How does a man descend into bankruptcy?
Gradually then suddenly in Mr. Hemingway's famous telling.
The United States government has passed beyond bankruptcy's gradual phase.
It has entered bankruptcy's sudden phase.
Mr. Michael Hartnett, Bank of America's chief strategist:
“The U.S. national debt is rising by $1 trillion every 100 days.”
United States debt first scaled $1 trillion 205 years after its inception. And today?
The work of 205 years presently reduces to 100 days.
$1 trillion every 100 days? Impossible but there you have it:
And so today a pearl of sorrow courses down our crimson cheek... a mournful tear upon the ashes of the nation's finances.
We fear its debt is assuming the hellacious form of a parabola.
That is, the business begins to assume an exponential aspect.
If only the nation's gross domestic product could maintain pace with its parabolic and exponential debt.
It cannot... alas.
Its economy is a guttering and overburdened draft horse tethered to reins.
Its debt meantime is lightning itself. It is an unbridled quarter horse under full steam.
It presently runs laps and laps ahead of the laggard. And its lead expands with each harrowing tick of the nation's debt clock.
Today the dreadful time-teller presently reads $34.4 trillion.
Under present acceleration $35 trillion is perhaps two months distant.
How long until $36 trillion? Until $40 trillion? Until $50 trillion?
Under present acceleration $50 trillion debt is 4.27 years distant.
You will have it in Anno Domini 2028.
Meantime, the United States' Congressional Budget Office projects average 1.8% annual economic growth through 2028.
The gross domestic product runs presently to $27 trillion, approximately.
At the projected rate 2028's gross domestic product would come in at $29 trillion approximately.
Thus the nation's debt-to-GDP ratio would scale an economy-murdering 172%.
How do you like it?
As we have argued before: The Keynesian "multiplier" the holy miracle of water into wine has taken up division.
It presently performs the anti-miracle of wine into water.
Former colleague David Stockman:
During the most recent 16-year period the annualized gain in real economic growth, real hourly compensation, real net domestic investment, industrial production and real median family income fell by 54%, 72%, 68%, 99% and 79%, respectively, compared to outcomes during 1954-1970.
Concludes Mr. Stockman, with sniffles and sobs:
All the spending and borrowing since 1970 has encumbered future generations with an insuperable debt albatross, even as it has left present-day Americans with hardly a fraction of the economic improvement rates enjoyed by their parents and grandparents a half century ago.
Economists Carmen Reinhart and Kenneth Rogoff have indicated that annual economic growth recedes 2% per year when the debt-to-GDP ratio exceeds 60%.
At 90%, growth is "roughly cut in half."
What then of a 172% debt-to-GDP ratio?
We acknowledge it at once: Debt's future acceleration may not equal debt's present acceleration.
Acceleration may in fact assume a decelerating aspect.
We hazard it will. Yet to what degree? We do not know.
We nonetheless confront a grim calculus.
A certain Maya MacGuineas, presides over the Committee for a Responsible Federal Budget (do not laugh!). From whom:
Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing... This is a moment of consequence and continuing to refuse to pay our own bills will not lead us to where we need to be as a nation.
Where do we need to be as a nation? We do not know.
Bankruptcy court perhaps. Perhaps the gutter.
The United States government the taxpayers of the United States, that is presently shovels out $2 billion each day to service existing debt.
How much more must they shovel out as the nation's debt takes its exponential leaps?
We do not know. Yet the figure will be plenty handsome. Reports Mr. Bezos' Washington Post:
Interest costs are already the fastest-growing part of the budget. Net interest costs a nonnegotiable expense nearly doubled as a share of federal outlays between 2020 and 2023, going from $345 billion, or 5%, to $660 billion, or 10%. (Defense, by comparison, cost $815 billion, or 13% of spending in 2023.)
What will be left for Social Security, Medicare, Medicaid, national offense?
How will the United States afford its bread and its circuses?
As we have claimed before: Perhaps democracy dies not in darkness as Mr. Bezos claims but in debt.
Is there a way out?
Yes there is a way out. Yet it is very rough medicine worse even than the ailment it would cure.
That is the therapy of hyperinflation.
Hyperinflation would rinse away all debt while it rinsed away all your money.
Is there a less poisonous way out?
In theory in theory there is.
We have proposed it before. Today we propose it again...
Here is the answer: A debt jubilee.
That is, the mass forgiveness of debt.
Heave the ledger book into the roaring fire. Run a blue pen over the red ink. Wipe clean the slate.
The practice began some 5,000 years distant in ancient Sumer and Babylon... where a king would delete the people's debts.
Was it because the fresh king was a swell fellow? Or because he was an ancient Karl Marx?
No. He cleared the books to preserve his hide.
He was alert keenly to social stability.
An impossibly indebted class was not a gruntled class. And a disgruntled class is a dangerous class to a king.
Economist Michael Hudson is the author of ...And Forgive Them Their Debts. From whom:
The idea was to restore the economy to the stability that existed before widespread debts ran up during the preceding ruler's reign. What was "restored" was an idealized "original" or "normal" state in which nobody owed debts to the palace...
The idea of debt amnesties was to prevent debt from tearing society apart to prevent the kind of crisis that the United States has been in since 2008, when President Obama didn't cancel the junk-bond debts, or the debts that tore the Greek economy apart when the IMF and Europe imposed them on Greece instead of letting it default on debts owed to French and German bondholders.
More:
Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their... labor duties and serving in the army...
Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs... Societies that canceled the debts enjoyed stable growth for thousands of years.
Porter Stansberry, formerly of Agora's Stansberry Research, has canvassed the history.
He identifies four requisite elements of a debt jubilee:
The wealth gap must be getting dramatically bigger.There must be cultural threats from those with different values or from outsiders (in other words, minority populations and immigrants).The government must be ineffective at providing solutions.And there must be growing anger toward the "elites."Does the United States not meet these conditions? Conditions 3 and 4 in particular? And in heaping abundance?
Clearing away the debt that squats so heavily upon the United States economy is perhaps the way to renewed American prosperity and global prosperity.
The economic apparatus can then proceed upon solid settings of capital.
It would be unencumbered and unbridled by debt... a stallion suddenly freed from its fetters.
Ours of course is not a serious proposal. A debt jubilee may even yield a bellyache grander than the present bellyache.
What about all the honest creditors who would go scratching... for example.
Who would loan out money at all knowing one day he may be fleeced, dragooned and clubbed out of both principal and interest?
He is left holding sawdust.
And why should deadbeats be excused? Why let them down from their hooks?
It makes no nevermind... for a debt jubilee will never be.
Yet have you a superior solution?
The Daily Reckoning