financialsense.com / FS Staff / 06/13/2017
US national debt currently stands at $19.9 trillion and, at the rate it’s going, is set to surpass $20 trillion in 2017. Gary Shilling, publisher of the must-read Insight newsletter, said this is not a problem until we either see “a tremendous amount of inflation or a complete breakdown in confidence in US Treasury obligations.” Once that happens, the world’s largest economy is at risk of an exploding ‘debt bomb,’ as he puts it:
“Government debt in this country is about 80% of GDP—federal government debt—and that’s the net debt in the hands of the public. We throw out the debt where one government agency is lending to another…(because) when government collects Social Security payments from everyone, the Social Security Administration sends that to the Treasury and then the Treasury issues them an actual government bond, but that’s an intergovernment transfter and doesn’t really have anything to do with markets and so on, so we exclude that…
We look back at the point in which the interest on the government debt was the highest it ever was and that was back in the 70s and that did not upset the apple cart and we say, ‘What will it take to get there?’ Because, you see, the whole argument here is this ‘debt bomb,’ it’s the idea that government debt gets to the point that the interest on that debt becomes a huge chunk of the deficit and that adds to the debt and then the whole thing then grows asymptotically.