CBO sees US debt at 180% of GDP

Barring an energy miracle, the trajectories of US debt and inflation will remain exponential.

US Congress worries about debt

Each year, the Congressional Budget Office releases its projections for the US government’s budget deficit and debt.

Verdict: the budget deficit will represent the equivalent of 5.8% of GDP in 2023.

The primary deficit (excluding debt interest service) will be equal to 3.3% of GDP. Clearly, interest alone will represent 2.5% of GDP, or nearly 900 billion dollars.

By the end of the year, the federal debt held by the public is expected to reach 98% of GDP. The CBO even sees the debt reaching 181% of GDP in 2053… [Ces chiffres prennent seulement en compte la dette fédérale. La dette comprenant celle des États représente déjà 130 % du PIB].

We can read in the report :

“Such high and growing debt has significant economic and financial consequences. It increases interest payments to foreign holders of US debt, increases the risk of a fiscal crisis and makes the country’s fiscal position more vulnerable to an increase in interest rates. »

There “fiscal crisis” being a situation in which investors lose confidence in the ability of the US government to service its debt, this “which would lead to a sharp increase in interest rates, an inflationary spiral or other disturbances”.

This is what recently happened in Argentina, Lebanon, Sri Lanka, Syria, Venezuela, Turkey, etc.

The CBO adds that “expectations of higher inflation rates could become widespread, which could erode confidence in the US dollar as the dominant international reserve currency.”

However, inflation is not about to stop for countries that do not have the chance to enjoy major sources of energy that are inexpensive to come out of the ground.

Ponzi, inflation and energy

Oil powers 95% of the world’s transport engines and unfortunately probably peaked in November 2018. The fruits of the lower branches are always picked first, the remaining naphtha costs more and more to get out of the ground:

The lower branch is what is called “conventional” oil, the one that costs little to get out of the ground. Its peak dates from 2007, when the barrel rose to $140 and triggered the worst crisis since 1929.

Thus, oil is more and more expensive and “substitute” energies (wind, solar, etc.) are even more so.

Energy and economy are two sides of the same coin. The economy is essentially transformation and transport activities carried out by machines that require energy.

The amount of energy is directly proportional to productivity. This productivity must imperatively increase as fast as the debt. A debt which, moreover, must also necessarily increase to make possible the payment of interest, in a crazy exponential headlong rush.

Without an increase in productivity (ie output per person), inflation increases faster than wages and the standard of living falls.

Some think that having a fixed quantity of money would be enough to remedy this. It is a chimera. Fixing the currency does not magically cause more oil to squirt out.

But rest assured, bitcoin doesn’t need to replace fiat currency (it won’t happen) to be worth millions.

The fiat system is neither good nor bad. Everything works (increase in the standard of living) as long as we can extract more inexpensive energy to water the machines. In other words, when we increase the real GDP (the quantity produced) faster than the debt.

This was the case during the thirty glorious years. Inexpensive fossil energy and the trade surplus made it possible to reduce working time and increase the standard of living.

Inflation was certainly high at that time. No one can stop inflation. Simply, productivity made it possible to increase wages faster than inflation. And this thanks to a very rapid growth in oil production.

Faced with this inflationary reality, aggravated by the slowdown in productivity, savings are being massacred. Unless you place it in a store of value. Bitcoin.