I was only about 11 years old when I first heard about the astronomical size of the national debt. That was in the early sixties. The word has always been that with debt, size doesn’t matter. It has always been explained that we owe the money to ourselves and as long as the economy continues to grow, the national debt is not an issue.
For most of United States history, the money supply was not changed suddenly and radically. Today the money supply is increased for the express purpose of transferring wealth from folks at the bottom to folks at the top. Low interest rates are far less than the natural market would ever justify. The simplest way to get paid the most the fastest is to gain political power and then commission the Federal Reserve to elevate the level of the stock market and other assets. Corporations buy back their own stock with virtually interest free money and that allows corporate insiders to sell their own stock at astronomical prices.
All of this works for awhile, but in a short time the economy starts to contract because the bottom half of consumers can no longer make enough money to be customers of the elitists in the top half.
For decades foreign central banks and investors in general have purchased U.S. securities with the profits made by selling goods and services to American consumers. Now they have stopped. This puts upward pressure on interest rates independent of efforts by the Federal Reserve to keep them low.
The chart above shows how rapidly foreign central banks and others are dumping U.S. Treasury securities. On paper, the chart is just a line pointing down after it has been rising for many years. As non-threatening as this looks, it is the beginning of a catastrophe. The United States national debt is so large the economy can generate enough profit to pay the interest on the debt only if rates stay far below what they would be in a free market. If the world continues to sell off Treasury securities, the United States will not be able to pay its bills.
Sometimes a market can be distorted for many decades before market forces impose themselves on the economy. At this very moment, true market forces are starting to impose reality on our financial markets. As I often say, only Wall Street benefits on the way up. What is good for Wall Street doesn’t help main street in the slightest. On the way down, main street suffers severely.