No Minister

The Great Crash of 2034

One of the first things I wrote about here at NoMinister was an article on the disastrous debt situation in the USA, This is not going to get better.

Amidst the charts of tax revenue vs rates and the vast, unfunded liabilities that lay in America’s future, courtesy of Social Security, Medicare and Medicaid – “these three giant machines running on automatic” – I wrote the following:

The good news is that government revenue is increasing, likely hitting 16.5 percent of GDP this year, increasing to 17.4 percent in 2025, and 18.3 percent of GDP in 2029. Of course this is all built on economic models and we know how those go with assumptions of economic growth rates and so forth. For all the talk about econometric models the reality is that they’re often little different to the spreadsheets ordinary people put together. So they’ll contain smooth changes from month-to-month or quarter-to-quarter. But did anybody throw in even a bog-standard recession, something just on the order of the 1990-91 deal, with a couple of % GDP foregone?

And here we are. And we’re not looking at a 2% GDP drop but probably something much worse courtesy of government reactions to the Wuhan Flu.

You can look at that old article to see the histories of US income tax revenue vs the highest income tax rate or corporate tax revenue vs corporate tax rates, but here I want to focus on US spending and then debt, starting with this chart published just last year in 2019.

Note the sidebar of assumptions underpinning this already frightening scenario: “no more wars, no recessions”, and so forth. Note also that the biggest increase in spending comes from non-discretionary spending, courtesy of the Big Three Machines mentioned earlier.

At the same time there was an article published that looked into a future much closer than 2049, The National Debt Death Spiral:

According to the U.S. Treasury Department’s Office of Debt Management, the U.S. government is just five years away from the point of no return.  With the national debt spiraling quickly out of control, there are only a few years left before every single dollar the government borrows will go toward funding interest payments on the national debt.

Interest payments only: not for paying the debt down. This is Ponzi Scheme territory. More specifically it’s the tipping point for when the scam starts to collapse. It’s also why you can look forward to a temporary future of near-zero, zero or even negative interest rates: “temporary“.

And that’s just the Federal situation. There are a number of territories and smaller cities that have already plunged through this event horizon :

In bankrupt San Bernardino, a third of the city’s 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension. Forty-six retired city employees receive over $100,000 a year in pensions.

Almost 75 percent of the city’s general fund is now spent solely on the police and fire departments, according to a Reuters analysis of city bankruptcy documents – most of that on wages and pension costs.

Larger cities like Chicago are rapidly approaching the same point, with their debt now rated at Junk Bond levels, and the state of Illinois unable to help because they’re in the same shape.

And then there’s the wider economic problem that derives from the government spending priorities:

A couple of years ago there was somewhat of a kerfuffle in the more sober precincts of the MSM when a story circulated that after his economic advisors presented these post-2024 debt tipping point arguments and data to President Trump his response was (paraphrased): “I won’t be President by then so what does it matter?“.

Naturally the articles lambasted Trump for this selfish and cavalier attitude to spending and debt, but that outrage only lasted a day because everybody knew the terrible truth.

  • It’s a bi-partisan attitude in D.C;
  • almost every politician there (bar Rand Paul and a few House members) is in on it;
  • all of them are too terrified of the fallout that would happen from trying to fix it.

Trump’s 2020 budget produced earlier this year went on to prove the point, as this article demonstrated with comparisons of the MSM coverage of Trump’s budget and the actual forecast numbers. First the MSM headlines:

.

.

Holy shit! Trump was proposing huge spending cuts in domestic programs? That’s great news!

If only it was true.

.

.

.

.

This would be the same under any President and any Congress, courtesy of those screaming headlines. Nobody dares to cut spending; even the “cut” of $4.4 trillion noted above was merely a plan to spend less than the baseline spending increases assumed at the start of the budget process.

And remember that all of the above was before the latest economic crisis hit the USA, which has produced the following astounding graph from the US Central Bank, the Federal Reserve:

As you can see the Fed had only just started to finally rid its balance sheet of the debt piled up from the GFC before the Chinese Lung Rot hit the fan. As this article pointed out:

The federal debt had topped $24 trillion for the first time on April 7, 2020.

It then climbed another trillion dollars in just 28 days, topping $25 trillion for the first time on May 5.

Only 35 days had elapsed from when the debt topped that $25-trillion threshold on May 5 to yesterday, when it topped $26 trillion for the first time.

It took about two hundred years for the USA to pile up $2 trillion in Federal debt, hitting that figure in 1983.

Now it has taken just 63 days.

The following chart shows how the debt load is not only increasing but even the rate of acceleration, as is the case with Ponzi schemes. No private business would see this as anything than the stuff of sleepless nights between daytime nightmares.

I’ll finish with this quote from John Stossell, which I especially like because it takes my original article title of “This is not going to get better” and sharpens it:

“We have piled deficit upon deficit, mortgaging our future and our children’s future,” warned Ronald Reagan. “We must act today to preserve tomorrow.”

Bill Clinton said, “We’ve got to deal with this big long term debt problem.”

Barack Obama called driving up the national debt “irresponsible” and then proceeded to do exactly that.

Donald Trump complained that Obama “doubled” the nation’s debt. But now, under Trump’s presidency and the new CARES Act, our debt will grow even faster.

This will not end well.

Even a so-called V-shaped economic recovery would not change this very much.

For all the talk of pandemics and now riots it is this story about the USA that should truly scare you. It is not Antifa or BLM or any other bunch of fanatics and idiots that will destroy the USA but the age-old problem of debt. Take your pick as to the crunch date, mine is 2034!

One of Adam Smith’s famous economic observations was made to a pupil concerned that the massive growth of debt in Britain during the Napoleonic Wars would ruin the nation. That debt would eventually reach 200% of GDP but Smith assured the student that “there is a great deal of ruin in a nation.“, and that proved to be the case, but not without a lot of pain being inflicted in the following two decades.

Same here via Rand Paul’s “Pennies Plan” alternative Budget, although I can’t help feeling that the USA is pushing the outside of the envelope awfully hard on Smith’s maxim.

Written by Tom Hunter

June 14, 2020 at 7:00 pm

12 Responses

Subscribe to comments with RSS.

  1. George said…I certainly hope that this is a more accurate article than your covid series. The Swedish model didn't quite work out did it?

    Anonymous

    June 14, 2020 at 1:32 pm

  2. Tommy’s wrong of course. Trump single-handedly eliminated both American carnage and the Federal debt and produced the greatest economy ever in the history of the world. Therefore this nonsense of the debt is fake news. In reality, however, Trump has so incompetently managed the response to the Trump virus, he’s using that as an excuse for his incompetent economic management. Tommy will still shill for him though, as this is all about owning the libs, which is far more important that competent non-psychopathic leadership.

    Snowflake

    June 14, 2020 at 6:58 pm

  3. It's fascinating, to me at least, that commentators can post their opinion without apparently reading the article. Just where in the article is TH shilling for Trump? He is pointing out a few home truths about the US economy and the seemingly inability of politicians to do anything about it. The San Bernardino situation is a graphic example of the problem faced. Unfunded (super generous) pensions are a recipe for disaster. Someone will correct me if I'm wrong but here in NZL the Government Superannuation Fund (not NZL Suoerannuation) is fully funded Thank you Tom … a timely and cogent post. Flakes inability to understand sez more about him than you.

    The Veteran

    June 14, 2020 at 9:32 pm

  4. @VetIt's not an inability. Flake just doesn't want to make any sensible comments here at NM, let alone have a debate that requires more than Twitter-sized comments. Of course he doesn't read the articles, what would be the point for him to do that?When he yammers on about me \”owning the Libs\”, he's projecting. He'll say something stupid about you and National on one of your threads just for shits and giggles and get the conversation focused on what he wants: taunting and trolling 24/7.

    Tom Hunter

    June 14, 2020 at 9:48 pm

  5. FYI – I see that San Bernadino has emerged from bankruptcy proceedings – but at the cost of creditors getting paid pennies on the dollar and severe restraints on future pensions and other such things, which is a pointer to the future for States and the entire country.Trouble is that while cities can file under Chapter 9 of the bankruptcy laws there's nothing there for an entire state.

    Tom Hunter

    June 14, 2020 at 9:49 pm

  6. FYI – I see that San Bernadino has emerged from bankruptcy proceedings – but at the cost of creditors getting paid pennies on the dollarOnce again, Tommy Boy is upset that Capitalism is working exactly how it was designed to work.

    Rex Mundi

    June 14, 2020 at 10:58 pm

  7. Dunno about the capitalism bit but the years of mismanagement and a belief in John Frum has resulted in bondholders and unsecured creditors being paid out at 1c in the dollar … one suspects the City is going to find it hard to sell municipal bonds in the future. Added to that the city has seen its fire department and other services outsourced, its staff cut by hundreds and its public services neglected. Meanwhile, it has struggled to cope with increased violence that officials have attributed in part to an under-resourced Police Department.The plan the City was forced to agree to preserves pension benefits for employees and retirees, though employees will have to contribute more to their pension plans, while benefits were modified for new employees and retirees will lose some health benefits they were promised.When you live a champagne lifestyle on a beer income something will give and it has … not much to do with capitalism, everything to do with a municipal administration refusing to accept reality until it bit them in the bum … hard.

    The Veteran

    June 15, 2020 at 12:40 am

  8. Dunno about the capitalism bit but the years of mismanagement and a belief in John Frum has resulted in bondholders and unsecured creditors being paid out at 1c in the dollarAs Rex said, this is a design feature of Capitalism.The plan the City was forced to agree to preserves pension benefits for employees and retirees, though employees will have to contribute more to their pension plans, while benefits were modified for new employees and retirees will lose some health benefits they were promised.This is another design feature of Capitalism. Other, more advanced nations, have accepted the need for state funded pensions, single payer health care, etc. Isn't that what you have in NZ? Do you want to give up your State Super and have your retirement income based on the whim or creditworthiness of your employer?

    Anne Tiffa

    June 15, 2020 at 6:29 am

  9. AT you’re talking about socialism’s natural outcome – running out of other people’s money.Paranormal

    Anonymous

    June 15, 2020 at 7:30 am

  10. Not true, Subnormal. In fact, money can have no \”owner\”, other than the government that issues it. Money is a means to simplify exchange, nothing more, nothing less. Its value, indeed its existence, can be changed by the government at whim. After all, didn't your own government remove 1, 2 and 5 cent coins from circulation? And isn't the Australian government mulling the cancellation of $100.00 notes?

    Anne Tiffa

    June 15, 2020 at 8:55 am

  11. HEY TOM HUNTER!!Pull your foreskin over your head and whistle thru the hole.

    Blaze Pastel

    June 16, 2020 at 12:07 pm

  12. Blaze, Tom can't do that. Unless, of course, he is a complete prick.

    RosscoWlg

    June 16, 2020 at 12:09 pm


Comments are closed.

%d bloggers like this: