Clearly I was being sarcastic. We are losing gulf allies and can’t even put a ship in the strait. It’s all downhill from here.

quote:

Originally posted by Voshterkoff:
Clearly I was being sarcastic. We are losing gulf allies and can’t even put a ship in the strait. It’s all downhill from here.

I sort of thought it might have been sarcastic, just heard now that Bessent said he was going to double long term treasury purchases after the rates rebounded, there are some serious troubles going on right now. Sounds to me like there might be some serious liquidity problems like back in 2007-08.

The Unsustainable $40 Trillion National Debt

Authored by Jeffrey A. Tucker via The Epoch Times,

The national debt has now passed $40 trillion. It stands at 120 percent of GDP. That should alarm us and probably does but let's just be honest: no one can conceive of such figures. They are just floating zeros and no one has any sense of whether and to what extent this portends economic doom for us. Maybe it does or maybe it doesn't.

You can perhaps conceptualize this better by considering household finance. The extent of the debt burden a household can handle depends on the ratio of financial inflows to outflows in the form of debt service. This is the debt-to-income ratio. Another consideration looks at assets that would need to be liquidated should bankruptcy arrive. That's the debt-to-assets ratio.

The usual financial advice for a household is to keep the debt-to-income ratio in the range of 30 percent. As for debt-to-assets, anything beyond 50 percent is overly vulnerable to shocks that could turn everything south and quickly, leading to tragedy with even small changes in interest rates, stock valuations, business fortunates, or real-estate hiccups.

And yet here we are with a 120 percent ratio of debt to GDP. This is higher than the brief blowout of the Second World War, a time when the nation was stuffed with real savings and U.S. creditworthiness was unquestioned. After the war, the nation got its fiscal house in order and it stayed that way for decades.

The turning point toward this scary debt cycle was the end of the gold standard and the Bretton Woods system that forced some degree of fiscal responsibility. Gold outflows were always going to be a consequence of extension. When the spending extravaganza of the Great Society plus the Vietnam War (guns and butter) tested the limits and nations around the world started demanding payment in specie, the United States panicked and closed the gold window for good. That was 1971 and by 1973, we had a new system: a world of floating fiat currency.

The crucial point here is that Congress no longer faced any real cost for authorizing endless spending of whatever sort. The Treasury creates the debt and sells it to bond dealers who dish it out to all takers. The buyer of last resort is of course the Federal Reserve. This is the creator of this moral hazard. It's why there is no real default premium on U.S. debt and no serious work to rate the quality of debt with any realistic measurement. It's because the Fed is there always and ever to be the buyer of last resort.

Let's put this in simpler terms. Why is it that states within the United States don't run these kinds of debts? If they do run deficits, their default risk goes up and the quality rating goes down. Most states do very well on this score with a AAA rating, whereas Illinois, New Jersey, Pennsylvania, and Kentucky have lower ratings. In states, there are consequences for fiscal mismanagement.

I've wondered how common the knowledge is to explain this puzzle. So I asked a conventional AI engine what it believed to be the explanation. To my amazement, the answer came back quickly and precisely: states in the union have no power to create money. Boom! That's it. That's the whole thing.

This is why every scheme for balancing the budget at the federal level has failed. There is no balanced budget amendment but it likely would not matter much anyway. We could have a quantity rule for the Federal Reserve but it would be completely unenforceable.

The only way to stop the debt madness at the federal level would be to legally prohibit the Fed's open market operations (OMOs) and related large-scale asset purchases. This would largely prevent the Federal Reserve from expanding the monetary base in its primary and most powerful way. This and this alone would bring fiscal accountability to the federal level that states face all day every year.

Absent that solution, the federal government faces the same problem that a household with too much debt faces. Eventually all its income flows will be eaten up by debt service. Right now, 19 percent of federal revenue feeds the debt machine but matters are getting worse. The latest estimates from the Congressional Budget Office forecast a coming fiscal trainwreck.

The new estimates are that if net interest averages 250 basis points (2.5 percentage points) higher than CBO's baseline assumptions, 100 percent of all revenue going to the federal government will go to paying interest on the debt by 2055. That's just not that far away. That moment spells disaster.

And this is one reason why there is such a push by both parties and all stakeholders to hold down rates as much as possible. Letting them float according to free market pressures would bankrupt the country in a period of years. But therein lies another problem. Artificially low interest rates feed inflation and distort production structures.

This is why I'm not optimistic that our problems with inflation are going away anytime soon. If the Fed were really to crack down on quantitative easing, the fiscal burden of debt would explode in ways that would limit the power of politicians and utterly blow up the bond market. It appears to me that U.S. elites have decided that a persistent 3-4 percent inflation rate is a necessary tradeoff to avoid a fiscal calamity.

I'm very sorry to be the bearer of this bad news. We've gone though heck and back over the last 5 years of inflation but the problem is not going away soon. Let's further assume that the Reality Index is correct that the real inflation rate is one-third higher than official reports. At this rate, the dollar might have lost a clean 50 percent across the board of its 2019 purchasing power in one decade. This means that the fight to achieve the American dream is ongoing.

Consider too that the unfunded liabilities assumed over a 75-year horizon is closer to $80 trillion-$90 trillion, numbers that are beyond comprehension. The answer to the debt problem, then, is to bring back fiscal discipline through serious monetary reform. Let rates rise to their market level, allow that increase to feed the fullness of the yield curve, close open market operations, and expect Congress to stop its wild behavior once and for all. There are pathways out of this mess but it will require genuine political courage to pursue them.

https://www.zerohedge.com/econ...illion-national-debt

^^^^^
And the above info is why I believe that eventually the US Treasury will do what so many other countries have done to counter their own created inflation, and that is a currency realignment or revaluation along the likes of 10-1, 20-1, 50-1, or 100-1; Old$10 = New$1, etc. France, Germany, Hungary, Argentina, etc have done it, so why not the USA.

https://x.com/KobeissiLetter/s.../2094235731757510834



The yield on the 30-year Treasury is slightly over 5%, and Scott Bessent is trying everything he can to keep it from going higher. If it does go higher, interest on the debt consumes an ever larger percentage of taxes collected.

US 2026 Budget Deficit Hits $1.97 Trillion With One Month Left; Interest At Record $1.4 Trillion

The unsustainable US house of cards is wobbling faster with every passing month.

With DOGE disbanded more than a year ago, and tariffs struck down by the Supreme Court, the US is no longer even pretending that there is any hope to normalize spending, or any kind of happy ending to the US debt trajectory.

At 2pm today the US Treasury published the latest, August, monthly budget deficit data, and it should come as no surprise to anyone that things are looking ever worse.

Total US receipts were $360 billion, a modest improvement from the $344 billion a year ago, with individual income taxes accounting for $179 billion, or half of the total, and the bulk of the balance coming from Social Insurance and Retirement receipts of $141 billion.

On the spending side, things were ugly: total outlays were $527 billion, a modest improvement to the $689.1 billion a year ago, but much of that had to do with the calendar impact of tariffs.

Putting receipts and spending in context, a chart of the trailing 6 months of government revenue and spending shows that the two trendlines are rapidly diverging, with spending on pace to surpass the covid all time high, even as government revenue remains stuck in a much more narrow range.

The difference between the two, is of course, the US budget deficit, which in August was $166.8 billion, an improvement from July's massive $432 billion deficit, which however was the result of some calendar discrepancies between the two months. What matters more is that fir the first 11 months of fiscal 2026 (with just one month left in the fiscal year), the total US deficit is now $1.97 trillion, identical with last year, although since 2025 saw a big drop in the final month of the year, we are confident that 2026 will be about $200bn worse than the previous year when all is said and done, and be the 3rd worst year for the US deficit on record, with just the crisis years of 2020 and 2021 worse.

Finally, turning to the elephant in the room, namely interest expense, in August the US spent $98 billion on gross interest expense, which means that with 1 month left in fiscal 2026, total US interest spending is now $1.267 trillion, up 12% from a year ago...

... while on an LTM basis, it is now a record $1.4 trillion, and is set to surpass Social Security (which was $1.66 trillion LTM but growing much slower), by the end of 2028.

And since 23% of marketable US debt is now T-Bills, which will see an immediate impact from any Fed hikes, the moments the Fed raises rates, US interest expense is going to rise even more sharply, signaling that while the debt endgame for the US is guaranteed, the only question is whether Warsh will bring it on even faster.

https://www.zerohedge.com/mark...t-record-14-trillion

I just have a couple of questions for everyone here:
Is it OK with you if interest on the federal debt exceeds military spending?
Is it OK with you if interest on the federal debt soon exceeds Social Security spending?
Will it be OK when interest on the federal debt consumes 100% of all taxes collected?

Just double all taxes. That should last about ten years

quote:

Originally posted by oldbill123:
Just double all taxes. That should last about ten years

What would that do to the labor force?

We have a largely voluntary tax system. My guess is that if people don't think they keep enough of their earnings, they either don't work, or they join the "underground" economy, working for cash under the table.

The Labor Force Participation Rate is declining, particularly among young men.

What is the Data Telling Us?

While the recent gains indicate the labor force is recovering from the COVID-19 pandemic, the fact remains that the LFPR in the US has been on a long-term decline since 2000. A look at this graph from the St. Louis Fed shows its trajectory since 1948.[2]

Line Chart Title: Labor Force Participation Rate A line chart show labor force participation rate between 1948 and 2020. The line starts off quite low in the first few decades. A steady increase starts in the late 1970s as women enter the workforce in growing numbers. This is followed by a long period of decline starting during the Great Recession in the early 2000s, then a sharp drop during the COVID-19 pandemic, and, finally, a period of recovery during the last few years. Data Source: US Bureau of Labor Statistics

The LFPR rose sharply between the mid-1960s and 1990. This surge was largely a result of women entering the workforce in unprecedented numbers. Through the 1990s, the LFPR hovered between 66% to just over 67%, peaking in January 2000 at 67.3%.

Thereafter, the rate began its descent and was hovering around 63% in the five years prior to the pandemic. The COVID-19 pandemic resulted in a 4% drop in the rate between March and April 2020 (the largest single-month drop since data collection began in 1948). However, even prior to the pandemic, the LFPR was at its lowest since the recession of the mid-1970s. Overall, the LFPR has decreased by 5.8% between 2000 and 2020.

quote:

Originally posted by chellim1:
I just have a couple of questions for everyone here:
Is it OK with you if interest on the federal debt exceeds military spending?
Is it OK with you if interest on the federal debt soon exceeds Social Security spending?
Will it be OK when interest on the federal debt consumes 100% of all taxes collected?

The answer my ex-wife gave 20 years ago about Social Security failing is exactly what most Americans believe and is applicable: "The government will never let it fail. They won't let people just starve in the street".

This is why Congress has failed to address any of the big financial problems in any serious way. Until voters demand it, there's no benefit to the politicians to do unpopular things. Voters don't demand it because they are stupid and ignorant.

In theory, mathematically, the debt can still be resolved without an outright disaster. It would require Congress to act responsibly, and so far there has been no evidence of that for the last 60 years.

Perhaps Trump should come out in favor of Modern Monetary Theory, and propose tripling federal spending...

quote:

The answer my ex-wife gave 20 years ago about Social Security failing is exactly what most Americans believe and is applicable: "The government will never let it fail. They won't let people just starve in the street".

People seem to believe that government has super-human powers... and that math doesn't apply.
Yet the same people consistently give terrible approval numbers to Congress.
Both Social Security and the debt are attributable to Congress.

There seems to be a big disconnect...
Cognitive dissonance?

Americans think the government sucks

Americans have expressed increasing disapproval of the government due to polarization, lack of checks and balances, and broken promises.

Approval Rating: ~10% of American adults approve of how Congress is handling its job.
Disapproval Rating: ~86% disapprove, which stands among the highest disapproval marks recorded in decades of polling.

https://www.washingtonpost.com...-government-decline/

The gov will prop it up until gov collapses

quote:

Originally posted by darthfuster:
The gov will prop it up until gov collapses

If you think about it...
Congress is 535 members who share the same credit card. None of them has to qualify for credit based on income, and none of them get the bill. AND, they are constantly bribed (mostly legally, by people called lobbyists) to spend even more.

quote:

Originally posted by darthfuster:
The gov will prop it up until gov collapses

I believe many of them believe they have structured their finances to survive the collapse and remain one of the wealthy elite. They know this is a house of cards, and they hope the collapse doesn't happen until after they leave office, but they aren't personally worried.

They should be very personally worried, though. Pitchforks and guillotines will be everywhere when the general population is starving.

David Stockman On America's Debt Trap: Washington Is Running Out Of Time

Authored by David Stockman via International Man,

With the benchmark 10-year US Treasury yield recently above 5.0%, it's time to call a spade a spade when it comes to the fiscal culprits in Washington.

Yes, the Dems are now and always have been fiscal miscreants. More or less, they have functioned since the New Deal and Great Society on the predicate that Washington has first call on the incomes and wealth of the American people; and that federally directed redistribution for the purpose of vote-getting in the guise of social uplift and the public good is absolutely copacetic.

This posture is odious, of course, but at least the Dems tell one truth about their policies. Namely, they happily proclaim government is here to help you and that they are the pro-government party on the banks of the Potomac.

But what is absolutely not copacetic is the modern GOP's pretense of being the anti-government people's party. And most especially its consequent claim to being the tribune of relief from Big Government's crushing tax burdens and its roadblocks to economic growth, jobs, rising incomes and Main Street prosperity.

In the annals of American politics, a bigger lie has never been told. Ever since the presidency of Ronald Reagan, the GOP has claimed to be fighting Big Government by championing "tax cuts" in every way, shape and form on the grounds that cutting revenue and starving the "beast" is the politically smart way to shrink the girth of the state, reduce the Federal deficit, ignite economic growth and jobs and bring prosperity back to Main Street.

Alas, that's a monumental con job. Once again, Milton Friedman had it right when he said that the true tax rate of Big Government is represented by the spending share of GDP - regardless of whether it is financed by borrowing or taxing.

Unfortunately, however, ever since the GOP succumbed to the snake oil doctrines of Art Laffer in 1981 - the notion that tax cuts will both pay for themselves with added growth and ultimately enable the nation to grow its way out of debt - the GOP has been utterly AWOL in the battle against spending.

As shown below, during the 45 years since 1980, the Federal spending share of GDP during GOP Administrations (Reagan, Bush the Elder, Bush the Younger and Trump 45 and 47) has averaged 20.8% of GDP (dotted red line). That amounts to the grand sum of 30 basis points less than the Dem administrations' average of 21.1% (dotted blue line).

Back in the day, they called that "not a dime's worth of difference". And, no, we do not supply magnifying glasses so that the faint difference between the 45-year track records of the two parties shown in the graph below might be more easily detected.



Needless to say, it has not always been this way.

For most of the post-war period before 1980, there was a more significant difference between the spending policies of the GOP and Dems, as shown in the next graph below, which covers the 25 years between 1955 and 1980. During that period, the GOP administration spending share of GDP averaged 80 basis points lower than the Dem administration average, but more importantly, was also far lower as an absolute matter.

To wit, the spending share under Eisenhower, Nixon and Ford averaged 17.5% of GDP versus an average of 20.8% of GDP under GOP administrations after 1980.

That 330 basis points up-shift in the GOP spending posture after 1980 is the real skunk on the woodpile. It essentially means that the post-1980 GOP simply abandoned its core job as the purported Opposition Party in the conduct of American fiscal democracy.

That is to say, once the GOP got hooked on the wrong fiscal variable - tax rates rather than the spending share of GDP - it was all over except the shouting.

Its political energy and capital went into beating the tom-toms on the political hustings for tax cuts. But for crying out loud, tax cuts are always and everywhere a no-brainer sale politically because no one wishes to pay taxes. At the same time, this "easy road taken" posture basically amounted to default when it comes to hard-core battling for entitlement reform, domestic spending cuts and minimalist Warfare State expenditures.

Indeed, it actually got even worse as a matter of political narrative inside the GOP. Namely, after 1980, the neocons led by the insidious Kristol clan - Irving and his son, Bill - became overt and tendentious opponents of the GOP's core spending cut mission.

Back in the day, in fact, the senior Kristol took to lecturing us about the political stupidity of the GOP's historic commitment to balanced budget and spending curtailment, labeling it the "root canal theory" of politics.

Leave the massive, GOP-leaning constituencies of old people, veterans and farmers alone, he instructed, and get on with the tax cuts which are both saleable politically and which put money back in people's pockets as an economic matter.



The problem with the hybrid of supply-side tax-cutting, neocon world policing and full-frontal surrender to the Welfare State spenders was that it never remotely added up.

The GOP's early 1980s gang of the supply-siders and neocons essentially tried to roll back tax policy to the 1955-1980 status quo ante, while allowing both the Welfare State and the Warfare State to balloon unimpeded along the high spending path that unfolded in Washington after 1980.

Needless to say, there is no rational theory of economics that says you can marry 17% of GDP tax policy with 21% of GDP spending policy on a permanent basis and expect anything other than a long-term debt calamity.

That is, a fiscal breakdown that eventually triggers a debt/interest expense/debt spiral that is mathematically unsustainable.

https://www.zerohedge.com/econ...ton-running-out-time

This message has been edited. Last edited by: chellim1,

No

quote:

Originally posted by heydrich:
No

Obvious, yet so many people have no ability to analyze or understand basic economics to get to that answer.

Even when translated to a family finance example they don't get it. They think that somehow there is endless government wealth.

The article states it’s all over except for the shouting. It misspelled shooting…..

The French have discovered this, to their everlasting astonishment, just recently. On worldwide display, alarm bells figuratively and actually ringing. Plenty of paving stones left in Paris....

quote:

The French have discovered this,

That's the only thing reassuring, other countries, like France, are in much deeper and immediate trouble than us.
And it's not just their budget.