by Doug Casey, International Man:
International Man: At $1.1 trillion, annualized interest on the US federal debt is now the second-largest budget item—and is on track to become the largest.
Meanwhile, long-term interest rates are climbing, even as the Fed lowers short-term rates.
Can the US government keep kicking the can down the road? Or will Trump have to reset the system?
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Doug Casey: Starting in the 1960s, a growing number of people noticed the size of the debt and annual deficits. Even back then—when numbers were trivial compared to current levels—it was said this can only end up one of two ways: Either runaway inflation, where the dollar loses all value, or catastrophic deflation caused by massive defaults in debt.
It occurred to me, in the 1980s, that it could wind up with both happening, either in sequence or simultaneously in different sectors of the economy. While you couldn’t rule out a soft landing, the most likely eventual result would be financial and economic chaos.
Massive money printing and debt accumulation have gone on for something like 80 years, and the system has held together. Why should it end now? Maybe they can wring one more cycle out of the corrupt Keynesian system. That said, I think we have finally reached the actual crisis point. Although this certainly isn’t the first time the inevitable seemed imminent…
What’s genuinely different this time is Trump. For whatever reasons—yes, I know what the party line is—he and Elon are radically reforming the government and may yet change the downward trajectory of America. At least they’re throwing sand on the slippery slope.
I thoroughly approve of his massive firings of employees, disbanding agencies, and cutting the budget by hundreds of billions. The risk is that he might bring on a deflationary collapse. Many of the government grifters and their pals, who are getting rich through the likes of USAID, will have to radically reduce their spending. Many could wind up in bankruptcy, defaulting on their mortgages and other debt. That’s how a deflationary credit collapse could start.
Trump’s very familiar with bankruptcy proceedings. Having bankrupted numerous entities, he sees the dangers of bankruptcy. Will that scare him away from making more radical moves? I don’t think so. He sees a chance to both carve his name in stone and save what’s left of America. Plus, he sees what he’s doing as a path to personally bankrupt some of his enemies and hurt all of them. He has plenty of reason to be righteously vindictive.
He’s going for a full reset of the system. It’s risky because he has no philosophical core, just gut feelings. And no grasp of economics, just business experience (which is different). But something had to be done to keep the US from turning into a socialist cesspool like all the countries in Europe.
Along with massive deregulation, I expect he’ll do something with the monetary system.
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