US Debt Crisis – The Big One
We did a video the other day about The Big One.
The Big One is something that almost happened earlier this year when the US bond market got over 5%. The US government, as we know, has around $37 trillion worth of debt.
The concern is that the US bond market is no longer able to finance the debt because bond yields have gone so high. The Big One is the disaster scenario where the US loses control of its debt, can’t service it, and the whole world goes to hell in a basket.
Interestingly, on that line of worry, the US has, as of today, officially ticked over $37 trillion worth of debt. The Congressional Budget Office predicted back in 2020 that the US would hit $37 trillion of debt in 2030. Here we are five years earlier.
Trump has recently passed legislation, including tax cuts, that will add $4.1 trillion to US debt. The US is addicted to debt.
Everybody’s addicted to debt, quite honestly, but the US especially. Their interest payments are now coming up on $1 trillion a year.
There’s a book by Ray Dalio called How Countries Go Broke. He points out that the big debt cycle, which started in the US in 1945, generally lasts about 80 years. Big collapses like Zimbabwe, Sri Lanka, and Germany in 1923 have brought countries and reserve currencies to an end.
Dalio suggests that the US debt cycle started in 1945, runs for 80 years, and here we are — 80 years is up. Over that period, the amount of debt the US has compared to the amount of gold it holds has gone from seven times in 1945 to 37 times today.
In other words, we’re setting up for a big problem in the US unless they can manage it. That means increasing growth and cutting back on spending. There are signs that Trump is laudably attempting to do that, but how effective will it be?
Will that cycle one day end? If it happens in our lifetime — probably longer than my lifetime — we need to know it’s possible. And it is building up.
The good news is that if you read Ray Dalio’s Anatomy of a Big Debt Cycle, there are all sorts of things that happen first. He’s not giving an opinion; he’s like an engineer observing 65 debt crises and breaking down the anatomy.
Before we get to The Big One, there will be a host of signs, and it’s probably going to take some years. We will get a warning and be able to do something about it. So you don’t want to worry about it now.
If you read Ray Dalio’s book, you’ll sell everything and buy gold and crypto. Don’t read his book.
We will get signals along the way about when it’s going to happen. We will react accordingly. And if you want to know when to react, of course you’ll have to subscribe to Marcus Today because we’ll be all over it for you.
Meanwhile, Henry is going to do a webinar round-up of the results season. If you want to have a look at that, click below.
The ASX Results You Can’t Afford to Miss
Henry Jennings reveals the standout wins, the shock misses, and the stocks to watch after reporting season.