U.S. Attains Frightening Milestone

Andrew Jackson Turns in His Grave Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] It’s come to our attention that you might be missing out on extra benefits exclusively for The Daily Reckoning subscribers. Check out our website where you can find archives, updates, and everything else included in your subscription. You can access it by [clicking here now](. U.S. Attains Frightening Milestone - Congratulations to the U.S. government!… - Inflation is the only way out of the debt death trap… - Heading for a sovereign debt crisis… Recommended Link [Urgent Note From Jim Rickards: “You’re Running Out Of Time!”]( [Read more here...]( [Your exclusive “Pro level” upgrade to Strategic Intelligence is ready to be claimed.]( This is your chance to claim 3 exciting new benefits along with a whole new level of service. Hurry… you only have until the timer hits 0 to act. After the timer runs out, you’ll forfeit your chance to upgrade… and you may miss out. Please don’t waste any time. Just click below to see how to confirm your upgrade: [Claim My Upgrade]( Portsmouth, New Hampshire February 7, 2022 [Jim Rickards]Dear Reader, Well, we did it! It took some hard work, but the United States finally managed to find itself with $30 trillion of government debt. But if anyone is actually thinking of celebrating this dubious accomplishment, I have some advice for you — get ready for the hangover. Let’s see how we got here… The U.S. government bond market was invented by Alexander Hamilton early in the first administration of George Washington around 1790. The newly formed United States of America was facing claims from creditors who had financed the Revolutionary War. The Congress had a simple solution: Default! That’s the American Way. But Hamilton had a better idea. He said the new government should borrow more money and use that to pay off the old creditors. Once we did that, we would be deemed creditworthy and we could borrow even more money to pay off the money borrowed in the first round. This plan was so successful that the U.S. Treasury market is now celebrating its 230th anniversary! That’s how long the U.S. has been borrowing new money to pay off old debt. In 1835, Andrew Jackson became the first and only president who cut the national debt to zero. Inflation Is the Only Way Out The story of U.S. debt is not one in which the debt went up steadily for 230 years. The actual history is that the debt went up in times of war and it was paid back in times of peace. Debt went up in the War of 1812, the Mexican-American War of 1846–1848, the Civil War, World War I, World War II, Korea, Vietnam and under Reagan to win the Cold War. (The only major debt increase without war prior to 2000 was during the Great Depression). But the war debt was paid off during times of peace including the 1820s, 1870s, 1920s and 1990s. It was only after 2000 that things went off the rails and government debt went straight up under George W. Bush, Barack Obama, Donald Trump and Joe Biden. Now the debt is unmanageable without inflation. Inflation favors debtors because they get to pay back the debt with depreciating dollars. It’s easier to pay down debt because you’re paying back debt with dollars that are less valuable than when you originally borrowed them. So inflation eases the real value of debt. On the other hand, deflation increases the real value of debt. With deflation, the value of money increases, making it more burdensome to pay off debt. This is why debtors hate deflation. The other way to deal with the debt is to default. But there's no reason for the U.S. to default because the debt is in dollars and we can print the dollars. That’s the great advantage of having the world’s leading reserve currency, what French Finance Minister Valéry Giscard d'Estaing termed the “exorbitant privilege” in the 1960s. Recommended Link [[Urgent for February 10th 2022] The Biggest Market Crash of the last 92 Years?]( [Read more here...]( February 10th could mark the beginning of the biggest market crash of the last 92 years… Bigger than 2008, 1987, or even 1929. And according to one ex-government insider it all has to do with a number the Biden administration is lying about. Once this number hits the mainstream news it’s game over for America. [Click Here For More Details]( The Debt Death Trap People who say, “We can’t pay off the national debt!” don’t understand this market. There’s no need to pay off the national debt. We just have to keep rolling it over. But to do that we need to maintain our credit standing, as Hamilton understood. Once our credit is called into question, the entire house of cards collapses. This shows up first in higher interest rates, then in a devaluation of the dollar and finally in illiquid markets where the debt just can’t be sold except to the Fed. The final stage is hyperinflation and complete collapse of the currency and the bonds. It’s not going to happen tomorrow, but we’re getting closer to that endgame. I’ve said before that the U.S. is caught in a debt death trap. Monetary policy won’t get us out because the velocity of money, the rate at which money changes hands, is dropping. Printing more money alone will not change that. Fiscal policy won’t work either because of high debt ratios. At current debt-to-GDP ratios, each additional dollar spent yields less than a dollar of growth. But because it must be borrowed, it does add a dollar to the debt. Debt becomes an actual drag on growth. The ratio gets higher and the situation grows more desperate. The economy barely grows at all while the debt mounts. You basically become Japan. The national debt is $30 trillion. A $30 trillion debt would not be a serious issue if we had a $50 trillion economy. But we don’t have a $50 trillion economy. We have about a $21 trillion economy, which means our debt is bigger than our economy. And it’s stalling. A Small Rounding Error Away From Recession Although we’re only about one-third of the way through the first quarter of 2022, the Federal Reserve Bank of Atlanta has published its estimate for first-quarter growth using the data we have so far. The result is a forecast of 0.1% GDP growth on an annualized basis. That’s a small rounding error away from a recession. That’s significant because the Atlanta Fed is known for its highly optimistic forecasts. There are several reasons for this weak start to the quarter. The first is that strong fourth-quarter growth in 2021 was mostly a mirage. Almost the entire growth came from inventory accumulation. That does not represent final sales; it represents goods piling up in warehouses. Recommended Link [Silicon Valley insiders are delighted about WHAT?]( [Read more here...]( What if I told you… That in Silicon Valley, DONALD TRUMP will one day go down as one of the greatest Presidents of all time? Sounds crazy. Until you see this. [Click Here Now]( If those goods get sold in the first quarter, they don’t add much to GDP because they were already counted in GDP when the inventories were purchased. If the goods don’t get sold, it’s even worse because supply chain managers will cancel new orders while waiting for the inventories to run off (probably at steep discounts). Also, the economic impact of Omicron is just being felt now. It hit hard in December but did not have much impact coming that late in the year. After Jan. 1, the quarantines, hospitalizations and lockdowns started to pile up, so the first quarter will bear the brunt of it. When you combine this intrinsic weakness with Fed tightening today and rate hikes in March, you have a recipe for recession in the first quarter. Heading for a Sovereign Debt Crisis In basic terms, in the bigger picture, the United States is going broke. We’re heading for a sovereign debt crisis. I don’t say that for effect. I’m not looking to scare people or to make a splash. That’s just an honest assessment based on the numbers. Tax cuts won’t bring us out of it; neither can structural changes to the economy. Both would help if done properly, but the problem is simply far too large. You can’t grow yourself out of this kind of debt. So an economic time bomb is ticking. Velocity is dropping. Debt is growing while growth is slowing. The explosion will come in the form of asset bubbles bursting and stocks crashing. There’s no way out of the debt death trap except through inflation. Say goodbye to Hamilton’s master plan. Time to buy some gold before the rush into hard assets really begins. Regards, Jim Rickards for The Daily Reckoning Editor’s note: For about two years, our co-founder Addison Wiggin has been running a regular interview series, [The Wiggin Sessions]( in which he’s been picking the brains of some of the brightest minds in finance. They’ve been available only to a select group of subscribers. But no, Addison has decided to open up the advice to you at no cost. That’s correct: at no cost. But The Wiggin Sessions aren’t dry talk about financial markets. In fact, they’re not about the markets necessarily. They’re conversations about the economy, politics, history, even pop culture – besides of course where you want to put your money. This Thursday, Addison’s having [a conversation about the major historical cycles that have resulted in depressions, revolutions and world war.]( Are they happening all at once, right now? We invite you to take a peek. Addison’s guest is an entrepreneur and investor who has made and then lost a few million… then made a few more. Experience like this helps when going through paradigm shifts like what we’re going through now means something. The Wiggin Sessions will give you an opportunity to transform your life, your understanding of markets, economics, history, even reasons to believe in the future. Join The Wiggin Sessions today for FREE. [CLICK HERE.]( By submitting your email address, you will receive a free subscription to Wiggin Sessions and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. [Privacy Policy](. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. 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