When debt increases faster than income, as it has for many years in every country of the world, it means we are borrowing money we cannot and will not repay.
This will not end well.
The end game will probably be a civil society destroying fireball of inflation and/or deflation.
Every day that we choose to ignore the elephant in the living room means we increase the pain and harm that will eventually be experienced.
We are climbing a cliff with a crumbling foundation. A wise person would reverse direction and climb down.
From ZeroHedge today…
US Ends 2016 With $19.98 Trillion In Federal Debt; Up $1,054,647,941,626.91
Putting this increase in context, during Barack Obama’s time in office, federal debt has increased by $9,349,949,902,134.72, or 88%, rising from $10,626,877,048,913.08 on Jan. 20, 2009, the day of Obama’s inauguration to $19,976,826,951,047.80 on the last day of 2016.
That equals $78,553.84 for each of the 119,026,000 households in the country as of September.
In fiscal year 2016 (which ran from October 1, 2015 through September 30, 2016), the government’s total interest bill was $432,649,652,901.12.
This works out to be an average interest rate of 2.204%, according to the Treasury Department’s most recent data from November 2016.
But it wasn’t that long ago that interest rates were MUCH higher.
Back in January 2008, for example, the average interest rate on US government debt was 4.785%.
And even that was considered quite low by historical standards.
Today’s rates are less than half that level. And it’s reasonable to expect rates to increase. In fact, that’s already happening.
In late December, the Treasury Department sold $28 billion worth of 7-year Treasury notes at a yield of 2.24%.
2.24% is still pretty cheap. But it’s nearly double the rate from just six months ago.
Back in July, the 3-month T-bill rate was just 0.02%. Now it’s more than 25 TIMES greater at 0.51%.
This is a significant increase in a short period of time.
If the government’s average interest rate returned to 2007 levels, they would be spending nearly $1 trillion each year just to pay interest.
That’s more than they currently spend on Medicare or the US military.
So as you can see, the US government is not only increasing the debt level at an astonishing rate (with absolutely nothing to show for it), but they’re going to have to start paying a LOT more interest.
Remember that they already borrow money just to pay interest on the money they’ve already borrowed.
So higher interest rates mean that they’ll have to borrow even more money to pay interest, which will cause the debt to go up even higher, requiring them to borrow even more money to pay interest.
It’s a never-ending cycle that only ends one way: default.
The idea of ‘growing their way out’ of debt is a total fantasy.
And then they conclude with the obligatory denial…
The sky is not falling.
In fact, despite this debt madness, we’re living in a world full of incredible business, investment, technological, and lifestyle opportunities.
It’s truly an incredible time to be alive.
Enjoy it while it lasts because it won’t.
9 thoughts on “Debt Up(date): This Will Not End Well”
3M LIBOR Tops 1.00% For First Time Since 2009
Debt is an endlessly fascinating topic. Here is a different spin on the topic.
If Trump succeeds at increasing growth then interest rates will rise which will cause something really bad to happen.
If Trump does not succeed at increasing growth then debt will continue to increase faster than income until something really bad happens.
Rock meets hard spot.
You Can Have One or The Other – But Not Both
The Bank of Canada is also concerned, in a polite Canadian way…
Financial System Review – December 2016
Global Debt Hits 325% Of World GDP, Rises To Record $217 Trillion
USNews: Borrowing on Borrowed Time
The Chinese Chart That Keeps The IMF Up At Night
By Tim Morgan: Looking ahead
This is the most insightful and important article in this post.
Well worth your time including the comments.
By Tim Morgan: Perfect Storm gets nearer
Another must read.
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