It’s just a matter of how long the U.S. Government can stall before the bill finally comes due. Let’s start with the math. The U.S. national debt now exceeds $31.5 trillion. On the day Joe Biden took office, the average interest rate on this debt was around 1.61 percent and interest payments were a mere $549 billion a year. Since then, higher spending and higher interest rates have accelerated the problem at breakneck speed. As older bonds with the historic low interest rates mature and disappear, they are replaced with the higher interest rate bonds now being issued. According to the St. Louis Federal Reserve, the annualized interest rate cost in December reached an eye-popping $853 billion.
The older, lower interest rate bonds have kept the average at around 2 percent, still much higher than normal. Econofact.org estimates that “most of the current government debt will mature within the next three years,” which means that the federal government will soon be financing most of its $31.5 trillion debt at market rates-which are approaching 4 to 5 percent. We’re looking at a total annual interest bill of over $1 trillion in the very near future. By comparison, the total tax revenue collected by the U.S. government in 2023 is projected to be $4.6 trillion. As soon as next year, interest will consume approximately one-fifth or even a quarter of all government revenue.
That’s not the bad news.
The bad news is that we’re fast approaching the point at which we have to accelerate borrowing just to keep up with the interest payments. The treasury has to find buyers for its whopping $1.4 trillion in deficit spending. And for now, the Federal Reserve is saying it will not buy more treasuries, even to replace the maturing treasuries that roll off its portfolio.
Until recently, the dollar’s resilience made it possible for the government to effectively fund operations with money from the printing press. But inflation, the offspring of deficit spending, has begun to collect its due from the public. As interest payments claim increasingly more and more of the budget, the government must borrow more to make up the difference, thus accelerating the growth of the debt and inflation. This leads to still higher interest rates which lead to higher interest payments requiring even more borrowing
When you have to borrow money to pay interest on existing debt, you’re in big trouble.
Entitlements such as Social Security, Medicaid, and Medicare, make up the vast majority of the budget. Every year, the bills get bigger as drugs get more expensive and the Social Security Administration indexes existing payments to keep up with inflation.
It’s hard to say exactly when or how the federal budget will hit some sort of wall. But the scenario I consider most likely is that inflation will reignite as the Federal Reserve backs off its interest rate increases. Get ready to go long for single-digit inflation.
Unfortunately, the same geniuses who enabled politicians to run up these irresponsible debts will also be in charge of helping politicians set inflation-fighting policies. For the Left, the go-to tools never work but will always be tried because of political ideology. These include wage and price controls, tax increases, and criminalizing market pricing as “price gouging” or “hoarding.” As taxes go up and the government attempts to regulate its way out of inflation, economic output falls. If the fall is drastic enough, it can have a counterinflationary effect. But only after inflicting extreme misery on working Americans.
In the 1980s, Reagan’s formula of low taxes, less regulation, and higher interest rates created the conditions to dramatically reverse the Carter economic malaise, an era often compared to the present. While really smart economists will argue that the economy is totally dependent on government spending, this is sophistry. Government spending degrades efficient and wealth-enhancing transactions. The government gets its money by taking value out of a legitimate economic transaction and redistributing it to a political objective. Low-interest rates encourage scams and enable marginal businesses to chug along.
Profit, not borrowed money, is the key to economic revival. Produce things that legitimately add to the stock of goods and services, and you will increase national income. Shift money around with loans and government grants, and you will idle otherwise productive resources as people chase free money.
Economic freedom isn’t about helping the rich. If anything, the opposite is true. During the economic expansion that followed Reagan’s reforms, income inequality fell. The percentage of low-income houses fell from 27 percent in 1980 to 25.3 percent in 1989. In contrast, economic inequality increased under Obama’s economic policies. The dirty little secret of leftist economic theories is that they benefit powerful people who are in a position to influence economic meddling. Who do you think got most of the COVID relief money?
Historians will scratch their heads and wonder why Americans spent so much time obsessing over Ukraine and gender identity while the debt piled up to catastrophic levels. Unfortunately, the people who govern us simply refuse to adhere to basic rules of fiscal discipline. Through ignorance or craven corruption, they continue aggressively driving up debt to unprecedented levels. These are civilization-ending debts and the people incurring them for the sake of feel-good social priorities will be justifiably cursed when the consequences finally come.
I’m not sure I understand the purpose of the Town Square when, given this example, it appears nothing more than reprinting past articles. I don’t mind discussing the article’s premise, but will it drive further commentary/discussion than the original?
I admit it’s been a week or so since I last visited the AG+ because up until then I was the only “civilian” that had posted a topic (and got zero response–meaning, either I had posted boring topics or no one was interested in playing). Suddenly AG+ has dozens to choose from all generated by the editors at AG save one posted by Michael who said he would give this forum a try.
Now, as to the topic at hand-------
We’ve seen examples of countries saddled with more debt that can only be repaid by the taking on of even more debt. Many come to mind: The Weimar Republic, Greece, Argentina, Sri Lanka, Venezuela, and so on. The impression I get with our government is they think it can’t happen here, but it can AND it is happening. I think the reason they believe that is because the dollar is upheld by being the world currency for settling debts. To quote Bob Dylan, “But the times they are a changin’.” The BRICS nations are quickly setting up their own system backed by gold and oil which, I believe, will be more stable and more attractive. What then? To answer, I think we will very quickly learn what it’s like in the countries I listed earlier.
Domestic confidence in the dollar is falling. The folks at the FDIC are already saying the bank runs and Bail Ins are just around the corner----citing a “when” and not “if” scenario. What will happen to small businesses across the nation when the money they had in the bank for payroll (those with deposits above two hundred fifty thousand dollars) has limited accessibility (if given a simple haircut) or NO accessibility in the event the bank takes it all and issues a “pennies on the dollar” IOU to be paid at some future date? That is when the real chaos of collapse begins. We won’t have to wait when government borrowing exceeds other nations’ willingness to buy US bonds.
Banks have also been lowering the numbers of ATMs across the nation. In Greece and other places, the banks limited the amount of money that could be withdrawn in a given day. And that was before CBDCs. If all US currency is deemed digital with no paper currency issued—however worthless—and at only select locations, disaster is certain to happen.
I pity the millions of folks wandering around fat, dumb, and happy totally unaware of the financial disaster just around the corner. So many to blame, so many unaware, so few prepared.
Is THIS the replacement for Disqus? Hmmm…not sure I care for it.
The only thing I thought attractive was the Town Square feature. On it, members could post their own original articles/thoughts and others could comment on them. I haven’t been commenting as often lately at regular AG because many of the articles are just repeats of what has been written before. With that, how many times could we (also) say the same things we’ve said dozens of times before?
For all the headaches of Disqus, it beats this. Or maybe AG will phase in another comment section or offer something proprietary.
AG went from the sublime to the cursed. And I reasoned that supporting them would have improved things. All of us can be fooled but the people with money will not be fooled twice.