America’s debt exceeded $20 trillion (not counting unfunded liability) for the first time in its history, and Trump has just cracked a deal with Democrats to permanently abolish the US debt ceiling.  This year, total household debt rose to $12.7 trillion, surpassing its 2008 peak. Meanwhile, interest rates are at their lowest levels in recorded history.


Source: (assessed on 2pm, 19 September 2017)

Austrian economist Eugen von Böhm Bawerk once said that the higher a people’s intelligence and moral strength, the lower the rate of interest. Caveat emptor: the interest rate von Böhm Bawerk referred to was market interest rates, not government manipulated interest rates. With government distorted interest rates and a mountain of debt, nation falls when interest rates start to rise.

And it looks like interest rates are due for a rise.
If interest rates were to rise by 1%, the annual federal deficit rises by $200 billion. If rates were to return to the historical norm of 5.77%, just the annual interest payment would increase by $1.154 trillion per year.

Economists Ken Rogoff and Carmen Reinhart studied governments who have defaulted on their debts and found that a country enters the danger zone when its debt-to-GDP ratio exceeds 90%. At that point, a dollar of debt yields less than a dollar of output. Debt becomes an drag on GDP. America's GDP is about $19 trillion, which means a debt-to-GDP ratio of 105%.

The Fed is actually quite restrained in money printing when compared with the European Central Bank and the Japanese Central Bank. ECB owns 40% of all Eurozone government debt, and it's more than 60% in Japan. 60%!  Not a typo.  With so much debt everywhere, it will be SHTF when rates rise.
There are only three ways to pay off one's debt: work harder to earn more money to repay the debt, cut expenses or outright default. For a nation, there is one more alternative: create inflation by printing money out of thin air. Governments will print more money to inflate away their debts, because it is the easiest and the only politically feasible alternative.








This newsletter represents only the opinions of the author. Any views expressed should not be construed in any way as an offer, an endorsement, or inducement to invest.

In no event shall the author be liable for any direct, indirect, incidental, special, consequential or exemplary damages including damages for loss of revenue, anticipated profits, loss of business, goodwill, or other tangible or intangible losses resulting from the use of any data or information provided in this article.

The author disclaims any liability and losses consequent upon the downloading of this article which results in computer virus infections, communication network failures and other failures, unauthorized access of all types, data alterations and omissions and other data errors, and data theft or destruction of records.

In case of discrepancies in the Chinese and English versions of this agreement, the English version shall prevail.