Sunday , 14 April 2024

Only Inflation Will Get U.S. Out Of the Debt Death Trap It’s In – Here’s Why

Well, we did it! It took some hard work, but the United States finally managed to find itself with $30 trillion of government debt but if anyone is actually thinking of celebrating this dubious accomplishment, I have some advice for you — get ready for the hangover. @$$4$


The History of U.S. Debt

…The story of U.S. debt is not one in which the debt went up steadily for 230 years. The actual history is that the debt went up in times of war and it was paid back in times of peace… It was only after 2000 that things went off the rails and government debt went straight up under George W. Bush, Barack Obama, Donald Trump and Joe Biden.

The Debt Is Unmanageable Without Inflation

  • The debt is unmanageable without inflation. Inflation favors debtors because they get to pay back the debt with depreciating dollars. It’s easier to pay down debt because you’re paying back debt with dollars that are less valuable than when you originally borrowed them so inflation eases the real value of debt.
  • The other way to deal with the debt is to default but there’s no reason for the U.S. to default because the debt is in dollars and we can print the dollars…and keep rolling it over. To do that, however, we need to maintain our credit standing…[because,] once our credit is called into question, the entire house of cards collapses. This shows up:
    • first in higher interest rates,
    • then in a devaluation of the dollar and
    • then, when the debt just can’t be sold except to the Fed due to illiquid markets, the final stage is hyperinflation and complete collapse of the currency and the bonds. It’s not going to happen tomorrow, but we’re getting closer to that endgame…

The U.S. Is Caught In A Debt Death Trap

  • Monetary policy won’t get us out because the velocity of money, the rate at which money changes hands, is dropping. Printing more money alone will not change that.
  • Fiscal policy won’t work either because of high debt ratios. At current debt-to-GDP ratios, each additional dollar spent yields less than a dollar of growth but, because it must be borrowed, it does add a dollar to the debt. Debt becomes an actual drag on growth. The ratio gets higher and the situation grows more desperate. The economy barely grows at all while the debt mounts. You basically become Japan.

The national debt is $30 trillion. A $30 trillion debt would not be a serious issue if we had a $50 trillion economy, but we don’t have a $50 trillion economy. We have about a $21 trillion economy, which means our debt is bigger than our economy – and it’s stalling…When we combine the Fed tightening today with the rate hikes last March, you have a recipe for recession in the first quarter.

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A Sovereign Debt Crisis Is Coming

In basic terms, in the bigger picture, the United States is going broke. We’re heading for a sovereign debt crisis. I don’t say that for effect. I’m not looking to scare people or to make a splash. That’s just an honest assessment based on the numbers.

  • Tax cuts won’t bring us out of it;
  • neither can structural changes to the economy.

Both would help if done properly, but the problem is simply far too large. You can’t grow yourself out of this kind of debt so an economic time bomb is ticking.

  • Velocity is dropping.
  • Debt is growing while
  • growth is slowing.

The explosion will come in the form of asset bubbles bursting and stocks crashing.

There’s no way out of the debt death trap except through inflation… It’s time to buy some gold before the rush into hard assets really begins!

The above version of the original article by Jim Rickards ( has been edited ([ ]), abridged (…) and reformatted for the sake of clarity and brevity to provide the reader with a faster and easier read.

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