U.S. Debt Has No Meaning Anymore (Until It Eventually Does)

The national debt currently looks like a runaway freight train.

Bullion.Directory precious metals analysis 19 June, 2020
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Wolf Richter summarizes the frenzied ascent in a recent article, appropriately calling it “debt out the wazoo”:

Trillions are now whooshing by at a breath-taking pace. The US gross national debt – the total of all Treasury securities outstanding – jumped by $1 trillion over the past five weeks, from May 4 through June 8, and by $2.5 trillion for the 11 weeks since March 23.

The debt, which had been growing by as much as $1 trillion per year since 2012, suddenly increased 2.5 times as much in a span of only 11 weeks. (See graph below for the spike.)

This dramatic increase comes along with a 5% increase in business debt and a staggering 29% increase in commercial loan debt – but we’ll set that aside for another article.

When you stop and think about how much of an anchor that $26 trillion in debt could represent for the U.S. economy if anything more goes sideways, it’s mind-boggling.

Byron King from Agora Financial sums up the state of the insanity…
 

“That $26 Trillion of Debt is Utterly Unpayable”

When the average person incurs debt, they pay the debt back plus a certain rate of interest.

Byron King thinks the U.S. is at the point “where even paying interest will be problematic.” Assuming this is true, at minimum, the U.S. could get stuck in a perpetual state of paying just the interest on its mountain of debt.

That, or a major economic shift could occur, as King alluded to: “We are on the verge of a dramatic reset of currencies across the globe, sooner or later (and I think sooner). Purchasing power will drop through the floor.”

In the meantime, the Fed has monetized some of the debt by increasing its balance sheet by almost $3 trillion since late March (see official graph below):

However, you can only “rob Peter to pay Paul” for so long before fundamentals have to factor into the equation.

Until that happens, the nearly straight up trajectory of the debt could continue. Wolf Richter predicts:

Q2 will likely add $3+ trillion in Treasury debt, plus the large amounts of business debts issued in April, May and June. All combined, total nonfinancial debts will approach $60 trillion by the end of June – having doubled in the 14 years since 2006. Debt out the wazoo.

Buckle up, because “out the wazoo” may only begin to describe what happens to the U.S. economy during the rest of 2020.
 

Don’t Let Their Debt “Games” Weigh Down Your Retirement

Theoretically, the Fed could keep printing money. The U.S. could go deeper and deeper into debt. Countries around the world could, theoretically, keep buying U.S. debt.

In the real world, the market for “buyers” of U.S. debt will eventually dry up. The dollar and your buying power could then crash as price inflation soars.

Who knows what else could happen, or exactly when it could happen. That is always an unanswered question, until it all happens.

But you should consider the possibility that the market will react negatively, and soon.

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