Unsustainable at any price
Unsustainable at any price
If they measured inflation as they did during the Reagan years, it would show real GDP not growing at all, but falling like a badly made cake.
Tuesday, April 3, 2024
Bill Bonner, reckoning today from Dublin, Ireland...
Five years from now, the interest on the national debt will take up 50 cents on every dollar of revenues. Ten years from now it will be 100 cents.
RFK, Jr.
Democrats say we are protecting democracy in the Levant. Republicans say we are protecting democracy in Eurasia. Both say we are protecting democracy by spending trillions of dollars we don’t have. Hillary Clinton says a vote for Biden is a vote to ‘protect democracy;’ she claims Donald Trump is a ‘threat to democracy.’ RFK, Jr. says Biden is an even bigger threat to democracy than Trump.
What to make of it?
Yesterday, we looked at Donald Trump’s new media company. As we saw, the numbers make no sense. The company has few sales and many losses. It merits a market value of about... zero. And yet, investors see in it a company worth $10 billion. And Donald Trump is suing his partners to get more of it for himself.
The nation’s GDP growth rate, meanwhile, is entirely dependent on the inflation computation... which is as inconstant as a doughy moon. The feds knead it, and roll it, and bake it in the oven... until they get the flavor and consistency they want.
If they measured inflation as they did during the Reagan years, however, it would show real GDP not growing at all... but falling like a badly made cake.
A badly made cake
The stock market, too, bobs up and down on the waves like a kitten in a coffee can. But measured in gold, stocks are still down 13.6% from their 2021 highs.
Is there anything real…indisputable…worth worrying about?
Alas, yes: debt. It’s not going away. It’s growing. And it’s headed for disaster. Bloomberg:
The Congressional Budget Office warned in its latest projections that US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. The actual outlook is likely worse. From tax revenue to defense spending and interest rates, the CBO forecasts released earlier this year are underpinned by rosy assumptions. Plug in the market’s current view on interest rates, and the debt-to-GDP ratio rises to 123% in 2034. Then assume — as most in Washington do — that ex-President Donald Trump’s tax cuts mainly stay in place, and the burden gets even higher.
There are a lot of known unknowns in the debt figures, but they almost all lead to the same place.
Bloomberg economists ran a million simulations to see what might happen. In 88% of them, the “debt to GDP ratio” proved to be an “unsustainable path.”
What happens when the unsustainable path comes to an end? Fortune:
America will be left with ‘severe, irreversible scars’ if national debt goes unchecked. Now, a blockbuster report warns the bill is higher than believed, hitting $141tn by 2054
... a March report from the Congressional Budget Office (CBO)... estimates that by 2054 public debt will represent 166% of GDP, reaching $141.1 trillion.
Currently the nation's $34 trillion debt is approximately 99% of GDP and, according to the CBO, will steadily increase over the next 30 years. In the near term, the CBO expects debt as a percentage of GDP to exceed the record peak of the Second World War by 2029.
This mounting debt, the CBO writes, "would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices."
Yes, dear reader, America’s debt is something we can depend on.
But as it gets bigger and bigger (relative to the economy that supports it) it becomes ‘unsustainable.’ Then, something else must happen. What?
The real question is whether the change occurs intentionally or unintentionally.
The ‘intentional’ solution is obvious... but unattainable. It would require a political clarity and will that does not exist. Spending would have to be cut by more than one trillion dollars per year. But since the deciders are also the spenders... and since their cronies and supporters are the ones who get the money... there is very little likelihood of a voluntary solution.
It’s the ‘unintentional’ resolution that will do the real damage. And yesterday, we had a hint of how it might come about. Stay tuned.
Regards,
Bill Bonner
Market Note from the Research Desk
Why would the Fed lower interest rates with the oil price rising and inflation making a second wave?
Because 150 basis points of rate cuts would lower interest expense by around $400 billion, according to new research from the Bank of America.
The Fed is paying lip service to fighting inflation. It's main job is ensure an orderly market for Treasury debt. Is the stock market calling the Fed’s inflation-fighting bluff?
