Loading ...maybe the US debt is not an existential problem
This will be a test…for most of us…our core belief is that we are Doomed by our Debt…Mad Max is inevitable …If you relish this belief and refuse to consider it may be flawed…then STOP do not read on
……If you are willing to consider a challenge to this core belief then read in the first comment
A BIG BEAUTIFUL BILL
“Musk has said that the bill’s spending would increase the “already gigantic budget deficit” and “burden America citizens with crushingly unsustainable debt”.
None of that is true. The US Federal Deficit is not a threat to the future sustainability of the US Government”
Gerry Brady Boom Financial
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GREAT CONFUSION IS NOT HELPFUL IN FINANCE AND ECONOMICS
Two subjects are the source of great confusion in finance and economics – Hyperinflation and National Debt. The US Dollar is also often a part of the confusion.
Many people who pretend to be finance or economics experts seem obsessed with these subjects and often combine them to fantasize a scenario where the “US Dollar collapses because there is too much national debt and then hyperinflation happens” …. (and then we all die).
I know one rather famous economic commentator who has made an entire career from this scenario. I first read an article by him around 32 – 33 years ago that encompassed these elements. And, since then, he has written countless articles that essentially have the exact same narrative. Interestingly, the narrative never comes true but that hasn’t stopped him using it and it hasn’t stopped his fame.
MUSK IS LATE TO THE PARTY
Musk is late to the party. His concerns have been expressed by these many “experts” for 3 decades but the “collapse” scenarios have never materialized.
Readers may have noticed that the US has not “gone bankrupt”, the US Dollar has not “collapsed” and “hyperinflation” has not happened during those 30 years.
For some strange reason, there is a rather large audience for fearful finance and economics stories. In current circumstances, where the media and the political class are determined to keep everyone anxious and fearful, it moves from just fanciful fear to ideas of catastrophe. But, quite frankly, such scenarios are science fiction. They make for fearful narratives that sell newsletters, books, conferences and cruises to ignorant followers. But they can never be the truth.
Why?
I cannot imagine such a scenario occurring because we all live in the Global US Dollar Empire …. or, more correctly, a Global Eurodollar Empire where US Dollars exist in great abundance outside the shores of America and are used preferentially to settle trade and capital movement contracts because they are convenient and available in very large volumes. They are the oxygen of global commerce.
Those Eurodollar volumes are not created inside the USA. They are not “exported” by the US. In other words, the US banking system does not create them and the US central bank, the Federal Reserve, has no control over their creation or existence. They exist on the ledgers of offshore banks (often operating in Tax Haven jurisdictions) and central banks. And they can also be found on the ledgers of conventional commercial banks inside national jurisdictions which makes them even more convenient to use.
Remember – Eurodollars are US Dollars that exist offshore on the ledger of any bank that is NOT inside the USA. So — a US Dollar resident on a Japanese bank ledger in Japan is still called a Eurodollar.
This is essential to understand – the Eurodollar Empire is there because bank loans in any nation can be denominated in any currency and, as long as there is a willing borrower and a bank willing to extend credit to that borrower, then that credit contract can be created using the US Dollar as the settlement currency.
Such knowledge blows away people who think that the “evil witch” Federal Reserve is full of “nasty central bankers” who create huge amounts of fresh new US currency willy-nilly and without a borrower. They also see the Federal Reserve as being in charge of the entire global financial system and imagine that the Fed floods the world with such currency on a regular basis. None of that is true.
HYPERINFLATION IS CURRENCY COLLAPSE – AND A SIMULTANEOUS HYPER-DEFLATION ACCOMPANIES IT
HYPER-INFLATION IS CAUSED BY LOSS OF TRUST IN A NATIONAL CURRENCY — AN ALTERNATIVE CURRENCY MUST ALWAYS BE AVAILABLE
So – let’s think about Hyperinflation first. Hyperinflation is currency collapse. It is not just high CPI inflation that suddenly goes to stratospheric levels inside a national economy. It always happens inside nations where a readily available alternative currency exists in competition with the National currency. In such a situation, if the people lose trust in their national institutions such as the national government and national banking system, then they may decide to avoid the banking system and use an alternative currency to settle their many transactions. However ………
Hyperinflation CANNOT occur inside the USA because the people have no readily available alternative currency. Only US Dollars are available.
BOOM states categorically that any government which allows an alternative currency to circulate freely as a possible alternative to their National currency is actually committing treason and national economic suicide. The best example of that is Argentina where the US Dollar has been tolerated for decades as an alternative to the national currency, the Peso. But many other nations are at risk from US Dollar circulation.
Let’s go further with this theme. It is BOOM’s view that any government that tolerates the circulation of physical US Dollars, Bitcoin, Crypto Tokens or Stablecoins inside their borders (masquerading as money) is actually treasonous and is potentially inviting great financial danger into their economy. Why? Because Bitcoin, Crypto Tokens and Stablecoins are actually US Dollar Proxies (more often than not).
In other words, I regard them (and physical US Dollars) as potential weapons of mass financial destruction to any civil society outside the USA.
Remember here that the idea for Bitcoin came from a Paper titled “HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH” released on October 31st, 1996 and authored by employees of the United States National Security Agency — the NSA.
Laurie Law, Susan Sabett, Jerry Solinas — National Security Agency Office of Information Security Research and Technology — Cryptology Division — 18 June 1996
Source:
https://groups.csail.mit.edu/mac/classes/6.805/articles/money/nsamint/nsamint.htm
SIMULTANEOUS HYPER-DEFLATION
There is another aspect of Hyperinflation crisis (national currency collapse) that is almost always overlooked, never mentioned or considered. In such a crisis, while prices of goods and services are skyrocketing in the national currency, they are falling equally as fast in the alternative currency. So in that alternative currency, the prices are in a Hyper-deflation.
In other words, you should never discuss Hyperinflation without mentioning the simultaneous Hyper-deflation which is occurring.
THE NATIONAL “DEBT” IS NOT A PROBLEM
I have written a number of times over the last year concerning the so-called US National Debt “Crisis” that Elon Musk is so worried about. Elon may know how to build sophisticated, electric golf buggies (otherwise known as Tesla EVs) and he may know how to build rockets. He may even know a little about digging tunnels and very little about intra-brain sensors (which is a technology that is at least 25 years old). But he does not understand national finance or national economies. He has spoken of America “going bankrupt” because the National “debt” is too great and because US government expenditures are “out of control”. That is ridiculous.
Of course, he predicts a coming catastrophe.
see
I have explained that this is not a catastrophe in the April 20th edition. Let’s review .
NATIONAL DEBT IS NOT A PROBLEM
In regard to public, national government debt, the key thing to understand is that governments don’t go to commercial banks for bank loans. And they don’t offer collateral assets as security. In a sense, they are immortal beings, not fragile humans. They offer securities (issued by the Treasury) which offer a return to investors for a contractually agreed period of time. When that time expires, at the Maturity date, the government returns the capital to the investor. Rarely, a government defaults on the contract. But that is very rare indeed. BOOM also explained all of this to Elon Musk in the editorial dated November 3rd, 2024 —
ELON – NATIONS DON’T GO “BANKRUPT” — TOTAL SOVEREIGN DEBT DEFAULTS (EXCLUDING GREECE) OVER 40 YEARS ARE EQUIVALENT TO JUST 0.1 % OF TOTAL GLOBAL DEBT
Quote: “Nations do not apply for loans from banks to fund their deficit spending. They do not collateralize their assets in bank loans. They issue Treasury Securities to willing investors. In rather rare circumstances, usually in developing nations with unwise economic management, some nations can default on their Bond contracts although this is extremely unlikely for the US Government.
Banks do not put nations into “bankruptcy”. Nations don’t “go bankrupt”.
Over the last 40 years, the total of top 10 Sovereign Debt Defaults was almost $ 600 Billion. However, almost half of that was Greece’s default in March 2012. So the majority of defaults in that time period (excluding Greece) totals approximately $ 330 Billion.
Total Global Debt (public and private) exceeds well over $ 300 TRILLION. So, the sovereign defaults (excluding Greece) over 40 years are equal to just 0.1 % of the total. If we include the Greek fiasco, it is about 0.2 %.”
THE NATIONAL DEBT
Currently, there is much concern circulating about the National Debt of the United States. Elon is not alone in his concern.
The current US National Debt is US$ 37 Trillion and that number can be seen growing in real time at The US Debt Clock website and at Debt to the Penny (a website produced by the US Treasury and updated Daily).
To most people, that sounds like an extraordinary amount of Debt. Many fear that “the Fed must be printing too much money” …. and “hyper-inflation will come” …. and “the US Dollar will collapse”.
But the fact is that NO NEW MONEY is created to invest in government Treasury securities (except in a rare QE program by a central bank).
It is old money that is almost always used to buy Treasury securities and fund the government’s deficit spending programs (except in rare QE programs from the Federal Reserve). That old money was, in fact, created previously, originating in commercial bank loans (98 %) or in the issuance of physical cash by the Treasury (2 %). So – increased Government Debt does NOT increase the money supply volume (except in a rare QE program). Private debt is the main cause of increased new money supply volumes.
WEIGHTED AVERAGE OF US FEDERAL DEBT PORTFOLIO
The Weighted Average of US Federal Treasuries varies over time but has been around 5 years for long periods. From 1980 to 2021, it averaged 60 months. Currently, it is around 71.8 months (just below 6 years).
This means that the national debt can be “paid off” (retired) every 6 years. But that would be a foolish thing to do. So it won’t happen.
DEBT TO GDP RATIOS ARE MISLEADING
Sovereign Debt to GDP Ratios are calculated using all of the debt compared to just one year of GDP. This is a distorted view. The US Debt to GDP Ratio is often quoted as being “terrible” at 122 %. However …… that ratio is calculated by comparing Total Debt to just one year of GDP.
It would make more sense, surely, to compare 6 years of debt to 6 years of GDP. That reduces the US Debt to GDP ratio from 122 % to just 20 %.
And if you exclude intra-governmental holdings, it reduces further to about 16 %.
A 16 % Debt to GDP Ratio doesn’t sound so bad, does it?
HOLDERS OF US FEDERAL DEBT
Who invests in US Treasuries? This chart explains the situation in 2021.
From the tic data, we can see that Foreign Holders currently hold $ 8,817 Billion ($ 8.8 Trillion). That is 24 % of the current total. So, foreign ownership has reduced considerably since 2021.
China holds 2 % and Japan holds 3 %. China cannot “control” the US Federal Debt, cannot “crash” the US Dollar and cannot threaten it in any way. Rapidly selling their holdings would be a financially foolish thing to do and the Chinese are certainly not financial fools. If they did that, they would wind up with a huge cache of US Dollars. Those US Dollars would then have to be invested or exchanged for other currencies, boosting the US Dollar Empire dominance.
You can’t eat US Dollars (!). You can’t disappear them either.
So — US PUBLIC DEBT IS NOT A PROBLEM
There are two potential bad consequences to excessive governmental over spending.
Bear in mind that excessive spending can mean excessive in volume or excessive in speed of spend. The potential (bad) consequences are
(1) out of control CPI inflation and (2) currency collapse.
Neither applies at present. And remember, federal government deficits are (generally) NOT funded with any new money.
US Government spending can be compared to GDP. This graph shows that it is not currently “out of control”.
So – calm down about the “terrible” problem of US Government debt.
Call Elon — and explain. BOOM is waiting patiently for his call.
US DOLLAR FALLING SINCE TRUMP INAUGURATION
The US Dollar has been in decline ever since Donald Trump was sworn in as President. Here is the Invesco US Dollar Index Bullish Fund (NYSE Code UUP) that shows the downtrend since late January/early February. The time span of the chart is 12 months.
BOOM assumes that this is the result of Federal Reserve activities. So — we have the Fed driving the Dollar down ….. which will tend to increase CPI inflation …. while they are fighting CPI inflation with high interest rate settings — go figure.
UUP —The Fund is designed for investors who want a cost effective and convenient way to track the value of the U.S. dollar relative to a basket of the six major world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc (collectively, the “Basket Currencies”). The Index is a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange (USDX® futures contracts).
The 5 year chart shows another story altogether — one of continued US Dollar strength.
US DOLLAR DOMINANCE
And here is the 18 Year Chart from 2007 — US Dollar Dominance is obvious
So ………
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Fully’s Comment
Lots to digest here BUT taken at face value this is GREAT NEWS …cross this one off the Worry List
and Laugh the next time you see a Gloom and Doom Debt Apocalypse headline
…
It’s been a good day
Nukes are a fairy tale and so is the US Debt Freakout and Trump always wins
Can you handle all the good news …
🙂
Thanks Fully. VERY interesting points if view.
You restored my faith in Humanity PK
Just knowing that at least One Goldtenter is willing to consider that we may have been misled ( Blind leading the blind) …makes this all worthwhile
Cheers my friend
Fully
“The 5 year chart shows another story altogether — one of continued US Dollar strength.”
Bullshit.
That is a RELATIVE CHART. Fiat vs fiat. The race to the bottom.
Dollar strength is more appropriately measured by the CPI (inverted), or the better real world measures of “dollar strength”, like the Big Mac index.
Now show gold priced in fiat … since 1970. How much fiat to buy an ounce?
Or, how about a chart of the share of the Federal Budget going to debt service payments. (In absolute terms or in share of receipts)
And think about it … that is being financed by the middle class, and paid to holders of debt who are more likely to be the wealthy. So debt service costs are a fuse leading to Revolution and Bastille. 1776, 1789 and 1917. Because they are crowding out what most citizens expect back from their taxes
Nope. Boom can’t fool me. Let him eat the cake.
I agree with Pedro, You can not keep adding to your debt. I will give you 2 examples: 1) If I bought a house 30 years ago for lets say 100 000 dollars and kept adding 20 000 to my mortgage every year by the time I retire I would be 700 000 in debt and not even counting the interest paid.
2) Canada is paying about a billion dollars of interest payment on our federal debt every week, which is about equal to what we collect on HST. So if we did not have any debt we could cancel HST.
“So if we did not have any debt we could cancel HST.”
We also would not have an economy
The Borrowed money was used to create Jobs that create goods and services
It’s called liquidity
I don’t know about you but any time I ever Borrowed money it ultimately made me more financially successful and I created Jobs too boot so others were likewise