Can we survive our current out-of-control debt?
Not without a dramatic change.
Our U.S. debt is more than $18 trillion - that's well over $56,000 per individual - and it continues to spiral out of control. We can talk about deficits and high-tax revenues the government is receiving, but here's the reality: The United States of America cannot continue to pay its debt without printing an enormous amount of money and hoping for the best. Hoping for economic growth. Hoping for GDP growth to thrive and consumers to spend freely.
Have their wishes come true? No. Not in the last ten years - and not likely in the next ten years at the rate we are going. Yet our debt continues to accelerate at an enormous rate of speed.
Think about this. We have seen a dramatic sell-off of bonds. The yield on a 10-year note was up to 2.3 percent. One more percent on the 10-year (which is not out of the realm of possibility at the rate we are going) could add a trillion dollars of interest each year just in servicing our well over $18 trillion in debt.
I was whining about the way we threw around the term billions. How can we relate to a trillion? Here is an example from informationstation.org. It would take one week to count to a million. It would take 31,000 years to count to a trillion.
It took this country 205 years to accumulate its first trillion dollar debt. That was in 1981. We came off that number a couple of times between then and the late 1980s. However, it took us only 403 days to add the last trillion dollars to our national debt!
This should give us some idea how fast we are sprinting down the highway toward the cliff. However, even at this overwhelming speed, we don't seem to be capable - or even have the will - to lift our foot from the gas pedal. Oh, the Republicans make some rumblings about wanting to do this, but here is the reality: more government, larger debt, and more government intervention to control the debt means more power and social control for those in office. If they do not love much, they do love two things: keeping their jobs and gaining more power.
For the last three weeks, I have been talking about the sell-off in the global bond market. We have seen the effects of this sell-off and continue to see the unusual effect of bonds decreasing in value while stocks decrease in value and the market comes down. The 10-year note (at the time I write this article) is at 2.3 percent. Think about this. If the bond deal continues to go up because of the sell-off, interest payments on debt will go up. If interest rates on debt rise to 3.5 or 4 percent or, worse yet, normalize at 4.25 percent, we will be paying somewhere around a trillion dollars a year just to service our current debt - and that will add to our debt exponentially. As you can imagine, we are in an unsustainable vicious circle.
What does all this mean? Times are scarier than ever. I have whined and begged people to get closer to 50 to 75 percent in cash. I cannot stress it more than I have in the last three weeks. I have even sent alerts out to my partners pointing out that this is a time not only to have more cash but also to have some actual cash at home.
Some people have written me to ask what I mean by "cash." My first thought is how bad things are when we don't even know what cash is anymore. Cash is cash. I talked in my alert about the actual greenback . . . having more cash at home. If you get a small check, consider cashing it and stashing the money instead of putting it in the bank. When I speak of cash, I also mean money market accounts or CDs. But even with those, we are dependent on the stability of a particular bank. When things get bad, banks are going to fail - that's a certainty.
People have asked me what we can do to protect ourselves. Nothing. Someone asked me on the radio program this week about the difference between cash in a money market account and cash in the stock market or anything else. Wherever it is, how does the cash protect against the dollar devaluating? It doesn't. Nothing protects against a devaluating dollar. Nothing. It can be buried in your backyard; it can be in your safe . . . or anywhere. Ultimately, where you have it is irrelevant as the dollar devalues. However . . . you can protect yourself from stock market losses. The key is not to have, on top of the devaluing dollar, a devaluation from market loss. Let's try to lose the value of the dollar on its own merits instead of losing value on the dollar along with losing on the stock market.
I know the debt conversation is pretty much over in Washington. Nobody seems to want to talk about it. Our 535 legislators seem to be drinking the Kool-Aid they have been served for a couple of years. They have bought into the deception. They believe debt is actually good for a nation . . . that debt is normal for a nation . . . that we are always going to have debt.
I submit we are not always going to have this amount of debt. Oh, we will always have debt if we can survive the amount we have now. But can we? Can we survive our current out-of-control debt? Not without a dramatic fiscal policy change coming out of Washington.
So, all of this gets even scarier. Sadly, we are dependent on our economically inept leaders in Washington to create fiscal policy that could be good for America. So . . . get prepared.