Two Hundred Trillion Dollar Tuesday - Global Debt Hits 3x GDP


That's a lot of zeros!  Global debt has squeaked past the $200Tn mark and Global GDP is about $70Tn so getting to 3 times the size of our combined GDP means the US is way behind with just $19Tn in debt in an $18Tn economy.  Lucy, we've got some spendin' to do!

Actually, Global Government Debt is "only" $58Bn and 1/3 of that is ours - so we are certainly doing our share in that department.  We're also leading the World in every other category of debt as well and, according to our National Debt Clock, if you include our unfunded liabilities (SS, Medicare, etc), the US is $101Tn in debt, which works out to $846,126 per taxpayer.  

Like Global Warming, when a problem is that big it's best that we just put our heads in the sand and ignore it, right?  And speaking of Global Warming, Bill Gates has a bit to say on the subject in his annual Foundation Letter - worth reading.  As to our debts, we're currently running a $447Bn deficit so, if we raised taxes by $1Tn (30%) and we capped spending, we could pay off our debt in 40 years (providing interest rates remain this low).  

Like Lucy at the conveyor belt, we are on a course we're unable to change and it's getting harder and harder to keep up.  If the GOP has their way, we'll be in the same situation with Climate Change as we are with debt and both will likely end in catastrophe.  

There is a solution for debt: growing the economy, cutting military spending (200% of our annual debt) and raising taxes, especially on Corporations, who contribute just 10% ($386Bn) in tax revenues - down from 30% pre-Reagan.  Just bringing corporate taxes back to where they were would wipe out the debt and give us enough extra to pay down our deficit without cutting anything.  Kind of makes you wonder why you never hear about that solution in the Corporate Media, right? 

Hey, I know, let's elect #19 President - that will fix everything!  As much as we talk about Billionaires, it's our Corporate Citizens (thanks SCOTUS) that have the real power in this country and some, like Koch Industries, Bloomberg or NewsCorp are interchangeably linked to the Billionaires that control them, amplifying their will through their control of Trillions of Dollars in additional assets.  Those fortunes were built by putting our country into debt (spending too much to build the infrastructure their fortunes are built on and then taxing them too little on the profits they made) and, now that it's time to pay the piper - they don't want to and they are exerting their power to make sure they never have to.  

That's the reality in America at the moment and this election, more than any before, will ask our citizens to choose a path that either puts one of these 20 people directly in charge of the country (no more middle-men to bribe) or possibly, we go with a guy who wants to tear it all down and give the country back to the people.  That's not a political statement - that's the choice we are being given - you decide.  

Actually, our long-term debt situation gives me a long-term BULLISH outlook for the market.  Why?  Because there is no possible way that we can ever pay down our debt through austerity.  If we cut spending and raise taxes, the economy will contract or stall and we'll accomplish nothing for the 4 decades it would take to pay down the debt - it's never going to happen.  Default is also out of the question - it would be Global chaos.  

That leaves only one solution - HYPERINFLATION - we can inflate our way out of debt by growing the GDP faster than we grow our debt, just like we did in the 70s.  Debt is generally fixed over 10-year periods so if we can, like China has done, use a combination of stimulus and inflation to grow our economy at a rate of 7% per year for 10 years, our $19Tn GDP can grow to $38Tn in 2027 and, assuming we add even $5Tn in additional debt along the way, it still reduces our debt to GDP ration from over 100% to 63%.  

If we also incorporate some sensible spending cuts and some additional taxes that only affect, let's say, 1% of the population, we can have that number well below 50% in just 10 years.  That is, clearly, the path of least resistance for America and for the rest of the World and I really don't see any other alternative as being realistic for a problem that we do, ultimately, have to face as country after country passes that 300% mark on debt to GDP.  

What will happen to GDP while inflation is increasing?  A high inflation rate wouldn't just affect government bond yields. Remember that private sector debt is a much higher proportion of GDP than it was when inflation was let loose in the 70s.  About 1/3 of our outstanding mortgage debt is variable rate; a significant rise in interest rates would devastate the finances of homeowners if they fail to lock in low rates.

In the US, more than a quarter of Corporate Debt is short-term and thus floating rate. New businesses would find it much more expensive to finance themselves, reducing job creation. Nor would consumers necessarily push up demand in the face of high inflation. Savings rates rose in the 70s, apparently because savers have some "nest egg" figure in mind, and thus save more when the real value of their existing nest egg is eroded.

One thing we can be sure of is that inflation will increase the PRICE (not value) of the stocks we hold - some more than others and we can avoid being on the short end of the inflationary stick by selecting stocks that perform well in inflationary environments.  It's been many years since the US, or most of the World, has had a serious round of inflation but I'm pretty sure 300% of GDP is the tipping point and our Corporate Masters fear deflation even more than they fear inflation - so resistance to the idea is fading fast.