Dear Reader,
How does a man descend into bankruptcy?
Gradually — then suddenly — in Mr. Hemingway’s famous telling.
The United States government has passed beyond bankruptcy’s gradual phase.
It has entered bankruptcy’s sudden phase. Reports Schiff Sovereign:
“Joe Biden Added $1 Trillion to the National Debt in Just 118 Days.”
United States national debt first scaled $1 trillion 205 years after its inception. And today?
The work of 205 years reduces to 118 days.
$1 trillion every 118 days? Impossible — but the facts are the facts.
Entrepreneur James Hickman, writing under Schiff Sovereign’s banner:
- It wasn’t until 1982 that the national debt hit $1 trillion — more than two centuries into the country’s existence…
- Think about that: it took more than [two centuries], even after adjusting for inflation into today’s dollars, for the US to accumulate $1 trillion in debt. The Civil War. World War I. The Great Depression and endless government “make work” programs. Multiple financial panics…
- (But) it took Joe Biden just 118 DAYS to rack up the most recent trillion dollars in debt.
Debt Goes Exponential
And so today a pearl of sorrow courses down my cheek… a mournful tear upon the ashes of the nation’s finances.
Its debt is assuming the nightmare form of a parabola.
That is, the business has assumed an exponential aspect.
Source: Reddit
If only the nation’s gross domestic product could maintain pace with its exponential debt.
It cannot… alas.
Its economy is a swaybacked draft horse overburdened with debt. It can scarcely gutter along under the weight.
We’ve Already Crossed the Line
Economists Carmen Reinhart and Kenneth Rogoff have given the numbers a good working-over.
Their researchers reveal that annual economic growth recedes 2% per year when a nation’s debt-to-GDP ratio exceeds 60%.
At a 90% debt-to-GDP ratio, growth is “roughly cut in half.”
What is the United States’ present debt-to-GDP ratio?
The answer is 124%. And the trajectory is upward.
Source: Statista
Thus the Congressional Budget Office reports that:
- Economic growth is projected to slow from 3.1 percent in calendar year 2023 to 2.0 percent in 2024… In CBO’s projections, economic growth remains steady at 2.0 percent in 2025 before settling at roughly 1.8 percent in 2026 and later years.
The Fast Track to Crisis
Debt — meantime — is lightning itself. It is an unbridled quarter horse under full steam.
And its lead over growth expands with each harrowing tick of the nation’s debt clock.
Today the dreadful time-teller reads $36.2 trillion.
Under present acceleration $37 trillion is perhaps three months distant.
How long until $38 trillion? Until $40 trillion? Indeed… until $60 trillion? The abovesaid Mr. Hickman:
- Right now, there’s no stopping this momentum. By the government’s own estimate there will be an additional $22 trillion added to the national debt over the next ten years under current plans; that will be $60 trillion by 2034.
$60 trillion — by 2034!
Thus the United States is ensnared in a debt trap. It cannot wriggle free.
Burning Money
Imagine a fellow…
Here you have a wastrel sunk impossibly in debt — credit card debt for example.
Spiraling interest payments begin to swamp him.
He must take on an additional credit card in order to satisfy interest payments on the original.
Yet he must soon take on another credit card… to service the interest on the card he previously took on… which he took on to service the interest on the first.
That is, he must borrow money to service previously borrowed money. Reduce the thing to its essentials and you will find:
The money he borrows is dead money. It lacks all productive purpose.
He is merely shoveling it into a roaring fire.
Before he knows what has struck him… he is undone… bankrupt.
Well friends, I have just described the government of the United States.
It is this reckless and improvident fellow — the fellow who opens new credit cards to service the interest on existing ones — who is the slave of nonproductive debt.
Productive vs. Nonproductive Debt
Debt — in itself — is not necessarily the scarlet sin of profligacy and wastreldom.
A man may heave himself into debt to expand his business, for example.
Should he succeed, his debt may be considered productive debt.
Yet the bulking majority of government debt is not productive. It is not merely unproductive, it is anti-productive.
Mr. Michael Lebowitz of Real Investment Advice:
- Unproductive debt… ultimately creates an economic headwind as servicing the debt in the future replaces productive investment and/or consumption…
- The U.S. economy is overly dependent on unproductive debt. Not surprisingly, secular growth rates have been trending lower for three decades. The massive amount of unproductive debt added in the last [few years] will only further reduce future growth rates.
For the first occasion in history, interest payments on the nation’s debt — largely nonproductive debt — will exceed $1 trillion this year.
They will likely increase year upon year.
“The Day of Reckoning for Unproductive Credit Is in Sight”
The nation is far along the ruinous path. How far down the ruinous path has the United States strayed?
Mr. Alasdair Macleod, economist:
- The day of reckoning for unproductive credit is in sight… Malinvestments of the last 50 years are being exposed by the rise in interest rates, increases which are driven by a combination of declining faith in the value of major currencies and contracting bank credit. The rise in interest rates is becoming unstoppable…
- The interest bill is already growing exponentially… Clearly, it won’t take much more of a credit squeeze and the increasing likelihood of a buyers’ strike to push the interest bill to over $1.5 trillion…
How will the United States afford the bread and circuses to which it is so luxuriantly accustomed?
This year’s interest payments already exceed this year’s Medicaid and offense spending — pardon me — defense spending.
And in approaching years… when the burden is weightier still?
The Cost of Every Pleasure
Concludes Mr. Macleod:
- The big picture is of an asset bubble which has come to an end. And by any standards, this one was the largest in recorded history.
It is my sincere hope this fellow is wrong. It is my profound fear this fellow is right.
“The cost of every pleasure is the pain that succeeds it,” the great Buddha supposedly said.
The United States has derived rapturous pleasure from the present asset bubble.
I quake in horrified expectation of the pain that succeeds it.
Regards,
Brian Maher
for Freedom Financial News
