We Have Three Years before The National Debt ‘Death Spiral’

The comments below are an edited and abridged synopsis of an article by Marc Slavo

According to the US Treasury Department’s Office of Debt Management, the US government is just 5 years away from the point of no return. With the national debt spiraling out of control, there are only a few years left before every dollar the government borrows will go toward funding interest payments on the national debt.

We Have Three Years before The National Debt ‘Death Spiral’ | BullionBuzz
spiral staircase, like a modern hen that protects from the imperfections of modern life, in vintage but futuristic black and white

As part of the presentation to the Treasury Borrowing Advisory Committee, there is a chart showing the Office Of Debt Management’s forecast for annual US debt issuance, broken down between its 3 component uses of funds: Primary Deficit, Net Interest Expense, and Other.

That chart is troubling, because while in 2019 and 2020 surging US interest expense is roughly matched by the other deficit components in the US budget, these gradually taper off by 2024, and in 2025 become a source of budget surplus. But the real red flag starts in 2024, when the primary deficit drops to zero, and all US debt issuance will be used to fund the US net interest expense that, depending on the prevailing interest rate between now and then, will be anywhere between $700 billion and $1.2 trillion.

In short: In the stylized cycle of the US Minsky Moment, America will enter the penultimate Ponzi finance phase—the one in which all new debt is used to fund only interest on the debt—sometime around 2024.

At that point, the government will have reached the death spiral, the point at which the complete collapse of the government and financial system is imminent.

Some places in the US are at the crisis point. They have either gone through bankruptcy, or they have implemented major fiscal reforms that reversed their fiscal deterioration. In the best-case scenarios, they acted to restrain their previously out-of-control spending to restore their fiscal health.

It is unlikely, however, that the US government will restrain its spending habits.

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