Why the US debt could hit $100 TRILLION
This is my first post so go easy on me, but here’s my thesis:
So, you’ve heard folks buzzing about U.S. debt skyrocketing, right? Imagine this – if we piled up all of America’s debt in hundred dollar bills, we’d get thirteen towers as tall as the Washington Monument! Yikes! Now, we’re knocking on the door of a whopping $32.2 trillion and it feels like we’re speeding towards $100 trillion. Let’s break it down.
First up, it’s a pattern thing. Look back to 2000. During the 2001 recession, our debt didn’t really budge – it was chill. But once we bounced back from that downturn, Uncle Sam started splurging, so debt started climbing. Then came the Global Financial Crisis (GFC), where Uncle Sam tossed cash around like confetti, making our debt chart look like a cliff.
Fast forward to the next pothole, the COVID-19 era, and you won’t believe what happened. Our spending leaped from around four trillion to a crazy 10 trillion! And did we tighten the belt after? No way! The spending party kept on rolling, steeper than before.
But wait, there’s more. Have you noticed the yield curve’s looking a bit upside down right now? That’s usually a ‘here comes a recession’ signal. Given what’s happened during the last two decades, the next recession could lead to an epic spending spree.
During the GFC, our debt grew by four trillion. With COVID, it more than doubled to 10 trillion. So, chances are, the next crisis could see us splashing out even more, maybe 15 trillion. And you bet your bottom dollar, once that crisis is over, we’ll keep spending like there’s no tomorrow, driving that debt mountain even higher.
Taking a peek further ahead, don’t be surprised if we face another financial shake-up in the next five years. If history’s any guide, expect that debt to climb even steeper. All aboard the debt roller coaster!
Alrighty, so history is our guru here. It’s like an addiction – the more you use it, the more you need to get the same kick, only here we’re talking fiscal deficit spending, not narcotics. The U.S. government debt keeps soaring. If we’re following this trend, it’s not ridiculous to think the U.S. debt could be $50 trillion in three years, or even $100 trillion in five to seven years. But hold up, it gets spicier. This isn’t even considering the inflation we’re probably going to see this decade.
Now, I hear you asking, “Who’s going to buy all this debt?” Time for a history lesson. Let’s hop in the DeLorean and go back to 1944 – the Bretton Woods Agreement – when the dollar became the world’s reserve currency. The economist Robert Triffin pointed out a big ol’ issue – a dilemma, if you will. If the global economy needs dollars to keep growing, the U.S. will have to run massive trade deficits to spread those dollars worldwide. This, though, could cause our manufacturing to go down, which isn’t ideal.
But here’s the kicker. Politicians were like, “Okay, so if we spend more, the global economy will grow and, uh, we get to spend more?” Boom! Decision made. Crank up those trade deficits, spread the green, but at what cost?
Next, let’s consider the fact that global GDP has been shooting up since 1940. Given that a lot of global transactions are done in dollars, the U.S. just can’t run a big enough deficit to supply the global economy with the dollars it needs to grow at max speed. Enter stage left, the Banksters with their Eurodollar system – creating dollars by lending them into existence outside the U.S. It’s like a magic trick, right? Except the magic is built on trust and collateral, mainly treasuries and things like mortgage-backed securities.
So, in a nutshell, we’re facing an economic forecast of skyrocketing debt, inflation on the horizon, and a banking system juggling dollars like a circus act. Buckle up, folks! This ride’s getting interesting.
Our whole financial system is propped up by things called treasuries (just a fancy name for government debt), which are seen as super secure and trustworthy. These are like the gold standard of collateral.
But back in 2008, we had a bit of a disaster when these things called mortgage-backed securities turned bad. That spiked the demand for treasuries, ’cause folks were hunting for something secure to put their cash into.
Now, here’s the twist: what if our global economy slows down or even shrinks? Normally, that would mean less demand for treasuries. But we live in wacky times. If the economy tanks, banks start to trust each other less and they want more collateral – which means more demand for treasuries. So even if we’re in an economic slump, the demand for these things could still keep going up.
Now, you’re probably asking, “But how are we gonna find a buyer for trillions more in government debt?” Well, enter stage right: the Federal Reserve. They can step in and buy up whatever the market doesn’t want. Just like a magic trick, they could soak up most of the debt.
Okay, shifting gears, there’s this old economic idea called Say’s Law, basically saying that production creates its own demand. You make stuff, people get money, they buy more stuff, and the wheel keeps turning. But what if, instead of production, it’s destruction that creates demand? Stick with me here.
Imagine the government issues a load of new debt, and as a result, interest rates go up. That could create a bunch of problems in the real economy, like job losses or a crash in commercial real estate. But all that economic chaos would make people run back to the safety of treasuries, pushing their price back up and interest rates back down. It’s kinda like a safety valve for interest rates, they can only go so high before the demand for treasuries pushes them back down again.
Plus, if we hit an economic crisis, trust between banks would go down, leading to even more demand for treasuries. In the end, the government could rack up $100 trillion in debt, and there would still be demand for it. And through all this mess, the Fed would be buying up debt like there’s no tomorrow.
Of course, this could lead to a surge in prices for everyday folks (that’s inflation). Weirdly though, the value of the dollar could still go up against other currencies, even as it’s losing value against regular goods and services at home. Confusing, I know. But hey, that’s economics for you!
- 1 Reply
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Chips I agree with the ,dot.com bubble and the events that happened in 2001 with the World Trade Center, had similar economic impact to the markets as covid. Although I see how your thesis how the government can easily grow a 100 million debt dilemma. I believe that it’s not entirely bad because debt tends to create wealth. We can both agree no matter which circumstances go against the USA the debt deficit will continue to grow. From your perspective how should the new debt impact the country and possibly the world in making a more efficient, environmentally friendly and prosperous for the everyday citizen which is the core of a nation? Reason I ask is because I see how the debt can significantly rise with the evolving industries in fintech, agriculture, biomedicine, transportation, space exploration, AI development, infrastructure, etc.
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