US Debt at $16 Trillion, a Precarious Confidence Game

Great stuff from Sovereign Man’s Simon Black,

If you haven’t heard yet, the United States of America just hit $16 trillion in debt yesterday. On a gross, nominal basis, this makes the US, by far, the greatest debtor in the history of the world.

It took the United States government over 200 years to accumulate its first trillion dollars of debt. It took only 286 days to accumulate the most recent trillion dollars of debt. 200 years vs. 286 days. This portends two key points:

1. Anyone who thinks that inflation doesn’t exist is a complete idiot;

2. To say that the trend is unsustainable is a massive understatement.

At an average interest rate of 2.130%, Uncle Sam will shuffle $340 billion out the door just in interest payments this year… and it’s a number that’s only going up. To put it in context, China owns so much US debt that the INTEREST INCOME they receive from the Treasury Department is nearly enough to fund their entire military budget.

It’s rather disgusting when you think about it.

Many mainstream observers (who largely are apologists of the government) argue that because US debt is denominated in the domestic currency, this has been nothing to worry about, as the US Federal Reserve can do the bidding.

Well they are to be proven eventually wrong, because economic reality will prevail. Again Simon Black

History is full of examples of superpowers bucking under the weight of their debt. This is not the first time that it’s happened, and it won’t be the last.

Sovereign debt is a giant confidence game. Investors buy bonds on the belief that governments can (and will) pay. When that confidence is chipped away, the cost of capital becomes debilitating. And people tend to notice a $16 trillion debt burden.

This is banana republic stuff, plain and simple… and smart, thinking people ought to be planning on capital controls, wage and price controls, pension confiscation, and selective default. Because the next trillion will be here before you know it.

Include political and other social controls, banana republic stuff…like totally.