The Accelerating Countdown to Armageddon
The comments below are an edited and abridged synopsis of an article by Jim Rickards
Get ready for April/May when the US approaches a double deadline of debt and deficit inflection points.
The budget deficit issue will be hotly debated and may result in a government shutdown in September if Democrats in the Senate and Republicans in the House can’t agree on a budget for fiscal year 2024.
But there’s another train wreck coming: The debt ceiling and the infamous X-Date when the US could default on the national debt.
It’s a numeric limit on the total debt that the US Treasury is allowed to issue. The debt ceiling doesn’t mean the Treasury can’t issue any new debt; it means that it cannot issue debt that increases the total outstanding above the ceiling.
With over $31 trillion of debt outstanding in maturities from four weeks to 30 years, there’s always some existing debt that’s maturing. The Treasury can issue new debt to pay off the old debt. It just can’t increase the total.
So if $20 billion of debt matures this week, the Treasury can issue $20 billion of new debt to keep the total constant. They just can’t issue $30 billion without breaking the ceiling. Treasury is at the ceiling now. The US is still running deficits. How are the new deficits being financed if Treasury can only conduct the rollover operations described above?
Up for discussion: One big gimmick; each side will try to scare voters; the US is going broke; the danger zone; and got gold?
“Monetary policy won’t get us out because the velocity of money, the rate at which money changes hands, is dropping. Printing more money alone will not change that.”
“Fiscal policy won’t work either because of the high debt ratios… At current debt-to-GDP ratios, each additional dollar spent yields less than a dollar of growth. But because it must be borrowed, it does add a dollar to the debt. Debt becomes an actual drag on growth.”
It can’t go on forever. And the more debt added, the faster the day of reckoning will arrive.