Total US Debt increased by $1 Trillion per month. It took the US over two centuries to accumulate its first trillion dollars in Federal debt, a number which was surpassed for the first time in the fourth quarter of 1981. Fast forward less then 40 years to today, when according to the US Treasury, total US debt just surpassed $26 trillion, or $26,003,751,512,344.91 as of June 9, to be exact.
What is stunning, however, is the recent pace of increase: total debt was “only” $23.5 trillion on March 23, the day the Fed unleashed unlimited QE, meaning that in two and a half months, the US has added $2.5 trillion in debt.
And the punchline: the US added the last trillion dollars in the shortest time on record, achieving this remarkable feat in just one month, since May 4, when total debt was just under $25 trillion.
Considering debt by itself is meaningless. Debt must always be factored against ability to pay back. Clearly, you or I can’t borrow billions of dollars, but Microsoft or Apple can – because the generate billions of dollars in revenue. So we must look at tax receipts reaped from the economy to understand what this increase in debt load means. And historically tax receipts are around about 10% of GDP…but what you may note is the public or marketable federal debt is on a totally different trajectory (see graph below):
To gauge the quantity of federal taxes collected from the economy, it’s pretty easy to divide annual federal tax receipts vs. the marketable debt (red shaded area below). If the tax receipts or coverage is declining versus the debt…we have a problem (BTW- we have a very big problem). But then you have to add in the Federal Reserve’s role in (mis)managing rates (since 1981) and actively buying Treasuries (since 2008) to distort rates and asset prices. This has encouraged Congress to spend what it isn’t willing to collect from the people…thanks to the Federal Reserve giving Congress the idea that the money is “free”. It is not.
In effect, with declining Federal Tax receipts, US will be unable to cover its debt payments. Then add simple demographics, as working age population decelerates (which is happening very quickly) …and the debt load moves inversely.
In effect the US is a failed state walking. Not even Trump, having had 4 bankruptcies and screwed over countless banks, can get the US out of this one.
Meanwhile he is picking fights with everyone and increasing sanctions on Iran – to tank Iran’s economy. But as hard as it is for ordinary Iranians, Iran’s economy on a relative scale is much healthier.
Years of sanctions have meant that Iran basically buys everything for cash. It has almost no foreign debt load in comparison. Officially while US debt load is > 100% of its GDP, Iran is nominally at 40%. Much of this debt, however, is domestic. In dollar terms Iran only has about $8 Billion dollars in foreign debt (peanuts), while Iran’s manufacturing (i.e. non-oil exports) last year alone was greater than $50 Billion dollars.
Iran is in fact totally immunized from the vagaries of the Federal Reserve and Trump’s stupidity. Let’s not forget that in 2008 when the US economy tanked it took down Iceland, UK and virtually the whole western world with it. When the US has a cold, the whole western world gets a fever. Meanwhile, Iran, was relatively untouched.
And here is a surprise: Last year, Iran’s stock market was the best performing equity market on earth, more than doubling in dollar terms. Far from failing, Iran is in fact become more self-sufficient, transitioning to a non-fossil-based economy, and ‘surviving’!
Meanwhile the US is a failed state walking.