National debt problem, part 3

February 6, 2025
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Montrose Star
Posted in ELEPHANTS IN THE ROOM
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By Rick Ehrlich ––

In the previous Parts 1 and 2, we discussed the dramatic explosion of the U.S.A.’s national debt, going from $5 trillion to $36 trillion in just 23 years, and the U.S. annual interest expense rising triple in the past 3 years. In just this year (FY2025) interest expense is projected to be five times what it was in the year FY2021 (due to interest rates held near zero for several years, now rising in international markets reaching a projected 4% to 5% in 2025). Please refer to Charts 1 through 4 in Parts 1 and 2 of this series in the online Montrose Star. (See the December 2024 and January 2025 issues). We briefly outlined three areas in which the US Government could potentially make progress by at least stopping our annual deficits, to bring us to an ongoing balance. (The three areas cited would take a political will that our country does not yet seem to have). These are (a) Defense/ Military reductions in major amounts, (b) whittling of certain entitlements in minor percentages but resulting in large savings, and (c) a reversal of the low income tax on the highest incremental income which have existed for the past 40 years. A fourth possible source of moving towards balance (please don’t laugh) is the new U.S. Department of Government Efficiency (DOGE) which is tasked with saving over $1 trillion per year by finding expense efficiencies in the various US Departments. Pray.

We are seeing frequent articles in the press by leading money managers, bankers, and market gurus dancing around the potential for a horrible debacle in which nobody wants to buy our US treasury bonds and notes. The US government defaults on its debt (not from Congress failing to raise the limit, but because our debt becomes impossible to refinance). We could have a major crash.

The only immediate answer is to print zillions of dollars. Hyperinflation will devalue our dollar to near zero. The risk is quite real, and so far, Congress has done nothing about it. Ray Dalio, co- chief investment officer of the world’s largest hedge fund Bridgewater Associates, describes the so called “Death Spiral: When you get to the point that you have to borrow money to service the debt and interest rates are rising, so that debt-service payments rise, so you need to borrow more money to pay them, you’re in what the markets call a death spiral.” (Financial Times, MarketWatch). Dalio was writing about today’s Britain, but we must ask, what is the difference with the USA’s situation? Nothing. Very sobering.

The only ways to repair the USA debt problem, or even stop making it worse, are reduce Defense/ Military spending by a large amount; reduce entitlements a small percent for large savings; raise taxes on incremental highest incomes and corporations; and find efficiency related reductions. Congress must get the message. So far, they have not. They are the proverbial Ostriches with their heads in the sand. Quit pretending an enemy threatens the USA on our shores. Quit pretending we can’t reduce entitlements 3%. Quit pretending we can’t raise income taxes back to earlier levels on the highest of earners, individual and corporate. Save the USA. Don’t let us go down.

What can citizens do to protect themselves against this financial risk? I am not licensed to give financial advice, but here is a synopsis of the January 2025 suggestions from MSN, Forbes, Financial Times, Morgan Stanley and MarketWatch:

Investments which act in reverse relation to the dollar should be strong if the dollar weakens. These include gold, silver and other precious metals, collectibles, and real estate. Also, stock shares of commodity companies involving/ owning precious metals, energy, and food/agriculture and foreign currency from countries with low debt to GDP ratios.

Now there are stocks available which have fractional interests in precious metals, currency baskets, real estate and other hedging type assets, so we should not think or fear that these are beyond the reach of the common citizen. Other advice includes learning “barterable” skills, and growing food! It may get brutal out there. This writer believes the risk is within 10 years.

Sources: MSN, Forbes, Financial Times, Morgan Stanley and MarketWatch