The U.S. Government's Debt Bomb
What Can't Go On Won't Go On
The U.S. has been in debt for a very long time. But it seems to be getting out of hand.
Less Coming In
According to the latest Monthly Treasury Statement, in June, the U.S. collected $225 billion in tax receipts, consisting of $110 billion in individual income tax, $91 billion in Social Security and payroll tax, $4 billion in corporate tax, and $20 billion in other taxes and duties.
This is down marginally from the $232 billion collected last July.
More Going Out
What the government pays on interest has to do with the ever-growing principle, the increase in interest rates, and higher inflation. Each of these is moving higher.
The deficit increased by $76.9 billion in July and totaled $684 billion, up 20% from the same period last year. The deficit is expected to crest $1.1 trillion by next year and will end 2018 up 33.7%, according to CBS News.
In July, the inflation rate as recorded by the Consumer Price Index (CPI) hit 2.9% and will likely hit 3.5% over the next two quarters.
In order to head inflation off at the pass, the Federal Reserve is hiking interest rates. The Fed has hiked twice this year and is expected to hike again in September and December, which would make four hikes this year.
This would put the Fed rate at 2.5%. The Fed has stated that it plans to move the rate to 3.0% in 2019 and 3.5% in 2020. But who knows? Events are sure to overtake the best-laid plans.
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666: The Devil's Debt
In 2015, the government spent $402 billion on interest payments. In 2017, it spent $458 billion while the deficit was $666 billion.
When the cost of money continues to increase, the cost of servicing the federal debt will also increase. The question is, what happens when the payback rate is 3.5% instead of 2% and the number is over $1 trillion?
The Congressional Budget Office (CBO) projects that net interest costs will triple over the next 10 years, soaring from $269 billion in 2017 to $818 billion in 2027 and totaling $5.6 trillion over the period.
And this is just the annual federal deficit. The federal debt is over $21 trillion and growing rapidly. Local governments are in record debt as well. Corporate debt, mortgage debt, credit card debt, automobile debt, and student debt are all at record highs.
What can’t go on won’t go on. At some point, this money must be repaid. When the note gets called, it will get ugly.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.
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