National Debt hits $38 Trillion
The national debt just hit $38 trillion.
Just 2 months after we crossed 37.
Congratulations, Congress. You earned it.
38 large comes to $287,000 for every household in America. With another $140,000 in private debt.
My friend Richard Stern calls the national debt a second mortgage on every American. Now it’s a second and third mortgage.
Coming just 2 months after we crossed $37 trillion back on August 12, we’re now running an annualized $5.1 trillion dollars of additional debt.
Which is $40,000 in new debt for every household in America. So you could’ve bought a nice car. Instead, Congress put it on the tab.
For perspective, 38 trillion is roughly one third of all the M2 money in the world.
The Dominos Fall
So this mountain of debt is doing 3 things.
First, it’s escalating debt interest payments, which go on top of old debt — we borrow every penny.
Second, it’s raising interest rates across the board as federal borrowing crowds out everything else — business loans, personal loans, mortgages.
Third, it’s raising concerns among investors -- the people who buy all that debt -- whether government will actually pay it back.
The Peterson Foundation projects debt interest payments will rise to $14 trillion in the next 10 years. That’s $10 trillion more than the last 10 and rising fast.
This compounds the debt. In fact, the Congressional Budget Office now project a hundred forty dollars of debt by 2054.
Which is literally more than all the money in the world.
Will they Pay it Back?
And this takes us to the big question: Will they pay it back.
About 81% of voters say they care about the debt, but when they rank issues it comes around number 10 or 12, down with transgenders. Presumably because voters know in the back of their mind it’ll never be paid back.
It’s just numbers.
But it’s not just numbers to the investors who buy those bonds, including every major bank and pension fund. Their fear is already driving up interest rates -- bond yields -- which rise in lockstep with default risk.
And it’s driving the so-called debasement trade - gold and silver - as investors worry they’ll let inflation run to reduce the debt burden. So-called soft default.
This actually happened under Biden, where he added $8 trillion in debt but the debt to GDP ratio went down because of inflation.
In the extreme case, Weimar Germany used inflation to shrink their crippling national debt to the price of a loaf of bread.
Alas, Biden crashed out out before we got the loaf of bread.
Even worse is a hard default -- they just stop paying.
This happens in states all the time -- California, Arizona, and Illinois paid in IOU’s in 2008. New York did it in the 70’s.
It also happens in *countries. Usually basketcases like Venezuela and Sri Lanka but also in rich countries where some clever politician realizes voters like stiffing Wall Street and China.
That’s exactly what happened in Greece in 2012, where the prime minister decided to stiff the greedy German bankers who owned Greek debt.
This set off a default crisis across Europe, ultimately bailed out with 30% of the GDP involved. So in US terms equivalent to $6 trillion of bailout.
What’s Next
$140 trillion by 2054 is a comical number. But CBO says it’s coming. And it will almost certainly be defaulted -- whether hard or soft.
The easy fixes are cut spending or a balanced-budget amendment. Which won’t happen.
Meaning either we fix the money -- End the Fed with gold.
Or it’s a combination of periodic default and permanent inflation that’ll really make that gold, silver — or Bitcoin — shine.
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