THIS IS A REPOST OF AN ARTICLE FROM BOOM FINANCIAL…IN RESPONSE TO A COMMENT FROM EEYORE ( SILVERBOOM) AND IN REPONSE ACTUALLY TO THE WHOLE COMMUNITY OF “GOLDBUGS” HERE AND EVERYWHERE …CAN YOU OPEN YOUR MIND …CAN YOU FOLLOW THIS REASONING ?

……………………………

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.

…………….

You have to admit that a HUGE part of Our collective belief system is rooted in the premise we all have accepted deep in our beings that the Sovereign Debt is an Existential Problem that will one day create a Mad Max scenario. We have all been looking for a way to avoid that carnage…BUT if it actually came to fruition our Gold Guns and Food Rations would NOT save us..Nothing would…we have all been expecting this for decades but ..NOPE …so

reminds me of the quote

“When my information changes I change my Belief…what do you do ?”