This May Be The Beginning Of The Great Financial Reckoning

Authored by Simon Black via,

Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years.

And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year.

Then nearly $1.1 trillion next fiscal year.

And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.

Remember, this isn’t some wild conspiracy theory. These are official government projections published by the United States Department of Treasury.

This story alone is monumental– not only does the US owe, by far, the greatest amount of debt ever accumulated by a single nation in human history, but $25 trillion is larger than the debts of every other nation in the world combined.

But there are other themes at work here that are even more important.

For example– how is it remotely possible that the federal government can burn through $1 trillion?

Everything is supposedly totally awesome in the United States. The economy is strong, unemployment is low, tax revenue is at record levels.

It’s not like they had to fight a major two front war, save the financial system from an epic crisis, or battle a severe economic depression.

It’s just been business as usual. Nothing really out of the ordinary.

And yet they’re still losing trillions of dollars.

This is pretty scary when you think about it. What’s going to happen to the US federal deficit when there actually IS a financial crisis or major recession?

And none of those possibilities are factored into their projections.

The largest problem of all, though, is that the federal government is going to have a much more difficult time borrowing the money.

For the past several years, the government has always been able to rely on the usual suspects to loan them money and buy up all the debt, namely– the Federal Reserve, the Chinese, and the Japanese.

Those three alone have loaned trillions of dollars to the US government since the end of the financial crisis.

The Federal Reserve in particular, through its “Quantitative Easing” programs, was on an all-out binge, buying up every long-dated Treasury Bond it could find, like some sort of junkie debt addict.

And both Chinese and Japanese holdings of US government debt now exceed $1 trillion each, more than double what they were before the 2008 crisis.

But now each of those three lenders is out of the game.

The Federal Reserve has formally ended its Quantitative Easing program. In other words, the Fed has said it will no longer conjure money out of thin air to buy US government debt.

The Chinese government said point blank last month that they were ‘rethinking’ their position on US government debt.

And the Japanese have their own problems at home to deal with; they need to scrap together every penny they can find to dump into their own economy.

Official data from the US Treasury Department illustrates this point– both China and Japan have slightly reduced their holdings of US government debt since last summer.

Bottom line, all three of the US government’s biggest lenders are no longer buyers of US debt.

There’s a pretty obvious conclusion here: interest rates have to rise.

It’s a simple issue of supply and demand. The supply of debt is rising. Demand is falling.

This means that the ‘price’ of debt will decrease, ergo interest rates will rise.

(Think about it like this– with so much supply and lower demand for its debt, the US government will have to pay higher interest rates in order to attract new lenders.)

Make no mistake: higher interest rates will have an enormous impact on just about EVERYTHING.

Many major asset prices tend to fall when interest rates rise.

Rising rates mean that it costs more money for companies to borrow, reducing their leverage and overall profitability. So stock prices typically fall.

It’s also important to note that, over the last several years when interest rates were basically ZERO, companies borrowed vast sums of money at almost no cost to buy back their own stock.

They were essentially using record low interest rates to artificially inflate their share prices.

Those days are rapidly coming to an end.

Property prices also tend to do poorly when interest rates rise.

Here’s a simplistic example: if you can afford the monthly mortgage payment to buy a $500,000 house when interest rates are 3%, that same monthly payment will only buy a $250,000 house when rates rise to 6%.

Rising rates mean that people won’t be able to borrow as much money to buy a home, and this typically causes property prices to fall.

Of course, higher interest rates also mean that the US government will take a major hit.

Remember that the federal government already has to borrow money just to pay interest on the money they’ve already borrowed.

So as interest rates go up, they’ll be paying even more each year in interest payments… which means they’ll have to borrow even more money to make those payments, which means they’ll be paying even more in interest payments, which means they’ll have to borrow even more, etc. etc.

It’s a pretty nasty cycle.

Finally, the broader US economy will likely take a hit with rising interest rates.

As we’ve discussed many times before, the US economy is based on consumption, not production, and it depends heavily on cheap money (i.e. lower interest rates), and cheap oil, in order to keep growing.

We’re already seeing the end of both of those, at least for now.

Both oil prices and interest rates have more than doubled from their lows, and it stands to reason that, at a minimum, interest rates will keep climbing.

So this may very well be the start of the great financial reckoning.

*  *  *

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.


manofthenorth verumcuibono Mon, 02/12/2018 - 18:23 Permalink

The Reckoning

It's fine to have a blow-out in a fancy restaurant,
With terrapin and canvas-back and all the wine you want;
To enjoy the flowers and music, watch the pretty women pass,
Smoke a choice cigar, and sip the wealthy water in your glass.
It's bully in a high-toned joint to eat and drink your fill,
But it's quite another matter when you

                    Pay the bill.

It's great to go out every night on fun or pleasure bent;
To wear your glad rags always and to never save a cent;
To drift along regardless, have a good time every trip;
To hit the high spots sometimes, and to let your chances slip;
To know you're acting foolish, yet to go on fooling still,
Till Nature calls a show-down, and you

                    Pay the bill.

Time has got a little bill -- get wise while yet you may,
For the debit side's increasing in a most alarming way;
The things you had no right to do, the things you should have done,
They're all put down; it's up to you to pay for every one.
So eat, drink and be merry, have a good time if you will,
But God help you when the time comes, and you

                    Foot the bill.

-Robert Service

In reply to by verumcuibono

Element macholatte Mon, 02/12/2018 - 19:01 Permalink

There is a simple long-term solution to this debt cycle issue.

Rather than enrich banks with interest on debt, the Govt becomes the sole lender in all cases, and instead of using interest rate rises, to stifle excessive debt growth, to non-viable proportions, the lender (the govt) instead dynamically alters (raises) the tax rates of individuals and companies taking on new higher debt, to deter them from further excessive debt growth or leveraged bubble blowing.

Therefore, if you want tax relief, you personally lower your debt level (thus your tax rate falls), via YOU creating real earnings.

Thus markets do not blow debt bubbles any more, and the economy is not continually trashed by debt junkies, and get this, the govt can balance its budgets, and reduce their own debt, via the revenues generated from the actions of those who are dumb enough to still become defacto govt tax-and-debt slaves, rather than be productive people, generating real profits.

And government revenue also grows via former interest flows (into defunct banks) being converted into taxation in-flows, thus to a massive in-gush of public revenues to the Treasury, where a share of the excess revenue is then refunded back to taxpayers, every time they lodge their tax-return assessment. i.e. no one and no community is being continually bled dry of funds in such a system.

Thus all of your debts are re-paid via the tax level that you chose to have to repay, when you took out the debt, repaid into the tax system itself. What could be simpler?

Seems a far better, and more stable, and just 'financial system', to me.

To you too, right?

I'm pretty sure the corrupt financier class and corrupt political class will hate it though.

But I could live with that!


Thus interest on debt is completely abolished and the blight of TBTF banks goes away, as they are then rendered irrelevant.

In reply to by macholatte

Jung Element Tue, 02/13/2018 - 00:34 Permalink

But that would mean the Fed, private company owned by very nice people, would not be fed endless assets.

They could not create their New World Order and the economy would not be a debt economy. There could then even be more peace and less need for wars as people start to feel more comfortable and have less fear, so less control by the neocons, 0.01%-ers. The US without a war (they have just beefed up the budget for the military: only 52cent from each tax dollar)?

In reply to by Element

Friedrich not Salma Mon, 02/12/2018 - 17:46 Permalink

There are two large variables to contend with. Trump's trillion dollar repatriation will juice the macro economy and the corp tax cut will make companies 40 percent more profitable.  I'm just as much of a pessimist as anyone else here but we may just see good times ahead. Maybe. I look forward to counter points.

dirty fingernails Friedrich not Salma Mon, 02/12/2018 - 18:04 Permalink

Unless said companies are hiring more, paying more, or selling more the only benefits from the tax cuts are for corporate stockholders and executives. If it doesn't put more money in the pocket of average Joes, it's BS. If Average Joe has anything other than MORE income (real inflation on necessities is only going up), he isn't buying the products of said corp so its rearranging deck chairs on the Titanic.

So unless the peons spend more, that tax cut is gonna make the gov bleed red more than it already is. But cheer up, your yacht and private plane are now tax free!

In reply to by Friedrich not Salma

Don Sunset Mon, 02/12/2018 - 17:53 Permalink

Boycott the GOP vote selection boxes in the next election out of protest over the spending.  It's one thing to lose any newly acquired non-core voters, but to lose core GOP voters...................that's real damage.

Time to squeeze the Orange Joolius by knocking down the GOP in 2018.

Since the GOP has agreed that we will head to bankruptcy with the rest of the globe, let's permit the DEMs to win and drive this country into the unexplored depths of the shit-hole.

I'm not saying that we should vote for the DEMs.  I am saying don't vote GOP anything.

SDShack Pure Evil Mon, 02/12/2018 - 18:21 Permalink

Yeah, the author seems all concerned about how the Fed might not have willing buyers for Treasuries going forward, and this will spike interest rates. Who says the buyers have to be willing? There is a reason why the USSA has a security state budget greater then the rest of the world combined, and has shown it's willingness to inflict "regime change" at will all across the globe. IMO, the Petro$ will be supported at ALL costs, even to the sacrifice of any "allies" that might disagree. World destabilization will be embraced first, followed by world conflict if necessary, before any reset of USSA domestic programs. 

In reply to by Pure Evil

Osmium Mon, 02/12/2018 - 17:54 Permalink

The Federal Reserve has formally ended its Quantitative Easing program. In other words, the Fed has said it will no longer conjure money out of thin air to buy US government debt.

And you believe that to be true?  LOL, I got a bridge to sell you.

verumcuibono Osmium Mon, 02/12/2018 - 17:57 Permalink

Federal Reserve is fraudulently based on foreign corporations: we need to audit and seize assets of Federal Reserve AND its 12 Central Banks and default on the debt. Our contract w/ FR was renewed last year but we can breech it at any time - we do not owe this debt! This does not require any action of Congress. We can make $20T in a day.

Someone needs to ask the INSOLVENT Central Banks what they learned on Jan 3 that PLUNGED INTERbank lending that ceased lending between the banks ENTIRELY. What better indicator of insolvency is there than historic, multi-decade precipitous drop in confidence in lending to each other? This started in 2008 - then we saw the drop in the Dow in Dec 2017.

With recent market movements we expect flight-to-safety flow into Ts or G/S or Bitcoin but $4T IN MARKET VALUE MISSING. Physical gold?

In reply to by Osmium

veritas semper… verumcuibono Mon, 02/12/2018 - 20:50 Permalink

The collapse happened in 2008. after this ,the Fed applied some band aid to the comatose Uncle Schlomo and put him on the ventilator and heavy IV perfusions: one cool trillion given to the criminal cabal ,QE and NIRP and ZIRP in other countries(they work together). If the economy was healthy ,it would  have not needed QE and NIRP.

And let's not forget the 16 Trillion $ given to foreign banks (discovered with the partial audit done by Ron Paul in 2009 or 2010) ,that  Ben Shalom Bernanke did not remember,and never mentioned again.

16 T $  given to foreign banks! Please process this for a second to understand where we stand.

In reply to by verumcuibono

MusicIsYou Mon, 02/12/2018 - 17:55 Permalink

The Frankenstein monster is operating central banks, "More printing, argh More voltage, me pull levers." No really, you actually need more amperes not voltage. Haha the monsters are going to fry the entire system. It's now the Mash, it's the Monster Mash, Mash good.

cougar_w Mon, 02/12/2018 - 17:55 Permalink

"$25 trillion is larger than the debts of every other nation in the world combined."

Everyone take a moment and dwell on that number. And, on the observation that this "debt" is more than all the rest combined.

You all need to seriously consider the possibility that numbers on this scale are simply not "numbers" anymore. I have said it before on ZH, many years ago and it is more true today than then: Nobody is going to pay this off ever in the history of forever.

Simple fact. Nobody. Ever. Forever.

It's like some kind of atomic physics of finances. We've gotten to numbers so large and outside human scale they become strange, existing in a twisted dimension where things like dollars and cents have no material reality. These numbers, they are the "black holes" of finances. Not in that they suck up all other reality, but because they are completely departed from reality and from all human experience of such. Our brains cannot even contain these numbers least of all discuss them.

We need a new math for this shit. I'm serious, actual mathematicians need to start looking at this shit and tell us WTF has happened before these "numbers" start to eat people alive from the inside out.

cougar_w J Jason Djfmam Mon, 02/12/2018 - 18:14 Permalink

Right? Or Great Implosion'ing or Great Collapsing into Itself'ing

See my working theory right now is that The Number is large enough to create an alternate reality. Everything that we think we know now about real reality is likely at some point going to be sucked into that emerging reality and totally nullified. By that I mean, erased from existence. I do not mean this in some metaphorical sense but in the sense of everything we knew before actually being made utterly meaningless and in such a way that any prior meaning also will have no meaning.

Unless you have a grasp of how reality and the human world are both manufactured, then how these can become un-made is likely unimaginable. But you are living in a very fragile bubble and have done so for 10,000 years. It only survived because nothing big enough came along to devour it. I am seriously wondering if that entire manufactured thought experiment going back to the Egyptians and Assyrians is about to be tested and just maybe, eaten.


In reply to by J Jason Djfmam

cougar_w Ted19731950 Mon, 02/12/2018 - 19:18 Permalink

Okay fine you can think that. But let me point out that the Arabs invented the zero. The early Christians invented linear time. Before that the Jews invented interest and probably invented some form of both contract and fiat money. The Egyptians invented the faceless all-knowing god. Someone invented the corporation and I wish I knew who it was.

None of these things existed in the universe in any form before they were invented -- for whatever reason they were -- and yet these invented things are now probably 99% of your daily existence (excepting children) and as real as rain. 

All is illusion. What we invented, we can abandon. It will be oh so easy. How much will be abandoned remains to be seen.

In reply to by Ted19731950

new game Mon, 02/12/2018 - 18:01 Permalink

the worst part of all this is that a majority of americans have the nest egg tied up in there home. and then next, counting on social security and a pension (or none). very scary future of financial uncertainty...