Links


What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

Archives

Trump’s legacy – nightmare debt

You earn 50k per annum but you overspend by 2k each year. This has been a habit and your debts are now 55k. Interest on your debt is 1650 each year and is added to the debt. How does that feel and what would be doing about this?

To answer perhaps ask that man Trump. This is exactly the situation the US is in but the numbers are just a bit bigger. In fact they are unimaginably bigger. According to Deutsche Bank analysts the interest on US government debt is $1.43bn every day. EVERY DAY! This is 10x any other G7 nation and despite record low interest rates.  The US is adding a trillion to its debt each year and it has accelerated markedly since 2008 when it was ‘only’ $5 trillion. Interest rates on US debt are rising and taking money away from other economies whish also suffer at the hands of the US Dollar being strong, especially where that effects fuel.  So is the dollar too strong? Arguably its strength is not sustainable as we can see below.

So to the problem and the real danger. The US is not reining in spending (despite the Donald saying that debt will be eradicated in 6 years from now.) Democrats are also in no mood to help the President, so what will happen? The most likely scenario is that inflation will be allowed to rise and the dollar will be allowed to devalue to allow the debt mountain of fall in value. Good economic growth will help but the current bubble is itself deficit fuelled through tax cuts, the effects of that will wear off and the economy is very hot and with near full employment. There is also burgeoning consumer debt that will slow and stall the economy. With interest rates rising globally, the cost of servicing he debt will rise. It is interesting to note also that during the mid terms the bond markets reacted badly each time a republican candidate came through as a winner. The markets want the debt controlled and have no faith in Trump doing this.

By 2023, on the current trajectory the cost of service US debt will exceed the cost of US defence. This is a very large ticking bomb and a lot of heads are buried in the sand for now but some are waking up to.  There is evidence, for example the debt being sold by the US has increasingly short maturity because it is more saleable but this in turn means greater future risk when debt is rolled over.

Something has to give. Watch this story unfolding, and maybe buy some gold.

Oh, just seen a Tweet, it’s fake news, it’s going to be great!


Share this post

Share


blog comments powered by Disqus