If The US Was a Company, It Would be Bankrupt

Let’s pretend the US is a company.

For starters, this company has a massive debt problem. The official number is $14 trillion and counting, which is roughly the equivalent of one year’s annual production. On the surface, that’s not TOO bad.

However, if you treat the US’s balance sheet according to Generally Accepted Accounting Principles (GAAP) you have to also consider future liabilities in the form of Social Security and Medicare, which puts total debt at $65+ trillion: an amount equal to 5 years’ worth of production: a REAL issue.

A debt load of this size requires massive sales and cash flow to service it. However, the problem is that the company’s primary sales segment (tax receipts) remains below pre-Recessionary levels.

Now, the company has gotten a new CEO (the old one left after racking up this massive debt load). However, rather than trimming the fat from the company, he’s decided to INCREASE its operating costs/ annual spend. So the company is now having to issue MORE debt (roughly $150 billion a month) at the same time that it is trying to roll some of its OLD debt over.

This MIGHT work if the company’s current debt holders (foreign governments, especially China and Japan), weren’t already beginning to doubt that they’d ever get their money back. Indeed, according to the Treasury Department’s Treasury International Capital Data Foreign Governments particularly China have actually SOLD US debt in the last year.

Thus, the US has entered a debt spiral: a situation in which more and more debt needs to be issued at the same time that demand for US debt is becoming shorter and shorter in duration. Indeed, according to the Treasury, in the next 5 years the US will have 73 days in which it needs to roll over $20+ billion in debt and 46 days in which it needs to roll over $30+ billion. And this is WHILE issuing $100-150 billion in new debt per month.


This is already taking its toll on long-term US debt.


 

As you can see, the 30-year Treasury Bill has been bouncing along its long-term uptrend for months now. Whenever it finally breaks below this line, we’re likely to see the 30-year plunge to 105. This means MUCH higher interest rates which will kick the economy AND the stock market in the teeth.

And if we break below 115… look out below.


Graham Summers

 

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