Fellow blogger Divemedic brings a timely warning.
Alarm bells should be ringing with the news that the government sold $694 billion in Treasury securities spread over 9 auctions in only three days. Yeah, our national debt now stands at $38.2 trillion. The most alarming thing about this news is that T-bill yields are rising. The 10-year Treasury yield is now at 4.15%. At that rate, the interest on our debt will be more than $1.5 trillion per year. Since Americans only pay about $2.4 trillion in Federal taxes each year, we are edging closer to the point where our debt will begin to grow like a snowball rolling down a mountain.
The only way to keep the government solvent at that point would be to inflate the currency in order to pay it with lower valued money. At that point, inflation will be higher than interest rates, and it will no longer be financially possible to invest in government bonds. This will in turn cause higher rates, which will also create a need for higher inflation. In other words, hyperinflation is the only way out, but that will cause a complete collapse of the US dollar.
There's more at the link.
I can't disagree with anything he says. We've spoken often about debt in these pages, whether government, business, or individual. The inevitable result of too much debt is bankruptcy, in one form or another. A government can't really go bankrupt in the classical sense of the term, because it has laws (and can pass more) to protect it: but it will still not be able to afford the routine expenditure we expect from government. (Even if it tried, savvy businesses would refuse to accept government checks or money orders if they weren't sure they'd be able to cash them.) If you are reliant on government money to feed, house and clothe your family from month to month, you'd better be making plans for when that money is no longer available, and/or has been so (deliberately) inflated that it will no longer buy you all you need.
I also repeat our earlier warnings to get out of debt if at all possible. Sometimes this can't be done, due to factors beyond our control: but certainly don't take on any more debt, unless it's a matter of life or death (e.g. an emergency medical procedure), and don't neglect paying down (and hopefully paying off) debt you already owe. Don't carry balances on your credit cards - pay them off in full every month. Don't run accounts at stores - buy for cash, or do without. Forget "payday loans" or other ultra-short-term loan options (including buy-now-pay-later schemes). They're only designed to enrich the person or institution making the loan, not the one repaying it.
In particular, prepare now for what might hit us if the dollar does lose much of its remaining value. Try to have one to three months' worth of food stockpiled and ready for the day you can't afford to buy more. Try to have an emergency fund of at least one months' expenditure on normal bills, and three to six months if possible - and make sure that includes rent, electricity and other utilities. There's no point in having food available if you have no electricity to keep it frozen or to cook it!
All these are basic measures, to be taken during good (or at least better) times in order to make it through the bad times. Take as many of these step as you can afford, and plan ahead (and around) to deal with those you can't afford.
Peter
11 comments:
Ten year treasury down from 4.81% in January.
Please panic! Then ask why Yellen sold 2s not 10s when Biden was in office. Oh, to set this mess up to begin with? Yes.
Amen. Prayer will help but having Beans, Bullets and Bandaids will be hard to service soon if you don't so something now.
Why get rid of debt?
Borrow higher value dollars now to buy assets that will hold their value, repay with lower value dollars later.
It's people that hold savings that are going to get curb-stomped, as they become unable to earn enough on their "safe" savings to counter the decline in value of those savings. Heck, we're already there.
Here is another alarm bell ringing over the state of the economy.
Grumble...guess I know what I'm going to be doing.
@ruralcounsel: That's a great idea - provided that you actually have enough lower-value dollars to do that when the time comes. You've also got to factor interest rates into the equation. If you've paid so much interest on your borrowed higher-value dollars that you've spent more than their lower-value equivalent by the time you repay them . . . you lose every time.
What cannot continue won't. But it's amazing how long the criminals in power can keep this house of cards propped up. And the longer they can keep the fiction of a functional society alive the more wealth they can loot.
Not to mention, some loans have escape clauses as it were on interest rates. I.e., your interest rate is locked in until...., then it is raised to match ....
Land has always been the source of wealth because it grows food. Have clear title to land. Know how to use it.
Local community colleges offer good skills training. Enroll in a class. Get some skills.
You are also assuming that the costs of storing, maintaining, or selling those assets won't eliminate any potential profit, and that people will be able to afford to buy them when the time comes.
Most land is unproductive, or insufficiently productive to cover its carrying costs (i.e., property taxes). And most people can't afford the capital investment to make money farming. Rental property can be tampered with (see e.g., rent control, eviction moratoriums). Even confiscated.
Any borrowing will end up with paying more than you borrow, because of interest. But the time value of money has to be accounted for. If you don't need to borrow money, why would you? Unless you can make more than the interest you're being charged. I never borrow money I can't pay back, but that doesn't mean you can't gain by borrowing.
Fixed low interest borrowing, when necessary, is a great thing. My current mortgage is fixed at 2.375%. I'd be nuts to pay that off when I can put my cash to better uses. Gold is up 26% so far this year. The S&P 500 is up over 10% so far this year. Every firearm I've purchased over the past 45 years has appreciated significantly. Same goes for the ammo I have stockpiled.
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