The growing debt is not new. Things started to get out of control after the banking crisis of 2008. Interest rates were pushed to zero. Taking on new debt to stimulate the economy was almost free money.
We’d found the philosopher’s stone of finance: MMT. We could print as much money as we wanted. We could throw money at every crisis, a war here or there, a recession, another natural disaster, a pandemic, banks failing, and everything that our voters wanted.
In our hearts we knew this was a financial hot potato. But we could pass that problem on to the next administration. And that’s exactly what we did.
It was a game of transmuting today’s debt into tomorrow’s burden. We kept kicking the can down the road. But we’re running out of tarmac.
They pray some alchemist will find the equivalent of a philospher’s stone that can transform the leaden debt into golden wealth.
Good luck with that.
How does it all end? Something has to be done before it’s too late. We don’t know which straw will break the camel’s back.
What can be done to turn the situation around before it’s too late?
Increasing taxes means the Turkeys have to vote for Christmas.
Decreasing spending would be illegal and effectively result in political and social unrest. (Cutting discretionary spending to zero won’t make enough of a dent).
Default is a non-starter.
A bail in – where wealthy investors are obligated to lend to the government could help kick the can down the road, particularly if the Treasury auctions start to fail. They will target those with large bank balances, money market funds, certain corporations and pension funds.
The Fed could keep buying the exploding debt pushing the day of reckoning into the future, but that will inflationary. High inflation risks banana republic status.
A new form of the currency, like a phoenix rising from the ashes of the crashed dollar, might be the CBDC $. This would allow restrictions to be imposed on convertibility of US$ from your bank into your CBDC wallet.
To make this work they may need to bring in some kind of tangible (shiny) backing for the dollar.
Lastly, could technology and AI come to our rescue? There is no doubt that technological advances and robotics have massively increased productivity, making the supply of many essentials more abundant and cheaper. This trend is set to coninue. If it were to speed up, it is possible that productivity could increase faster, thus improving the state of the economy and GDP, and reducing the burden that the growing debt causes..
We don’t know for sure which way the cookie will crumble, and it may well be a combination of all of the above. On the other hand, we may have a sudden crisis – a black swan event, that upsets the apple cart and requires emergency action.
