Gradually, Then Suddenly

‘most predictable crisis’ in history…

… the U.S. economy is resting atop a public debt exceeding $34 trillion, with its debt-to-GDP ratio sitting at around 120%. Perhaps not the blessing the Founding Fathers had once envisioned.

Now, alarm bells are beginning to ring with increasing frequency and volume.

Jamie Dimon says Washington is facing a global market “rebellion” because of the tab it is racking up, while Bank of America CEO Brian Moynihan believes it’s time to stop admiring the problem and instead do something about it.

Elsewhere The Black Swan author Nassim Taleb says the economy is in a “death spiral”, while Fed chairman Jerome Powell says it’s past time to have an “adult conversation” about fiscal responsibility.

And despite the issue being the “most predictable crisis we’ve ever had” according to former Speaker of the House Paul Ryan—a summary Dimon agrees with—it’s an item that isn’t yet top of the political agenda.

Zerohedge: Household Debt Tops $17.5 Trillion

12 Replies to “Gradually, Then Suddenly”

  1. Need to make more credit and send it out, our bribery is collapsing…
    Must be the inflation on Greenbacks over the decades.

    After a while, holding dollars for multiple decades don’t make sense as they’re hugely undervalued to your original investment.
    Taking a loss is better than further erosion from Treasury Bills.

  2. 2023 had spending exceeding revenue by $1.7 T (spending $6.1 T, revenue $4.4 T).
    Interest in 2023 was about $1.0 T. So a structural deficit of $0.7 T and interest cost of $1.0 T. Non-interest spending was about $5.1 T.

    Short term US yields are about 5%. On $34 T that is $1.7 T of interest per year. So the deficit is going to get worse as old borrowings run off and new borrowings begin. Interest cost has been rising rapidly and will continue to do so (doubled in the last 5 years).

    Inflation is the great enemy. To control inflation gov shoves up interest rates but it hammers gov books. Today, at 13% interest, it is 100% of revenue. When debt grows to $50 T, 9% interest is 100% of revenue. Soon you end up like Japan and cannot allow interest rates to rise. Jig is up soon enough.

    US needs to get rid of it’s structural deficit and pay some of its interest. Lose 40% of non-interest spending or double taxes (or a blend). Good luck!

    1. Canadian numbers:
      Debt $1.2 T. Deficit is about $0.04 T. Interest on the debt at $0.05 T and head up to maybe $0.07 T.
      No structural deficit but close.
      Non-interest spending at $0.44 T and revenue at $0.45 T.
      To keep it in check with interest rates increasing, you’d need to cut non-interest spending by 8% or raise taxes by 8% (or a blend).

  3. The reason that Powell says it’s impossible to have an adult conversation about the debt is because Keynesians like him will invariably seize on the idea that we need to raise taxes. None of them see anything wrong with out of control spending. They may quibble over the target of the spending, but that’s about it.

    Most so-called conservatives are reluctant to address the need for spending cuts. At the end of the day, they’ll just propose borrowing more. For the most part, the voting public is OK with that. They got a taste of the “good times” during the pandemic spending spree, and want more of that.

    This results in a political system dominated by two choices: the tax and spend party versus the borrow and spend party.

    1. Doesn’t Powell understand that this is … “The New Economy”? Where businesses don’t need to make profits, interest rates can fall to zero, and the government can throw as much money out of C-5M Super Galaxy’s as it can fly.

      Nobel Prize winning eCONomist Paul Krugman told me

      Zimbabwe … we have met thee … and we are wallowing in our own filth

  4. The Soviet Union lost the cold war because it was bankrupted by the West (USA). They couldn’t keep up with the spending and had too much debt.
    It looks like that too is the plan by the ‘New World Order’ clan: bankrupt the USA and knock it off its top dog perch. drug problemss, crazy immigration, ruin the energy industry, hobble the military, and increase all debt by any means possible. Etc, etc.

  5. Its nothing some windmills and solar panels cant cure.. A little war and maybe a flood of welfare migrants..
    In case you didn’t notice your government if promoting revolution, not fiscal responsibility..

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