Yeah! We Win! First Country to Reach $15 Trillion in Debt!
So for all of you non-spending countries who said we could never do it, you can kiss our printing
press! So now after all of the celebrating is done for hitting such a monumental number, the
question still remains…how do we pay it off?
Or do we pay it off? Back in 2008 when we officially hit $10 trillion, there were many
doomsayers that said the US was finished as the global powerhouse, its reserve currency in
question, and we had hit our limit. In fact, the official debt clock in NY actually ran out of digits
once we reached $10 trillion. It appears even the debt clock creators (when they built the second
clock) never imagined even we could run a debt that high. But we all could be wrong today, and
our children might see a new debt clock that can show quadrillions that will make our current
$15 trillion look minute.
I firmly believe at some point our debt bubble will burst. The big question is when, not if. There
will come a time (maybe very soon) where the global society will not reward, encourage, or
condone massive debts like we have built up. And the result will not be pretty. The last country
who amassed such a debt was the United Kingdom, whose pound sterling reserve currently was
replaced by the US dollar back in 1944. Proof that enormous debt can turn on you in a moment’s
notice and rear its ugly head. For you history buffs, here is a brief lesson on what transpired with
Britain’s economy.
In 1917, the British government borrowed 2 billion pounds (roughly equivalent t0 $739 billion
US dollars today). But keep in mind, this loan was taken out when Britain’s economy was much
smaller than it is today. The loan actually equaled 75% of Britain’s GDP at the time. To put that
into perspective, imagine this loan being the equivalent to the United States borrowing another
$10 trillion this year. Why the loan you ask? To finance “The Great War”. The result? The war
bankrupted Britain. Financially, it never recovered and even led to the immediate suspension of
the gold standard in 1914. Sounding familiar at all? Just keep reading.
What would you guess happened next now that citizens and corporations could no longer
demand bullion from the Bank of England? If you guessed massive expansion of the public debt
and money supply you would be correct. The huge expansion of the credit and money supply
came with a corresponding increase in price inflation. Gold, Silver, Oil, etc all went to new
highs. Three years later (1917), inflation was accelerating to the point Britain believed it was
threatening it’s financial stability. So what did they do? Their own version of Quantative Easing.
The massive 1917 War Loan that enabled them to retire floating rate-debt, control the increase of
the money supply, and slow down inflation.
Fast forward (imagine kicking the can down the road for 10 years) to 1931. Eventually, Britain
realized this war debt was becoming progressively harder to manage and much of the principle
could never be repaid. And to make matters worse, a German and Austria trade union forces
France to withdraw its capital from Austria’s leading bank. The bank (controlled by the
Rothchilds) was absorbing most of Austria’s mounting financial issues. And Europe’s economy
was under severe stress due to the US launching a global trade war with the Smoot-Hawley tariff
in 1930. Could such a small spark like one Austrian bank going under (think Greece) turn into a
flame that would engulf the entire globe?
If you guessed yes, you are correct again. What happened next was felt worldwide. The result
was a global economic depression and a correspondingly increase in bad debts that would never
be repaid. Not to mention the lead up into the Great Depression for our own country.
The similarities between Britain (pre-World War II) and the United States are numerous. Both
were the world’s foremost military power. Both controlled the world’s currency. Both couldn’t
pay their debts in sound money. Both have manipulated their currencies and bond markets to try
and monetize their debts. And both thought their reserve currency status could ever be taken
away from them. Fortunately, the US still has a fighting chance.
What will be the final outcome in our day and age? Will the clock ever start going backwards?
All we can do it watch it to find out and educate ourselves and our clients. Most Americans have
no idea about the history I just revealed. And they have just as little clarification on the longlasting ramifications on our standard of living and our standing in the world if we can’t refinance
and fix these debts. You can click on the picture to go directly to the official Debt Clock web
ticker and see it for yourself. Enjoy the celebration today.