Exponential U.S. Debt – How Much Will It Cost YOU?

U.S. Debt Goes Exponential – and It May Cost You Everything

From Peter Reagan for Birch Gold Group

As much as we tried to convey the fact that excessive national debt isn’t going to promote anything close to sustainable economic growth a couple of weeks ago

The debt picture is apparently a lot darker than we originally thought.

Turning to a recent Daily Reckoning article, we can see that at the present rate of debt accumulation the debt would reach a total of $50 trillion in less than five years:

Under present acceleration $50 trillion debt is 4.27 years distant. You will have it in Anno Domini 2028.

At the projected rate 2028’s gross domestic product would come in at $29 trillion – approximately. Thus the nation’s debt-to-GDP ratio would scale an economy-murdering 172%.

Based on this prediction, if it plays out, the United States economy has already entered the “black hole” we wrote about in 2018 (when the debt was “only” $20 trillion).

Right now, the national debt is officially an incredible $34.38 trillion and is still piling up fast, as you can see on the official graph below:

You could even make the case that the rate of accumulating debt is going parabolic.

A good question to ponder might be: What’s next?

Here’s where this debt madness is headed

In a controversial economic paper titled “Growth in a Time of Debt,” authors Carmen Reinhart and Kenneth Rogoff made some interesting discoveries that relate to our current situation here in the United States.

Below is the relevant portion of the abstract that claims government debt above a certain ratio to gross domestic product slows down the economy:

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private) – which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half.

The authors published this paper back in 2010, when the debt to GDP ratio was closer to 80%. Right now, it’s about 122% according to the official data:

If what Rogoff and Reinhart claim is accurate, then GDP could be heading for a severe slowdown as early as this year.

Credit rating service Moody’s lowered its outlook on U.S. government debt based on “weakening debt affordability”:

Moody’s stated two primary reasons for downgrading the outlook:
Debt affordability – rising interest rates have caused the cost of financing the debt to rapidly increase. Furthermore, without policies in place to address the underlying drivers of the debt, Moody’s anticipates that federal deficits will remain very large.
Political polarization – which will complicate the ability of policymakers to enact solutions to the nation’s fiscal challenges.

Way back in 2011, The National Review revealed concerns that rising debt would unleash historic inflation on consumers. In hindsight, those concerns turned out to be correct only 15 years later:

Most analysts today — even those who do worry about inflation — ignore the direct link between debt, looming deficits, and inflation. “Monetarists” focus on the ties between inflation and money, and therefore worry that the Fed’s recent massive increases in the money supply will unleash similarly massive inflation. The views of the Fed itself are largely “Keynesian,” focusing on interest rates and the aforementioned “slack” as the drivers of inflation or deflation. The Fed’s inflation “hawks” worry that the central bank will keep interest rates too low for too long and that, once inflation breaks out, it will be hard to tame.

Fed keeping rates too low from 2011-2022? Check.

Hard to tame inflation for the last three years? Check.

Is there a way out of this mess?

Answer: Yes, but it doesn’t look pretty, no matter how you look at the situation.

Interestingly enough, according to Michael Gayed, CFA back in 2020, one possible way out of the mess is to suffer through a period of hyperinflation or default to the Fed:

Are we on the road to hyperinflation to pay off this debt? It is possible. There just wasn’t enough policy space in interest rates before the crisis happened to boost the economy without printing extreme amounts of money. Look, it might not happen right away – in fact, we might see deflation first

Brian Maher, writing for the Daily Reckoning this year, has indirectly agreed with Gayed a short four years later:

Yes there is a way out. Yet it is very rough medicine — worse even than the ailment it would cure. That is the therapy of hyperinflation. Hyperinflation would rinse away all debt while it rinsed away all your money.

The long period of historic inflation since Biden took office is already bad enough. But if Maher is right, the inflation situation could get much worse.

Nobody likes the possibility of having their hard-earned dollars wasted on the “tax no one voted for.”

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital.
Warren Buffett

Biden’s only solution to this mess (thus far) is to try and raise taxes on the wealthy, as he put it, get them “to pay their fair share.”

But back in 2020, John Maudlin wrote in Forbes that he thought raising taxes on the wealthy wouldn’t help much:

If we double taxes on the top 25%, it would only bring in another $1.3 trillion, assuming people didn’t change their behavior.

That would pay for 2/3s of this year’s budget deficit.  With the debt piling up as fast as it is, that probably holds true now (no matter how much the Biden Administration wants to spin it).

So much for Bidenomics, and if things keep going like they are, it looks like a full-blown economic crisis could be brewing on multiple fronts.

Protect your savings from hyperinflation and U.S. debt madness

Could the U.S. enter a dangerous period of hyperinflation? Will the economy crash? Will the current rate of inflation become permanent?

All, or if we’re very lucky, none of that could happen in the near-term.

But everything presented above reinforces what the concept of counterparty risk means, and how nearly every financial asset (like the dollar) is someone else’s liability. So if you’re looking for a solution that also could be used as a hedge against any potential economic crisis that might be brewing right now, consider this…

Historically, gold at least keeps up with inflation – not only preserving your savings, but helping them grow.

Gold historically rallies during inflationary periods, based on data from 1971-2022

Physical precious metals like gold and silver have zero counterparty risk, have historically provided an inflation-resistant store of value, and they cannot be defaulted on. Have you considered diversifying your savings with just about the only financial asset that isn’t an IOU or a promise to pay? Just about the only financial asset that’s always been valued for thousands of years?

Crises, currencies and even nations, come and go. Physical gold and silver endure. That’s what makes them hands-down the world’s favorite safe-haven store of value.

If you’re as concerned about the U.S. government debt trap as much as I am, do something about it! We can’t fix the White House’s finances, but we can take steps to protect our own. No matter what you choose to do, make your decision soon. The combination of record demand from central banks and private investors like you has already started pushing prices up. Make your move before everyone else catches on and bids up prices even further…

You can learn more about the advantages of diversifying with precious metals like gold and silver right here.

2024, Featured, gdp, hyperinflation, us debt