The Speed of Fiscal Collapse Increases
In a shocking turn of events, the Department of Treasury has reached alarming levels of debt issuance, surpassing even the records set during the pandemic. With $7 trillion in new debt issued in the fourth quarter of 2023 and a total of $23 trillion for the year, the Treasury market has ballooned to $27 trillion. This represents a 60 percent increase since the start of the pandemic, and a sixfold increase since the 2008 crisis.
The magnitude of this debt accumulation is cause for concern. If another crash were to occur, it could potentially be much larger than any we have experienced in the past. Federal debt is now rising by $1 trillion every 90 days, and government spending as a percentage of GDP is at levels not seen since World War II. The question then arises: why is there such an excessive amount of debt?
The answer lies in the belief that debt fuels economic growth. Balaji Srinivasan aptly describes the situation, stating, “The economy isn’t real. It’s propped up by debt. They will fake it till they break it.” This reliance on debt to sustain economic growth is a dangerous game. Even The Wall Street Journal, known for its embrace of debt, sounds the alarm, warning that rapid debt growth often ends badly. Given the enormous size and perceived safety of the Treasury market, any instability could have catastrophic consequences.
The reason for this potential catastrophe is that U.S. Treasuries are treated as cash equivalents by banks, pension funds, large corporations, and individual investors. They are seen as a safe investment that pays interest. However, this perception is false. Treasuries are merely promises from the government to repay investors in the future. If investors lose faith in Uncle Sam’s ability or willingness to pay back these debts, it could trigger a crash in the Treasury market.
The consequences of such a crash would be disastrous. It would immediately send the entire banking system, pension system, and hundreds of corporations into default. The financial system would grind to a halt, with individuals unable to access their funds. The entire economic structure built on the belief that every penny of federal debt will be repaid in full, with interest, would crumble.
What makes this situation even more perplexing is that neither voters nor Congress seem to believe that the debt is real. If you were to inform a voter about the cost of student loan bailouts or another war, most wouldn’t care because they don’t see it as a real burden. Yet, everything depends on the illusion that the government will fulfill its debt obligations.
In conclusion, every fiscal trend is moving in the wrong direction. With a $2 trillion deficit already in place, it is expected to skyrocket by trillions when the next recession hits. Additionally, the continuous spending on programs such as Social Security, Medicare, and various other expenditures only exacerbates the issue. At this point, there is nothing standing between the United States and fiscal collapse; the only question is when it will occur.
Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.
