TWO ELEPHANTS IN THE ROOM: America’s national debt disaster, part 1

By Rick Ehrlich

We go along day by day, taking care of our own lives, and finances, just trying to enjoy what we have. But in the past twenty-four years, our governments, including both Democrats and Republicans, have seemingly caused our future financial ruin. That is a strong and depressing statement, but are we able to deny it? Consider the following:

  1. US national debt in 2000: $5.7 Trillion
  2. US national debt in 2024, not completed: $35.3 Trillion (and has since passed $36 T)
  3. Interest expense: Before 2024, this expense never came close to our Defense budget expense. Only in the last two years of this country’s 250 year existence has interest on the debt exploded. It is twice as high as just three years ago and will exceed our defense budget not only this year but every year in the foreseeable future.

The ridiculously high defense budget, long thought of as untouchable, is the largest single cause of our national debt but now it is also exceeded by the interest expense. There has been an elephant in the room for decades but now there are TWO ELEPHANTS IN THE ROOM.

In addition, various entitlement programs not matched by sources are contributing to deficits. Interestingly, Social Security is one in which sources equal uses, or a program in balance, not added to the deficits.

Our National Debt is increasing even more rapidly. How is the total debt maintained since it consists mostly of short-term Treasury Bills and short or medium T-Bonds? The answer: constant refinancing. Who are the lenders? Who buys our T-Bonds? Foreign countries and domestic institutions such as retirement funds, insurance companies, and money manager funds to name a few.

Would you buy a US T-Bond today? It seems to be an interest rate decision since we know that we will get the money back. But China has reduced their holdings of our T-Bonds by half in four years. If we go forward a few years, it is possible that interest rates will need to be much higher to attract buyers, causing our interest debacle to become an accelerating disaster. And at some point, it won’t be just an interest rate decision, but it could become a risk to get your money back at all. Who will buy our T-Bonds in ten years? In twenty years? If we look at what might be called a train wreck of numbers, no one will want to buy them.

We will have huge debt defaults, and the dollar could crash. We could have a depression far beyond the magnitude of what was seen in the 1930s. We won’t be able to grow our way out of this.

This month’s article will be followed by subsequent in-depth analysis of the Deficits and increases in the National Debt. Tune in next time to explore what big government can do to move it towards balance. Plus, what individuals can do for self-protection and self-preservation in a quickly devaluing dollar scenario.

Sources: fiscaldata.treasury.gov / Americas-finance-guide/federal-spending/
Peter G. Peterson Foundation | MoneyWise/MSN | CNN | Yahoo News | Forbes | WallStreet/MSN | Fox Business | OpenTheBooks.com

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