America's $175 Trillion Problem! The true state of the global financial system, in ten charts; the "US is borrowing more under the "Harris-Biden boom" than it did during COVID? Set aside whether
a coronavirus should have been treated as a financial crisis. At least the COVID borrowing was at ~0% rates. But today the US government is borrowing historical sums of money in peacetime…and at 5%"
‘We're headed for something far worse than 2008.
As Elon, Dalio, and Jamie Dimon all recognize, the Western world is headed for a sovereign debt crisis. Just like the establishment was hiding the president’s senility, they’re also hiding the true state of the economy. But let’s calibrate with the ten charts below, and then you can judge for yourself.
Note: this post and the followups got 4M+ collective views on X.
See here for the discussion: 1, 2, 3, 4, 5, 6.
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1) More emergency loans than 2008
First, did you know the Fed made more emergency loans in 2023 than during the financial crisis of 2008? The banking system is on life support thanks to the US government first selling billions in bonds to financial institutions and then devaluing them with surprise rate hikes.
Just look at this graph from the Fed. The blue bump below on the left is the lending from the global financial crisis of 2008 — you know, that little old thing! The purple bump is COVID. And the giant orange/aquamarine monster on the right is the 2023 banking crisis. See how much higher it is than even 2008?!?
2) More borrowing than COVID
Second, did you know the US is borrowing more under the "Biden boom" than it did during COVID? Set aside whether a coronavirus should have been treated as a financial crisis. At least the COVID borrowing was at ~0% rates. But today the US government is borrowing historical sums of money in peacetime…and at 5% rates! This is the act of a desperate man maxing out his credit cards to pay his bills.
3) More interest than defense
Third, did you know that all this borrowing has made interest payments on the national debt the second largest government expense? More than defense, or Medicare, or anything else other than Social Security. Billions of tax dollars (and printed dollars) now go towards payments to bondholders. And even still, anyone who bought US Treasuries (or other bonds) got annihilated over the past few years. For all the warfare and all the welfare, it was buy now pay later.
And as you can see from the graph, the time to pay has come:
4) More devaluation of the dollar
Fourth, did you know that the dollar has lost at least 25% of its value in just four years? This one you probably knew from just your lived experience of inflation. But Larry Summers estimates that purchasing power has been eroded even more radically than this, with annual numbers hitting 18% if you include the enormous spike in loan payments due to rate hikes. Compounded over four years, that’d be easily more than 25% of the dollar's value.
Yet even 25% in four years is quite a lot:
5) More treasury dumping by China
Next, did you know that China (the single largest foreign buyer of US Treasuries) has been dumping US paper at an accelerating clip? This is a bit technical, but China is an “outside investor” in the US kind of like a new venture capitalist investing in your tech company is an outside investor. Even by buying just 5% of your equity (or in this case, debt), they set the price for everyone else. And show that there’s robust outside demand, by people who don't have to buy.
But now that outside demand is crashing:
6) More gold buying by BRICS
But isn’t the dollar a store of value? What are other countries saving in if not US Treasuries? Well, China is a bellwether for much of the non-US world. And those countries have begun stacking historical quantities of gold, even as Western countries have been selling gold.
Take a look:
7) More de-dollarization than ever
Ok, what about the dollar as medium of exchange? Well, China — which is the #1 trade partner of most countries in the world now — has just flipped to majority CNY for cross-border foreign exchange deals:
8) Less sanction efficiency than ever
Ok, but can’t the dollar still be used as a sanctions weapon? Don’t countries need access to the US financial system? Actually, no. All the sanctions on Russia actually ended up hurting Europe more than Russia. Europe needed Russia’s oil and gas, but Russia had other customers.
So according to the World Bank (not a Russian source!), Russia just flipped Japan to become the fourth largest global economy in GDP-by-PPP:
9) Peacetime debt approaching WW2
All right, but what about the US military? Can’t it ultimately go to war to protect the dollar? Well, that’s a much longer conversation, but see the graph below. Today the US is ostensibly in “peacetime."
And yet it has comparable debt to WW2:
This means the US has neither the money nor the manufacturing base for a sustained military campaign against a peer rival like China. You can’t fight your factory — especially when you’re out of money.
10) True debt more than any empire in history
Finally, maybe the single most important number is the $175.3T figure. That’s actually the true debt of the USA, when you take all the entitlements into account, like Social Security and Medicare. And that number is itself rapidly increasing. Don’t take it from me, take it from the Feb 2024 Financial Report of the United States Government.
That $175.3T lines up with the ~$200T number that Druckenmiller has been using for the all-in liabilities of the US government when you take everything into account. And of course, at this point we are in monopoly money territory, because:
The entire fedguv only collected ~$2T last year
That number is itself juiced by deficit spending
The dollar is down ~25% in real terms since 2020
And the "177T" in asset value plummets if liquidated
...or if there is a financial crisis, or both
So, that 175T debt is unpayable. And the US government doesn't have nearly enough to pay for what it owes. It's made promises to everyone, from allies to retirees, that it simply can't keep. To hang on to power amidst that web of broken obligations, it is going to get nasty on a level beyond which most can really comprehend.
See this post for more:
All It Takes Is All You Got
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MAR 29
A recent Wall Street Journal article included this wonderful graph:
The US dollar is needed less, just when the US needs to borrow more
I really haven’t even gotten started. There are many more graphs I could show, many more videos from investors around the world from bonds to real estate who seeing what's happening. But: if you’re intellectually honest, you realize that the dollar’s position is rapidly eroding. It simply isn’t the indispensable asset it was. To summarize:
China doesn’t need the dollar to trade because they are using CNY instead of USD.
BRICS doesn’t need the dollar to save because they are buying gold instead of US bonds.
Russia doesn’t need the dollar to live because they are the fourth largest economy after being shut out of the US economy.
Yet the US needs as much of the world as possible to accept the dollar, as it’s borrowing at levels beyond COVID, beyond WW2, beyond any empire in history.
So, what comes next? I have some ideas, and you have some ideas. But first we need to align on what’s happening.
BONUS: Will AI solve this?
A popular line of thinking is that the economic gains from AI is gonna solve this problem. How do you respond to that?
I love the optimism. But let's do the math. As of late July 2024, here are the market caps of the top tech stocks:
AAPL: 3.4T
MSFT: 3.3T
NVDA: 3T
GOOG: 2.25T
AMZN: 1.67T
META: 1.25T
TSLA: 0.78T
So, the combined market cap of the Magnificent is "only" $15.65T. That's less than 10% of the $175.3T owed by DC! So, even if AI produces another Magnificent 7, there's no way to grow out of this. And by the way, it takes years to grow a trillion dollar company, years during which the US will just accumulate more debt at an accelerating clip. Everyone isn’t going to get what they’re owed.
A debt crisis is coming.’
Excellent scholarship worth a read and support:
America's $175 Trillion Problem - balajis.com
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Anyone who studies the course of empire knows where this story ends and it ain't good. Nothing will stop what is going to happen now. It's all baked into the cake. It's gone way too far and the only chance for it to be stopped is a one in a million shot. If an army of Traditionalists(conservative is not enough) come out of the woodwork and take the House and Senate and Trump lives to see the White House again, then there's a chance but they will have to do everything right. I'm talking about drastically cutting EVERY part of government and elimination of all of the useless departments. Freezing increase of SS payments. Driving all the Fraudsters off public assistance and back to work. Elimination of corporate welfare and monopolies. Drastically cutting the Federal workforce and farming out much of the work to the private sector. Closing at least 700 overseas Military Facilities. And don't forget the NGOs and Churches and countless other clingons that profit off the favors of the Feds. That's a fair start but I ask you, what is the likelihood of that scenario playing out? And secondarily, what is the likelihood we become the next empire that just spread itself too thin in its quest to control the world? Our Founding generation was brilliant and left us the best chance of success that any country ever had and I am afraid we have allowed it to self destruct.
Cloward-Piven: A political strategy for creating a communist regime in America. It simply bankrupts the nation via unrestrained spending. The ensuing chaos, poverty, and starvation prompts political reform replacing the deliberate "failure of capitalism" with the total tyranny of communism.