"An Event That Will Seal America's Fate"
Absent a dramatic course correction, US debt will reach 130% of GDP during the next presidential term. When that happens there is no further chance of an “intentional” resolution of the debt problem.
by Bill Bonner
"I got plenty of arms!! Big arms!! Pretty arms!!
I got arms up the wazoo!"
- General Rancor, "Spy Hard"
Dublin, Ireland - "Bloomberg: 'G-7 Faces a $10 Trillion Reckoning as the World Races to Re-Arm.' The US and its allies are just starting to come to terms with the vast increase in defense spending required to counterbalance the militaries of Russia and China. Re-arm? When did it dis-arm? When was it un-armed? The US firepower industry has gotten more and more money - in real terms - since Eisenhower cut the military budget after WWII. And now, as expected, the whole world races to ‘gun up.’
Whatever else might go wrong, here come the most predictable crises ever – war and bankruptcy. Last fall, the Congressional Budget Office was asked to estimate the growth in US debt. It was not an idle question. Studies done by Hirschmann Capital and others, showed that when government debt reached 130% of GDP it always - with one exception - led to a major crash, depression, revolution, default, bankruptcy, hyperinflation or some other calamity.
Colleague Dan Denning elaborates: "Hirschmann Capital showed that since 1800, in 51 out of 52 countries where the debt-to-GDP ratio was greater than 130%, the result was either an outright default, a devaluation of the currency, or a de-facto default in the form of chronic inflation to deal with the high debt levels. The one exception in that study was Japan. Its debt-to-GDP ratio has been sky-high for decades as it experimented with monetary policy. Why Japan did not suffer, like so many other nations that hit the 130% mark, is a much-debated issue. Dan asked Marc Faber about it yesterday. You can listen to our latest Private Briefing soon.
[Ed note: Private Briefings are interviews the BPR team does with outside experts and analysts. They are published periodically, as videos with transcripts, to paying subscribers. Our latest Private Briefing, with Dr. Marc Faber of The Gloom, Boom, and Doom Report, will be published later this week.]
Of course, when the US will hit 130% debt/GDP is also a matter of debate and speculation. The Congressional Budget Office put it right around 2033... giving us a few years’ grace before the disaster becomes unavoidable
The Penn Wharton Budget Model suggests we will hit the 130% level a little sooner, as soon as 2030 if interest rates are 250 basis points higher than in their baseline model. The baseline model tells us that if something doesn’t change (interest rates stay the same, spending isn’t cut, taxes aren’t raised), total debt-to-GDP will reach 188% by 2050 (it’s 310% of GDP by 2050 in the ‘worse-case’ scenario).
Our own model presumes that an intervening recession, more arms up the wazoo, or another trumped up emergency will provide cover for the feds to borrow even more than these projections foretell. Ours is a high-confidence guess that we will hit the 130% point-of-no-return before 2028... that is, before the end of the next presidential term.
That is why this election is not just another presidential beauty contest, in which voters choose between two doddering old fools based on their positions on abortion, immigration, silicon chips, or homelessness. In this election, there is something more at stake. And neither of the two leading candidates has any idea of what it is or what to do about it. Most likely, this is the election that will seal America’s fate.
Unless there is a dramatic course correction... US debt will reach 130% of GDP during the next presidential term. When that happens there is no further chance of an “intentional” resolution of the debt problem. Like a ship that has lost power, the captain can give all the orders he wants... it won’t make any difference; he has no control over where it goes.
Captain Donald steered this boat from 2016 to 2020... and Captain Joe was at the helm from 2021 to 2024. In terms of temperament and style the voters couldn’t ask for two more different candidates. Joe Biden is a go-along, get-along, slick professional politician. He can be counted on to stick with the talking points on his teleprompter... carefully avoiding any original idea or honest thought. He will keep the money flowing... just as he always has.
A ‘low interest’ guy: Donald Trump is another matter. He is not afraid to say what he thinks, which can be refreshing. Trouble is, he doesn’t think very much. He believes that life is essentially a battle in which you win by making the other side lose. And he is so confident in his own instincts, he has never taken the time to develop coherent ideas about how the world works.
Sometimes, his instincts are decent. In a recent interview, for example, he called on Israel to ‘stop killing people.’ And his limitations may be a blessing; as former national security advisor John Bolton put it, Donald Trump “doesn’t have the brains” to be a dictator.
But he has plenty of I.Q. to ruin the country with debt. His experience as a leveraged property speculator, refinancing his real estate and counting on higher prices, made him a “low interest guy.” When he got to the White House in 2017 the Fed Funds rate was under 1%. Still, he wanted even lower interest rates, believing they would spur the economy. The lower rates brought more profits to Wall Street and developers, but left the country with even more debt.
Always a fan of big government, Trump was never a conservative. He knows what he likes and doesn’t see anything wrong with using the power of government to get it. Which may be the answer to the question: If Donald Trump really were a ‘disrupter’... and there really were a ‘Deep State’... how come it allows him into the White House, not just once... but perhaps twice? If it really exists... and if Donald Trump really poses a risk... surely the Deep State could do a better job of stopping him?
Maybe there is no conscious ‘Deep State.’ Or maybe Trump is no threat to it. He showed himself willing to do its bidding, locking down the entire US in 2020. And while he was president, he added a record $6.7 trillion to US debt - nearly as much as the entire accumulated debt up to 2004. In a way, Trump is such a perfect alternative candidate for the Deep State… gathering dissenters behind him and leading them down a dead-end road.
Will either Trump or Biden change course? Not a chance. And US debt will probably exceed the 130%-of-GDP trigger before the end of his term. Which is to say, whichever of the front runners you vote for, you lose.
Tomorrow, we’ll look at the back runner, RFK, Jr."
Total world debtt to GDP is 336% as of April, 2024...
“When all else fails, they take you to war, If we don't stop this now, if
adults don't become adults, it's over...World War III has already begun."
- Gerald Celente
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