I lost count of how many times the United States government has kicked the debt ceiling mandate down the road following the Great Financial Crisis (GFC). The most recent national debt crisis prior to today’s was in 2021 when Yellen pleaded with Congress not to risk an “unthinkable” default. Hedge fund manager Stanley Druckenmiller hit the nail on the head this month during a speech at the USC Marshall School of Business. Anyone who keeps track of this debt apocalypse understands that we can never pay all the debt back.
Druckenmiller Warns US Debt Crisis Worse Than He Imagined… “U.S. fiscal problems go far beyond debt-ceiling battles… ‘the fiscal recklessness of the last decade has been like watching a horror movie unfold… today looks much worse than I had imagined 10 years ago… but honestly, all this focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there’s a 200-foot tsunami just 10 miles out.’” – Bloomberg, May 2, 2023
Here’s an excerpt from Part 1:
“Remember June 2017, when Yellen muppet’d us all by proclaiming another financial crisis in our lifetime was unlikely when the national debt was at $19.8 trillion? I opined about that gaffe with ‘Yellen Flipped to a Financial Crisis Trigger in Your Lifetime’ in Dec. 2018 when she backtracked on crisis divination… Yellen has returned to public service in the financial arena for the new Biden administration as his Treasury secretary. This time she pulled a catastrophe trigger (‘Yellen Pleads with Congress to Raise Debt Ceiling or Risk ‘Unthinkable’ Default’’) instead of the crisis trigger she owned as the Federal Reserve chair. She cannot blink in reverse during this pandemic era because ‘The Naked Emperors’ Great Reset’ (Part 1 and 2’s Twitter thread) brokers will not allow her and the Fed the luxury or time to pull a Jean-Claude Juncker (‘When it becomes serious, you have to lie’) upon awakened plebeians. The globalists know exactly what they’re doing and told us how via Klaus Schwab from the World Economic Forum (WEF).” – TraderStef, Jun. 2021
It took the U.S. just over 200 years to surpass its first $1 trillion of debt when President Reagan was in office. It increased significantly when the war on terror launched after 9/11, then quantitative easing (QE) money printing due to the 2007-2008 Great Financial Crisis, and the national debt skyrocketed while interest on the debt doubled in less than three years during COVID pandemic lockdowns. At the end of 2Q22, the national debt was $30.6 trillion. Media headlines about debt ceiling battles on Capitol Hill typically focus on the national debt, which is now $31.8 trillion (yearly data since 1929) and 121% of GDP, and there’s an “X-Date” for when the federal government is expected to default on its debt obligations in full.
The mainstream media has no interest in highlighting the enormous interest on the debt that’s spiking to just shy of $1 trillion annually and the roughly $200 trillion of off-the-books unfunded liabilities. Laurence Kotlikoff (listen to his recent Harvard podcast) has been ringing the irrational fiscal policy and unfunded liabilities alarm bell for well over a decade.
“Off The Table” Puts Our Kids On The Hook… “The official debt, on which Congress and the press is now fixated, is a sideshow. It leaves off the books all future obligations to pay Social Security and Medicare benefits, maintain the nation’s defense, repair the highways, pay for the President’s lunch — you name it. According to the Congressional Budget Office, official debt is now $24.3 trillion. That’s miles below Social Security’s $61.8 trillion or Medicare $103.4 trillion unfunded liabilities, to reference just two off-the-books obligations… Our country’s fiscal gap is 7.7% of the present value of all future GDP. Closing it requires an immediate and permanent 41.3% increase in all federal taxes, an immediate and permanent 35.3% cut in all non-interest federal spending, or a combination of these horrendous alternatives… There are ways to avoid a fiscal disaster. But none of them will arise by taking things off the table. At this critical juncture in our nation’s history, we need to think big or watch our kids head to countries that are solvent.” – Laurence Kotlikoff, Mar. 2
Don’t forget about the Federal Reserve’s $8.5 trillion in balance sheet assets with a majority in Treasury debt that barely budged since initiating quantitative tightening (QT) monetary policy and the unprecedented speed of interest rate hikes since March of last year.
Adding more pain to this situation are the many nations around the world working on payment alternatives to the dollar (aka “de-dollarization”) that accelerated after unprecedented sanctions were imposed against Russia.
Bill Campbell at DoubleLine: De-Dollarization Impact – Yahoo Finance, May 12
House Speaker McCarthy said today he is optimistic that congressional negotiations could reach a deal to “raise or suspend” the debt ceiling in time to hold a House vote on it next week. Don’t trust anything politicos have to say lately with the current state of affairs in D.C., so prepare accordingly. JPMorgan CEO Dimon says the bank is convening “war room” meetings up to three times a day to discuss the implications of a potential U.S. debt default. “We’ve got to be very careful about getting close” to a default, which could cause a financial panic.
In the meantime, have you been working on your financial independence and retire early (FIRE) strategy? Loan shark John Goodman gives some sage advice while chatting with compulsive gambler Mark Wahlberg, who was looking for more gambling funds to pay off other loan shark debts.
“Get a (modest) house with a 25-year roof, an indestructible Jap economy car, put the rest into the system to earn 3-5% to pay your taxes, and that’s your base, get me?”
Plan Your Trade, Trade Your Plan