The U.S. debt is reaching unprecedented levels, currently exceeding 119% of GDP. This is a concerning record that no one could have predicted. It signifies that the economic production of the United States is not sufficient to keep up with the expenses being incurred. We are in uncharted territory.
The debt situation is even more alarming when we consider recent statistics shared by the Kobeissi Letter. According to their tweet, the U.S. national debt has increased by $1.8 trillion since the debt ceiling “crisis.” It took 209 years for the U.S. to accumulate the first $1.8 trillion in debt. However, this feat was accomplished in just eight weeks after a “historic” debt ceiling deal. This rate of debt accumulation is clearly unsustainable.
While the exact numbers may be slightly off, the overall trend is indeed historic and unsustainable. The Treasury has plans to add trillions more in debt, exacerbating the already burning debt-fueled fire. In the current quarter alone, the Treasury plans to borrow an additional $1.01 trillion. This increase in borrowing plans is alarming, especially considering the fact that the Treasury underestimated its cash needs by 38% in one quarter.
The U.S. government now requires $1 trillion in debt every quarter simply to maintain basic operations. This is a significant departure from the past, as it took over 200 years for the national debt to reach the first $1 trillion. Now, we are reaching $1 trillion in debt every three months.
This begs the question: has the Biden administration lost touch with reality? Do they not understand that lenders expect to be repaid? It is possible that they are relying on Modern Monetary Theory (MMT) economists to justify the notion that government debt is imaginary and lenders will not ask for their money back. However, this perspective does not align with the real world, where borrowing $1 trillion every quarter seems like a recipe for disaster.
Fitch Ratings, one of the most popular credit rating systems in the world, has recently downgraded the United States’ credit rating. This is a significant event, as it reflects an expected fiscal deterioration and a growing debt burden. The explanation provided by Fitch points to a steady deterioration in governance standards over the past 20 years. This dysfunction in the federal government extends beyond just the debt ceiling issue and the staggering deficits.
The consequences of this escalating debt are manifold. Debt-service payments are likely to rise further, putting a strain on the government’s finances. Additionally, nations considering joining the de-dollarization movement now have a convenient cover story to justify their decision. The devaluation of the dollar is also a concern, as it affects its value in relation to other currencies.
In light of these developments, it may be prudent to diversify away from the dollar. Physical precious metals, such as gold and silver, are universally-valued safe-haven assets that cannot be inflated away or hacked. They provide a tangible alternative to traditional financial assets that exist only as entries in electronic databases.
It is increasingly clear that the global de-dollarization trend is not just a passing phase but a matter of economic survival. The West cannot sustain its debt-fueled spending indefinitely. There will come a point when borrowing and spending will no longer provide a solution. Fitch’s downgrade serves as a reminder that a reckoning is inevitable; it is just a matter of when. It is better to prepare ahead of time instead of being caught off guard.