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Re: U.S. National Debt Jumps - hits $35 trillion 

By: De_Composed in 6TH POPE | Recommend this post (1)
Wed, 07 Aug 24 1:38 PM | 41 view(s)
Boardmark this board | 6th Edition Pope Board 		Msg. 56339 of 58510
(This msg. is a reply to 55979 by De_Composed)
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I've been giving more thought to the debt curve and what it means for 2025 or 2026 when the United States can no longer follow its 50-year path of debt expansion. I'm the only one obsessing on this, but the answer could be terribly important. So, what does it mean? Nothing? The end of the U.S.? The collapse of the economy? The end of the dollar?

It definitely means something, but I no longer think it's as dire as the worst of those possibilities.

While the debt seems to have grown on its present arc since at least 1972 - when we abandoned gold - the questions that came to me were, why THAT arc? Could it have been the arc of a different ellipse? And what happens when that arc is no longer an option?

I launched into a series of thought experiments, first considering a scenario in which the Federal Reserve decided in 1972 to produce a QUADRILLION DOLLARS of new money overnight. It would have made America rich, right? No, obviously, it wouldn't. The debt would have gone vertical instantly. The "ellipse" would have been so small as to be a point and there would have been an immediate currency collapse. That's Scenario #1.

Next, what if the Fed, in 1972, had pursued a slightly bigger ellipse than that of Scenario #1? -- something "pea sized", relatively speaking. It might have printed 333 billion dollars in new money each year... a trillion dollars every three. We'd have still been fabulously wealthy, way back then. Why didn't we do it? The answer is that it wouldn't have been at all sustainable. It would have yielded the same result as Scenario #1, but perhaps taking a year or two before total disaster struck. That's Scenario #2.

Scenario #3: The Fed prints money at just the right rate to offset the expansion of our nation's economy. In this case, the "ellipse" would have been enormous - infinitely large. This scenario would have kept us on a flat trajectory with zero inflation... sustainable forever. The problem, to hear a Keynesian economist tell it, is that this would have left the government with no funds with which to handle whatever emergencies might come along: Wars... pandemics... drops in production... or whatever. The entire purpose of fiat money is to facilitate its abuse. You can't expect politicians to have such a power but never avail themselves of it. In fact, as we've seen, they CONSTANTLY avail themselves of it.

Scenario #4: This is the "realistic" approach the Fed must have offered to Congress way back when. The nation prints new money a little bit faster than the rate at which the nation's production is improving. It would "target" an inflation rate of 2%, a rate so small that nobody would even complain about the government's slow pilfering of the nation's wealth and would allow the government to build a repository of excess funds for use during an emergency.

Under Scenario #4, the debt's elliptical arc would have been enormous - taking hundreds of years to bury us. I did the math. Had we started in 1972 with $1 trillion of debt, expanding it at 2% above productivity would have resulted in us having less than $3 trillion of debt today. Ah, if only. But even though this *is* the plan we were sold, it didn't exactly work out that way, did it?

That brings us to Scenario #5, which is reality.

Politicians - being what they are, greedy, power-mongering betrayers of their trust - couldn't possibly sit still and leave their power to counterfeit at a nice, manageable 2 percent per year. In consequence, inflation has powered along at a much greater pace resulting in a debt which just reached $35 trillion on a path that ceases to exist in 2025 or 2026.

So, pursuant to figuring all that out, the answers to the questions that initiated this line of thinking are clear. The debt has been on its elliptical trajectory for fifty years because it is the trajectory that was targeted from the very start. It's the result of an arbitrary goal of "2 percent inflation" in a political environment that made 2 percent laughable but at least imposed some sort of restraint. For $1 trillion to turn into $35 trillion in fifty years requires EIGHT percent annual inflation of the money supply... above and beyond the amount that would counter improvements in national production. In fact, it's much worse than that since the debt wasn't $1 trillion in 1972, as used in my scenarios. It was $427 billion. But, yes. The debt could have expanded on the arc of a different ellipse.

My second question was, what happens in 2025 or '26 when the arc can no longer be followed? The answer is that we switch to a larger, longer-lived ellipse. Reality will assert itself and the Fed will abandon its stated goal of 2 percent annual inflation, bumping it to, perhaps, 8 percent. We can all live (not well) with that. Except, of course, that politicians will continue to be what they are and the 8 percent target will instead be a 25 to 30 percent reality, worsening by the year and still leading to economic doom at some unforeseeable time that will certainly be sooner than anyone wants.

The takeaway is this: Interest rates will go up, putting us onto the path of a larger, flatter debt curve, but low inflation rates and significant economic growth will be things of the past. We'll have HIGH inflation rates from now on. Get used to them, because politicians aren't going to put themselves onto the kind of serious diet that would be needed to fix the problems.

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The above is a reply to the following message:
Re: U.S. National Debt Jumps - hits $35 trillion
By: De_Composed in 6TH POPE
Mon, 29 Jul 24 7:45 AM 		Msg. 55979 of 58510

Having reached $35 trillion on July 28th, you can see that we're still following my graph's elliptical trajectory. From here on out, the debt will grow VERY quickly.

A dollar failure is most likely coming in 2026 - before the debt's growth goes vertical. If anything, what I'm seeing today indicates that the failure is slightly AHEAD of schedule. I hope you folks are getting ready for it. This is serious. If you pray, pray hard.

As always, if any of you can think of a reason why my chart is wrong, please... I'd like to hear what you have to say.

I'm not enough of an economist to know what "dollar failure" actually means (and I doubt many economists know either.) Does it mean that one day, a dollar will buy a can of green beans and the next day it will buy *nothing*? Or does it mean hyperinflation, where prices double monthly until nobody will accept the dollar anymore? Probably the latter, but if you think that's so great, it only staves off your starvation by a year or so. (Under monthly doubling, what costs $1 today costs $4,096 in one year.)

Rest assured that I am not the only one seeing this graph and understanding what it means. The government will implement some draconian laws in the coming two years: I won't be surprised if we see gun confiscation, safe deposit box content examination, prison sentences or death penalties for hoarding essentials such as gas, food or bitcoin. What else might be in the works is beyond me.

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