarity with HCQ, which has been widely used for decades for other purposes, so he dug into it.

Dr. Chadwick Prodromos

The unfounded concern was costing lives, he told me, so The FOREM, a non-profit research foundation he founded, performed a thorough, systematic review of the relevant peer reviewed literature on the issue. They found no evidence of any material cardiovascular risk.

They further discovered, to their surprise, that numerous recent high quality studies have uniformly shown that HCQ is actually quite protective to the heart. A radio interview of Prodromos on his study is here.

Risch’s article also refutes cardiovascular concerns about hydroxychloroquine.

The biggest reason hydroxychloroquine has been dissed is that it has been politicized. It’s perhaps the saddest chapter yet in the politicization of science. President Trump hyped HCQ early, so many national and local pundits immediately ridiculed it. From Risch’s article:

I believe this misbegotten episode regarding hydroxychloroquine will be studied by sociologists of medicine as a classic example of how extra-scientific factors overrode clear-cut medical evidence. But for now, reality demands a clear, scientific eye on the evidence and where it points.

Look, I don’t care what you think of Trump. Cheer him if you want for promoting HCQ early, or shame him for doing so before he had the evidence for it. Just get the damn politics out of it and report the science pro and con.

And if you’re in the high risk group that may be helped by HCQ, get diagnosed fast if you think you may have the virus and consider using the drug with a doctor’s consultation.

Nor am I making any firm claims about HCQ’s efficacy or risks. That’s for the experts to sort out – and for you and your doctor if you get infected.

The sole point for now is just that the latest findings on hydroxychloroquine have not yet been told to Illinoisans, and that’s putting lives at risk.

Today in liberal hypocrisy…

Seattle radio host and self proclaimed “Cat Dad” Paul Gallant had taken to Twitter back in June to respond to President Trump’s handling of the protesters in Seattle. Responding to a Tweet where the President was critical of the Seattle mayor, Gallant responded “Chill dawg” before saying he saw “no burning, pillaging or deaths” in his city.

Today, Paul has taken to Twitter to sing another tune: “I feel like I need to buy a firearm”.

Why the change in attitude? Perhaps it was because rioters in his city trashed and looted the downstairs to his apartment complex. Gallant arrived back at his apartment this weekend to find it vandalized and looted. 

Came home to my apartment complex. The Starbucks underneath has been destroyed, and cops are telling us to stay away in case something explosive is inside. pic.twitter.com/OOJgzUmusk

— Paul Gallant (@GallantSays) July 25, 2020

“I feel like I need to buy a firearm, because clearly this is going to keep happening. Enough is enough,” he wrote in a subsequent Tweet. “Really angry right now,” he continued.

“Great job assholes,” he wrote in a subsequent Tweet.

Naturally, Gallant, who once thought he had “dunked” on President Trump, spent most of the weekend being dunked on by the internet for his own hypocrisy. 

Life comes at you fast. pic.twitter.com/tSXyYBSIfu

— Ian Miles Cheong (@stillgray) July 26, 2020

Recall, this isn’t the first we’ve seen of hypocrisy in Seattle. The mayor dismantled the city’s anarchist CHAZ/CHOP district not after six shootings and two teenage deaths, as hedge fund manager and author James Altucher notes – but rather, after protesters threatened to take over Mayor Jenny Durkan’s 5,000 sqft., $7.6 million house.

And to Gallant, we only have one thing to say: chill dawg.

Authored by Michael Snyder via TheMostImportantNews.com,

2020 has been a very tough year for the U.S. as a whole, but some portions of the country have been hit much harder than others.  For example, if you live in a rural area that hasn’t seen any civil unrest and that hasn’t been hit very hard by the COVID-19 pandemic, the way that you are living your life now may seem nearly unchanged from the way you were living your life in 2019. 

But if you live in an urban area that has experienced endless protests and rioting and that has seen COVID-19 sweep through local neighborhoods like wildfire, your life in 2020 may look radically different from the way it looked in 2019.

Unfortunately, conditions in our largest cities are not likely to improve dramatically any time soon.

But many people that live in rural communities are feeling pretty good about things right now.  Even though more than 52 million Americans have filed new claims for unemployment benefits over the last 18 weeks, the official unemployment rate in many rural counties is still in the single digits.

I know that may be difficult to believe, but that is what the numbers tell us.

Sadly, in many of our largest cities it is a completely different story.  New York City was one of the early epicenters of the COVID-19 pandemic in the United States, and many of us will never forget watching video footage of the looting that took place in the heart of Manhattan earlier this year.  As a result of all of this chaos, the unemployment rate in the state as a whole is nearly twice the national average…

New York’s unemployment rate rose to 20.4% last month, according to state-level data issued Friday by the Bureau of Labor Statistics that detailed figures for some large metro areas. That’s up from 18.3% in May and 15% in April.

We see a very similar story when we look at the city of Los Angeles.

Thanks to COVID-19 and endless civil unrest, the official unemployment rate in the city is hovering near 20 percent…

Los Angeles, the second-largest U.S. city, has seen a similar level of joblessness.

Its unemployment rate recovered slightly in June but remains startlingly high — at 19.5%, versus 20.6% in May, according to data published Friday by California’s Employment Development Department.

Unfortunately, it appears that the COVID-19 pandemic and the violence in our major cities are both going to be with us for the foreseeable future.

Some people think that the civil unrest will disappear if Joe Biden wins in November, but I do not believe that is the case.  Nearly all of the major cities where the violence is happening are controlled by radical Democrats, and those radical Democrats have been completely unable to control the riots.  To the protesters, Republicans and Democrats are both two sides of the same coin and are both responsible for the injustices in our society, and they are not going to give up on their goals just because a moderate Democrat like Joe Biden wins the election.

At this point, millions upon millions of Americans are sticking closer to home these days because of COVID-19 and all the unrest, and this has been particularly devastating for the leisure and hospitality industries…

The unemployment rate in the leisure and hospitality industries, including restaurants, soared from 5.7% in February to 39.3% in April, and in June was still at an unprecedented 28.9%. By comparison, the overall unemployment rate is 11.1%, and no other industry comes close to restaurants’ level.

The restaurant industry employed nearly 9.2 million people in June, almost 3 million more than in April but still 25% below where it was in February. Anecdotally, though, restaurant workers—even those who’ve spent decades in the industry—say they’re looking to get out. The line of work that had been stable, geographically flexible, reliable and largely safe for generations is no more, they say.

As I discussed the other day, we have already lost thousands upon thousands of small and independent restaurants, and this “restaurant apocalypse” is only going to get worse with each passing month.

Moving forward, some cities may never be the same again.  In Las Vegas, the official unemployment rate recently hit 29 percent, and everyone agrees that tourism will never recover until the pandemic ends.

If this pandemic stretches on for several years, many of those unemployed workers will be forced to abandon the city entirely in order to find work elsewhere.

Sadly, competition for the few good jobs that are available will become increasingly fierce, and this will result in millions of Americans falling out of the middle class.

And we are starting to see some numbers that indicate that this process is already moving along very quickly.  According to the U.S. Census Bureau, “24 million Americans say they have little to no chance of being able to pay next month’s rent”.

Just think about that.

We never saw anything like this during the last recession, and the Census Bureau says that things are particular dire for Black and Hispanic renters…

This month, nearly 28% of Black renters say they haven’t paid last month’s rent, and about 46% say they have slight or no confidence they’ll be able to pay next month’s rent, according to figures from the Census Bureau’s Household Pulse Survey. Hispanic renters face similar economic strain: 22% say they missed last month’s rent and 46% fear they won’t make rent next month.

Those numbers are simply eye-popping.  As people increasingly get behind on their bills, the cries for more direct government assistance will become deafening, and it appears that Republicans and Democrats in Congress both want to pass yet another stimulus bill.

Of course that will mean borrowing and spending more gigantic piles of money that we do not currently have, but at this point most Americans do not seem to care that we are literally completely destroying our financial future.

For such a long time, I warned that the next economic downturn would be worse than the last recession, and that has turned out to be precisely correct.

And what we are experiencing right now will pale in comparison to what is eventually coming.

But for most people, the only thing that seems to matter is what is happening here and now.

And at this moment we are seeing tremendous economic suffering in major cities all over the nation, and in an election year very few of our politicians want to be the “bad guy” that says that we can’t hand out “free money” to everyone.

So our currency will continue to be rapidly devalued, our debt levels will continue to explode, and we shall get to see where this relentless march toward socialism takes us.