The United States national debt has been a topic of concern and discussion for many years. With the debt level already approaching $32 trillion, there are predictions that it could skyrocket to an unprecedented $100 trillion in the not-too-distant future.
In this article, we will delve into the factors contributing to this exponential growth, drawing insights from both Part 1 and Part 2 of our analysis.
Part 1: Examining the Trend
In Part 1 of our analysis, we explored the trajectory of the United States debt from 2000 to 2023.
The data revealed a consistent pattern of increasing deficits and steeper angles of debt accumulation after each recession.
This trend suggests that if another financial crisis were to occur, as history indicates, the government deficit spending would escalate even further.
By extrapolating this trend, we find that the United States debt could potentially reach $50 trillion within the next three years and a staggering $100 trillion within the next five to seven years.
Part 2: The Eurodollar System and Collateral
In Part 2, we delved into the Eurodollar system and its pivotal role in the global monetary system.
This system allows banksters (bankers) to create dollars outside of the United States by lending them into existence. Collateral, particularly treasuries, plays a crucial role in this system.
After the 2008 financial crisis, treasuries became the primary form of collateral, experiencing a surge in demand.
This demand is attributed to the need for trust and collateral in the global monetary system, propelling treasuries to become the preferred choice for backing transactions.
The Federal Reserve's Involvement and Demand for Treasuries
The Federal Reserve plays a significant role in the United States debt landscape. It can purchase treasuries that the market does not absorb, mirroring the approach taken by the Bank of Japan.
This action can potentially shift a significant portion of treasuries onto the Federal Reserve's balance sheet. With the continued demand for treasuries and the central bank's intervention, the stage is set for further growth in the national debt.
Destruction as a Driver of Demand
A concept akin to Say's Law, where destruction creates its own demand, comes into play when discussing the United States debt.
In our analysis, we explore the notion that increased interest rates resulting from the issuance of additional treasuries could lead to destruction within the real economy.
Paradoxically, this destruction drives demand for treasuries as investors seek safe havens amid economic turbulence.
This cycle of destruction-driven demand may cap interest rates and enable the government to continue expanding the debt.
Conclusion: The Path to $100 Trillion
Drawing insights from our analysis of the United States debt, it becomes evident that reaching $100 trillion is not implausible.
The combination of increasing deficits, the Eurodollar system, the role of treasuries as collateral, and the potential involvement of the Federal Reserve sets the stage for unprecedented debt accumulation.
Despite concerns over inflation and economic consequences, the demand for treasuries and the need for trust in the global monetary system create an environment where the debt could continue to grow exponentially.
As we navigate the challenges and intricacies of fiscal policy, understanding the driving forces behind the United States debt allows us to grasp the potential implications for the economy and financial markets.
It is imperative that policymakers and individuals alike stay informed and prepared for the repercussions of a rapidly escalating national debt.