The United States has a serious and perhaps lethal problem – debt. We are the people rolling over our credit cards to new credit cards with the introductory rate every month in order to avoid making the payments that we do not have the money to make. We have promised far more than we can deliver. As Charles Hugh Smith point out yesterday, “$20 trillion at 5% interest requires an annual interest payment of $1 trillion–one-third of all federal revenue. $30 trillion at 10% interest would consume 100% of all federal tax revenues, leaving nothing for all the programs, obligations and promises of the central state.”
This does not include what is conservatively believed to be an additional $80 trillion in debt that the United States owes which is off the books (debt the Federal government chose to stop counting in the 1960’s because it was politically inconvenient to do so). Over a hundred trillion dollars in debt, everything in. This is just out and out theft, stealing from your children and grandchildren and if you are young enough from yourself.
Note that this number does not include city, district, county and state debt.
Trump has released a budget plan that cuts the welfare state considerably. It has zero chances of passing. Even then the Trump plan takes ten years to just balance and that ‘balance’ does not include the debt which is off the books – debt which is now accumulating at an annual rate which exceeds the entire Federal budget itself. It is a bad joke. Yet if DC attempted to actually honestly balance the budget there would be guillotines – people want what they were promised.
We have created a fictional universe which is underpinned by our ability to (digitally) print endless quantities of dollars, introduce those dollars into the system as credit and place near zero interest rates on that credit. This system requires that interest rates never rise and the budget never balance or there will be riots in the street and revolution in the air. In the meantime zero interest rates continue to savage savers and pension plans thereby making it harder and harder to retire therefor placing greater burdens on the government and accelerating the problem. All equilibrium has been lost.
The ‘Let us just raise taxes” argument is null and void – the people making that argument vastly overestimate how many tax dollars are out there to be seized and vastly underestimate the actual debt. If you were to tax everyone making $200,000 or more per year and take everything they had – real estate, brokerage accounts, cars, art, everything – you would still be about $5 trillion short on balancing the actual accumulation of debt each year. There is simply no way to tax this to balance and any argument that you can tax this to balance is disingenuous in the extreme.
Where does this all end? The most likely out come is the monetization of the debt, i.e. printing money to pay bills as they come due. I am no soothsayer but monetizing the debt will be universally unpopular with everyone excepting those who would be facing guillotines if they cannot pay the bills. Monetizing the debt will not last long. After that? Probably something akin to guillotines. There will be endless unhappy people.