It took the U.S. government 200 years to rack up its first trillion in debt.
It turns out, the first trillion is the hardest.
U.S. debt topped $40 trillion yesterday, a $1 trillion increase in just 95 days:
U.S. debt now tops $40 trillion. (Source: FRED)
We first began warning readers about the debt back when it was under $5 trillion. At the time, it wasn’t the total amount or percentage of GDP that mattered. It was the apathy voters showed toward impending debt-rating downgrades. Or the political focus on petty squabbles between paper-thin parties.
It was, then as it is now, the hubris of politicians to ignore the disaster they’d create if they promised to cut taxes, increase spending, intervene in crises – foreign and domestic – and allow entitlement programs to run in perpetuity on autopilot alongside the aging population.
By the time we premiered our documentary on the subject, IOUSA, on the eve of the 2008 financial crisis, the debt skipped right past $10 trillion to 11.
We only talk about the debt at all when it passes big, round landmark numbers like $40 trillion. And so it did, yesterday.
But here’s the thing: the debt crossing $40 trillion doesn’t yet account for the off-book expenses of the war since March, nor for rearming the military or filling the Strategic Petroleum Reserve (SPR) back up at higher oil prices… to say nothing of unfunded liabilities in the government’s biggest spending programs, Social Security and Medicare…
Classic hubris in a Shakespearean sense.
And now the danger is growing at a faster rate. Back in the 1990s, interest rates were heading down. We even pretended to run a budget surplus at the national level for the fiscal year 1998.
That feat was only accomplished by borrowing from the Social Security “lock box.”
When the banks were bailed out in 2008, and $2 trillion was added to this debt nearly overnight, the total cost of financing the increased debt fell, thanks to emergency yield-control measures that drove interest rates to zero… for nearly a decade.
Central banks around the world aren’t buying U.S. Treasurys as they did in the 1990s… many, most notably the BRICS nations, are outright selling them.
Since the Basel III accord was adopted in 2023, which classified gold as a “tier one” asset alongside Treasurys and the U.S. Dollar, gold has eclipsed US debt as the reserve asset of choice among foreign central banks.
Yesterday, the U.S. Treasury announced it was doubling its debt-buying facility, from $2 billion to $4 billion.
Compared to $40 trillion, that’s not even a rounding error on the number of small potatoes in a forgotten root cellar.
If Fed Chairman Kevin Warsh sticks to his guns and keeps the Fed out of the business of controlling interest rates or bailing out the U.S. Treasury, we’ve got a nice mess brewing, quickly.
Treasury is going to have to spend a lot more than $4 billion to keep Treasurys a desirable, liquid asset. Where do you think the Treasury will get the money to control its own yield?
Hmn…
The U.S. government now spends over $3 billion per day just to service the interest on existing debt. That’s in addition to the $14 billion Uncle Sam spends – every day – beyond his tax receipts.
The teaser rates on the national credit card are about to expire. Uncle Sam’s going to have a sizable balance at the punitive higher rates consumers are accustomed to paying when they can’t manage their own finances.
Until Congress gets its proverbial [expletive] together on deficit spending… which it is politically incapable of right now… the Fed and Treasury are left with very few options.
The Senate has to pass the Clarity Act. President Trump, also yesterday, made some overtures to Bitcoin and a “stable” crypto environment. Bitcoin rose 10%.
Today’s Grey Swan Pro recommendation is a play on an asset that reflects the reality that Treasury interference in markets will prompt investors to look for alternatives.
~ Addison
P.S. Grey Swan Live! returns this afternoon with Jennifer Stevens of International Living.
If reviewing our time during the pandemic has driven any idea home, it’s the idea that you also need your own personal bolthole. And that the safest place to bolt may be in a different country.
In our first chat, Jennifer reviewed the top global real estate markets. We’ll take a look at where the best opportunities are, whether you’re looking for a second place to live part-time or full-time, or whether an investment property overseas – which may eventually become a retirement or bolthole – is best for you.
But that’s not all!
On Friday, we have a special event – a conversation with our friend Nick Buhelos at Prime Corporate Services. Nick can show you how to best structure your investments to reduce your tax liabilities in the U.S. – a great idea whether you want an intrusive government like the one during the Covid-era or not.
