As noted in the introduction to February's "‘Black Swan’ Author Nassim Taleb Is Feeling Gloomy, Says U.S. Is In A Death Spiral":
It's not the debt, it's the interest.
Well, the debt too but the terrifying question is "What price will investors demand for giving their money to the U.S. government?"
The problem gets serious when the price (interest rate) becomes unsustainable and the Federal Reserve has to resume their bulk buying of treasuries, actually monetizing the Federal deficit. That's where hyper-inflation comes from, issuing debt to pay the interest.
Coincidentally, Havenstein, like Jerome Powell was an attorney, not an economist, though J-Pow will have left the Fed by the time the monetizing starts in earnest, sometime early in the next decade....
Just ask Rudy Havenstein,*****This bringing in new money to repay maturing debt is pretty much the definition of a Ponzi scheme and brings to mind the comment of another Fed head, Herbert Stein in the context of trade:
"What economists know seems to consist entirely of a list of things that cannot goon forever, and this may be one of them. But if it can’t go on forever it will stop."—Wall Street Journal, May 1985, via Quote Investigator and a variation earlier that year at
A symposium on the 40th anniversary of the Joint Economic Committee : hearings before the Joint Economic Committee, Congress of the United States, Ninety-ninth Congress, first session, January 16 and 17, 1986 via the Hathi Trust.
We don't use the word hyperinflation very often because, in the literature, it is defined very precisely as a 50% or greater general price increase, per month. Still a ways off for the U.S. but no longer unimaginable.
And the headline story from Bloomberg, April 1:
Bloomberg Economics ran a million forecast simulations on the US debt outlook. 88% of them show borrowing on an unsustainable path.
The Congressional Budget Office warned in its latest projections that US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. The actual outlook is likely worse.
From tax revenue to defense spending and interest rates, the CBO forecasts released earlier this year are underpinned by rosy assumptions. Plug in the market’s current view on interest rates, and the debt-to-GDP ratio rises to 123% in 2034. Then assume — as most in Washington do — that ex-President Donald Trump’s tax cuts mainly stay in place, and the burden gets even higher.
With uncertainty about so many of the variables, Bloomberg Economics has run a million simulations to assess the fragility of the debt outlook. In 88% of the simulations, the results show the debt-to-GDP ratio is on an unsustainable path — defined as an increase over the next decade.
The Biden administration says its budget, featuring a slew of tax hikes on corporations and wealthy Americans, will ensure fiscal sustainability and manageable debt-servicing costs.
“I do believe we need to reduce deficits and to stay on a fiscally sustainable path,” Treasury Secretary Janet Yellen told lawmakers in February. Biden administration proposals offer “substantial deficit reduction that would continue to hold the level of interest expense at comfortable levels. But we would need to work together to try to achieve those savings,” she said.
Trouble is, delivering on such a plan will require action from a Congress that’s bitterly divided on partisan lines.
Republicans, who control the House, want deep spending cuts to bring down the ballooning deficit, without specifying exactly what they’d slash. Democrats, who oversee the Senate, argue that spending is less of a contributor to any deterioration in debt sustainability, with interest rates and tax revenues the key factors. Neither party favors squeezing the benefits provided by major entitlement programs.In the end, it may take a crisis — perhaps a disorderly rout in the Treasuries market triggered by sovereign US credit-rating downgrades, or a panic over the depletion of the Medicare or Social Security trust funds — to force action. That’s playing with fire.
Last summer provided a foretaste, in miniature, of how a crisis might begin. Over two days in August, a Fitch Ratings downgrade of the US credit rating and an increase of long-term Treasury debt issuance focused investor attention on the risks. Benchmark 10-year yields climbed by a percentage point, hitting 5% in October — the highest level in more than one and a half decades....
....MUCH MORE
So keep an eye out for a buyers strike in treasuries leading to the Federal Reserve basically funding the government by creating money to buy treasuries.
Related, March 20:
"Hotshot Wharton professor sees $34 trillion debt triggering 2025 meltdown as mortgage rates spike above 7%: ‘It could derail the next administration’"
