US national debt a runaway train

$16 trillion. $16,015,769,788,215.80 to be exact. That’s the amount that the US government’s national debt stood at as of last Friday, as it crossed into the $16 trillion-mark for the first time ever. ZeroHedge points out that this amounts to 102% of US GDP – up from just 76.5% when President Obama took office in January 2009. A collapse in federal tax revenue is of course the standout reason for this surge in debt (Washington’s spending has increased modestly in comparison with previous decades, and looks no different from increases seen during Bush junior’s years in the White House). Regardless of the reason, it spells trouble for the USA, and this is before we even consider off-balance sheet liabilities and municipal debt.

US debt problems have been rehashed before many times on this blog, but it is worth reemphasising the fact that – as Peter Schiff says – the US government is essentially on autopilot as far as this issue is concerned: Democrats and Republicans differ only insofar as the latter want to increase spending (and thus, the debt) at a slightly slower rate than the former. In Schiff’s colourful phrasing, this is the difference between “driving over the edge of the cliff at 90mph instead of 100mph.” Either way, there’s a nasty splat at the bottom.

Both parties are implicitly relying on money printing from the Federal Reserve to “save the day”, oblivious of course to all of history’s lessons about the dangers of this policy, and no doubt thinking that this time is different. But it’s never different. The intellectual justifications trotted out in defence of ignoring history never cease to amaze.

Precious metals have been consolidating since the start of the week. Gold came close to breaking through the $1,700/oz mark yesterday, but has retreated slightly on new of disappointing manufacturing and GDP numbers from China and Australia – given the importance of these two economies to the commodity sector (the latter as a producer; the former as a consumer).

Tomorrow’s European Central Bank policy meeting is the next big market event.



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