We have doubled the national/federal debt in just the last ten years. Current headlines project this fiscal year's federal deficit will be 2 trillion. Yet the "difference" between the current federal debt at 40.080T and fiscal year end 2025 federal debt at 36.215T is 3.865T, approaching the pandemic, fiscal year 2020 "difference" of 4.226T. The distinction between deficits and "differences' is apparently off budget financing factors and beyond my expertise.
Total nonfinancial debt at 81.9T to gross national income at 31.6T is 259%. This percentage is among the highest in our recorded history. It may be the highest outside of financial shocks and business downturns. National income and GDP have been growing, but our debt has been growing faster. We never pay back our debt. We can't pay it back. We simply grow or inflate the national income to reduce this 2.59/1 ratio.
We would have to grow national income at 4% per annum for 25 years, all else being unchanged, for the ratio of debt to national income to decline to a reasonable 1/1 ratio. Real growth was just 1.99% in 2025. The average annual real growth over the last decade was 2.46%. This was partially attributable to the stimulus of 20T in federal deficits/differences over that decade. In order for this 25 years rosy scenario to occur, we have to assume interest rates will not significantly increase, there will be no more borrowing, real growth will continue as is without stimulus, inflation will take us up to the 4% goal, no more increases in military or social spending, no more tax cuts, no more off budget financing factors, and most important, our leadership will recognize the need for fiscal responsibility.
I believe a more likely scenario is that we will have high inflation for years to come, and this debt will be a drag on our economy for years to come.
Half of the current deficit (1T) is to service the interest cost on just the federal debt. Interest costs will be over 18.6% of federal tax revenues this fiscal year. If government revenues cannot keep up with higher interest rates and costs on our higher federal debt, the federal government could default. This scenario would be temporary if it forced our leadership toward fiscal responsibility, but our leadership will be substantially the same leadership that got us into this mess (see below).
I don't see how the world will tolerate allowing international trade to continue to be done in increasingly devalued dollars. They will move away from the dollar.
Stock Market - current market PEs are 30 while historical market PEs are 15.
I think there is merit in the philosophy of buying and holding stock, but I also believe (brace yourselves) the Fed's primary purpose is to manage extreme fluctuations and instability for the benefit of our plutocrats. I believe a major downturn is coming, but only our plutocrats know when we will go bust.
1968 stock market crash
1986 S&L Crisis
2008 Great Recessions I
2026+ Great Recessions II
Intentional deregulation and regulatory forbearance helped create these downturns.
1986 - S&Ls were given powers to make commercial and construction loans for which they had little expertise. Interest rates on S&L deposits were allowed to fluctuate while most of their RE mortgage assets were at fixed rates. There were too few regulators, and they were as clueless as the bankers.
2008 - Glass Steagall was repealed. Efforts to regulate credit default swaps were quashed. Regulators allowed ninja and liar mortgage loans to be sliced and diced into securities that were dishonestly rated AAA by credit agencies.
2026+ - There has been little significant reregulation since the great recession - no Glass Steagall, no regulations on credit default swaps, and no significant 2008 ne'er do wells have gone to jail.
I recommend people now keep a large portion of their portfolios in cash, money markets, or short-term CD's, so they can take advantage of the downturn that I suspect is coming in the next few years.
Full Disclosure: I'm broke, and I've been projecting a future market crash for years.
Secure new leadership with majority rule democracy including runoffs in both primary and general elections.
A dios and buenos suerte.
