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2017 government debt to GDP is 105%

The U.S. Government To Fork Out A Half Trillion To Service Its Debt In 2018

The U.S. Government is going to surpass another significant milestone this year.  According to the recently released data from the TreasuryDirect.gov, the government will fork out a stunning half trillion dollars just to service its debt in 2018.  Unfortunately, as U.S. interest rates rise, along with ever-expanding public debt, the cost to service the debt will continue to increase. 

Interestingly, the U.S. debt service in 2000 of $361 billion was higher than the $360 billion in 2012.  The U.S. government paid more interest payments in 2000 because of a much higher interest rate of 6.6%, even though the public debt was only $5.6 trillion. 

If the United States had to pay a 6.6% interest rate on its $21.2 trillion in debt, it would amount to a mind-blowing $1.4 trillion a year.  This is precisely why Central banks will not allow their interest rates to rise unless the market forces rates higher.  If that happens, well then, the U.S.A. Titanic sinks to the bottom. 

So, the BIG PROBLEM for the U.S. Government is what happens when the markets crack?  When U.S. stock and real estate values crash, so will the government’s tax receipts.  The only way to keep the U.S. government from going bankrupt during this time is to print money and lower interest rates. 

Unfortunately, this time around, the country will not have the domestic energy supply to pull itself out of the next recession-depression as it did from 2008 to 2018.  U.S. shale oil production will likely peak within the next 1-3 years.  However, if the oil price drops like a rock along with the stock market, then the collapse of U.S. shale oil production could be even much bigger and sooner than the market anticipates.

DYI:  Government debt to GDP reaching levels not seen since the end of World War II.  And who are we fighting today?  The bogus made up war on terror all brought to you by 9/11/01 that was committed by the U.S. Government to propel the U.S. military to rampage all across the Middle East and of late portions of Central Africa.  Today and thank God very few of our citizens believe the official 9/11 report or what I call the errors, omissions, and when all else fails chronicles of LIES [propaganda].  I’m not going to rehash all of the errors, omissions, and lies propagated that day.  What we do have is a runaway Federal government along with a bevy of State government as well spending like a drunken sailor on shore leave!

Add on a massively overvalued stock and junk bond market with private debt to GDP at 202% and ever expanding national debt what possibly could go wrong?[just in case you missed it that’s sarcasm!].  DYI’s thinking is a deflationary smash something along the lines of the great depression as government entities scramble to fund and justify their very existence. 

This scramble will be brought about as tax receipts dry up as business slumps severely ballooning budget deficits thus expanding the national debt and the interest cost to service that debt!  In the end the Fed’s will do what all governments have done in the past.  PRINT, PRINT and PRINT just we did following WWII as inflation started out as a minor difficulty in the 1950’s, with the central bank ramping up to pay for World War II, the Korean War and the ever expanding Vietnam War all at the same time funding the Cold War with the Soviets as inflation peaking during the 1970’s driving down government debt to GDP from 120% to 30%.  Like any war there were casualties as retirees, the middle class, and poor watched and felt everyday as their purchasing power declined.  Many retirees ended up dying in poverty [penniless]!

What should the average John and Jane Doe do to mitigate or even profit from the upcoming economic calamity?  First of all whether an economic decline hits or not is to get out of debt!  All debt; up to and including the house.  I know easier said than done.  I recommend the snow ball debt payoff advocated by Dave Ramsey.  Start with the smallest debt you have make minimum payments on all of the rest use what ever extra dollars to kill off that first debt.  Now you have a new smallest debt and repeat till everything is paid off.

While I’m on debt payoff I’ve met folks who have had trucks that cost as much as $60,000 dollars and were at a loss as to why they were having serious trouble making ends meet.  My recommendation along with many of his relatives was “sell the truck!”  Once he got his head out of the sky [or other parts unknown!] and came down to earth about his money everything in his life improved and not just financially.  Also if you have a house that you are purchasing is greater than 3.0 times your income you will fall into the trap of becoming “house poor!”  Just like the guy with truck; its time to sell and move down to a more modest home.  If you purchase at 2.0 or less of your income you will not be house poor.  This also goes for those who are renting the Taj Mahal when the lease runs out move to less expensive digs!  When renting spend no more than 25% of your after tax income and always shoot for 20% or less!

I realize I’m harsh when it comes to debt payoff and many times have had head on collisions with the wives.  What I’m advocating is your world to stop revolving around its axis until you are debt free.  No vacations, no cable TV, and no eating out at restaurants, very modest cars/trucks, modest home [renting or buying] dropping your expenses to the bone!  Why??  They used to call this the money game but today it is a scorched earth war!  If you lose, simply put, your life will suck.  Don’t believe me? Ask a Boomer generation who as a group [there are exceptions of course] over spent and under saved and continue to work with many in their 70’s.  Don’t let them BS you, they are working because they have to and not to maintain a fulfilling life!

How to prosper?  Read my blog, read books on investing such as Benjamin Graham’s Intelligent Investor, Harry Browne’s Fail Safe Investing is three very excellent places to start.

Till Next Time!

 DYI