THE FIRST 205 YEARS
Hello, this is Darrell Castle with today’s Castle Report. This is Friday the 22nd day of March in the year of our Lord 2024. I will be talking about debt and the effect it has had and is having on the nation. Debt as the U.S. government has accumulated It, is very bad and it has been accelerated by the ruinous nature of fake money, and the siren’s call of money without limit. I will argue that money without solid backing is perhaps the most corrupting influence in America today. Money, whether fake or real, is power, and power corrupts the mind and morals and thus our nation and its tradition of law and justice are corrupted.
I have more than 40 years’ experience as a bankruptcy lawyer and I, therefore, have a lot of experience dealing with debt. Debt can be used for production or to increase revenue and then it is good but otherwise it is an albatross around the neck of the debtor. The bible tells us in the book of Proverbs that the debtor becomes the slave of the lender. Lately, the U.S. has used debt to make war and pacify its people with bread so they will not see the circus that is Washington.
It took the United States 205 years to accumulate its first $1 trillion of debt, but now the process is accelerating. Washington was at $5 trillion by the administration of George W. Bush and now stands at $34.6 trillion at the time of this recording. The United States now adds $1 trillion of debt every 100 days. The latest projections show $60 trillion by 2034 or just 10 years from now. Keep in mind that projections almost always fall short of reality because economic conditions change as do the desires of politicians.
$60 trillion of debt would put the interest payment at around $3 trillion per year at average interest rates. Please keep in mind that total revenue in 2023 was $4.1 trillion and the president’s proposed budget for this year is $7.3 trillion, and yet Washington still functions and still funds war. The end result always takes time to play out. For example, even when Rome had debased its currency and looted the known world to gain the resources to continue its profligacy the barbarians took time to complete their work.
What if interest rates had to rise because the federal Reserve was afraid of out-of-control inflation. The what if is probably more like when and then all those estimates I just gave you are wrong. What about what increased rates would do to the average American. The median price of an American house is now $435 thousand up from $25 thousand in 1970. An average priced house at 12.9% which rate has happened recently, would cost a monthly payment of $4,676 interest only. I wonder what rates like that will do to the housing market and to the lifestyle of the average American. Even at a modest rate of 7% the payment would be about $3 thousand, or more than the average family can afford.
Would the house price come down as a result? Yes, most likely because of new houses not selling as well, but as the demand for credit increases, and it will because people have to use it to live, a debt crises might result whereby people are forced into bankruptcy and liquidation. Increased bankruptcy rates by people damage or destroy tax revenue on a national scale. People I talk to seem to think that debt, public and private, is no big deal because nothing I have been predicting has happened yet. That is because with public debt, even more debt using more fake money, has been the answer to paper over Washington’s profligacy. The situation now is different because it is increasing so exponentially that the entire system is threatened by it. As my friend Bill Bonner would say, when you jump out of an airplane in flight for a moment you feel suspended in the air just floating, but gravity will have its moment in your life.
The problem is rather complex and very simple at the same time. The debt of the nation and of its people should be handled the same way with the same effect except that the nation has been able to just create money without anything to back it, to cover its obligations and boondoggles and add the resulting debt to its bottom line thus suffering no consequences. That is until now when the interest is rapidly approaching revenue. Unless that ship of state changes course, income will not even cover interest and that road is the one which leads to default or more dishonestly, hyperinflation.
The simple part is that the more current income you must devote to past spending, the less you have left over for current spending. People who have less money to spend are poorer than others.
You’ve all heard the quote from Hemingway many times I’m sure, “How does a man descend into bankruptcy—gradually at first—then suddenly.” My contention today is that the United States government has passed through the gradual stage and entered the sudden part of the equation. Those who decide these things in the U.S. have been able to accomplish every 100 days what it took their ancestors 205 years to accomplish so I suppose they think that’s progress. This causes sorrow to build in me because it seems impossible but there you have it.
I fear the debt is assuming an exponential aspect whereby it cannot be stopped until we reach default or hyperinflation and the Washington politicians have packed up and fled out of town. If only the nation’s gross domestic product could keep pace with its debt, then we could maintain the system but alas they have ruined that too. The GDP is old and decrepit and the debt is Usain Bolt in the Olympic 100 meters. To illustrate my point and emphasize my paranoia, at the current rate the debt will reach $50 trillion in 4.7 years or in the year of our Lord 2028. Meanwhile, the Congressional Budget Office projects annual GDP rate of growth at 1.8% annually through 2028.
The famous multiplier of Doctor John Maynard Keynes, which for many decades has allowed the average Washington hack to turn water into wine, and dross into gold has finally decided to show us the reverse. Yes, this miracle that has allowed the U.S. government to buy and control the world is reversing and now is starting to turn wine into water. To paint a clearer picture, one from my childhood, the golden goose has been killed and lies flopping on the ground while his bloody head is on the chopping block for the whole world to see.
To give you the affect of all this on the present generation of Americans I quote economist David Stockman:
“All the spending and borrowing since 1970 has encumbered future generations with an insuperable debt albatross, even as it has left present-day Americans with hardly a fraction of the economic improvement rates enjoyed by their parents and grandparents a half century ago.”
If I may interpret David’s economic words, he’s saying that kids today have little to no chance of realizing that portion of the American dream of parents for more than two hundred years and that is that the children would have better lives than the parents.
According to the Washington Post interest costs are the fastest growing item in the budget and are accelerating past defense costs. What will be left for Social Security, Medicare, Medicaid, war and chaos/ How will the United States of America continue the bread and circus ritual to which the population has become addicted. Jeff Bezos at the Washington Post says that democracy dies in darkness but perhaps he is wrong and it dies in debt instead.
Are there any solutions to this dilemma? Yes, I can think of a few solutions but two of them, the most desirable two, require people of goodwill in charge of the federal government which is very doubtful right now. The first step would be to bring the level of debt acceleration below the rate of GDP growth. That would at least stop it from getting any worse for a while. This would have to start with a commitment to a drastic reduction in spending. Every department would have to be cut and many of them eliminated. Sacred cows would have to be slaughtered for that common good the Democrats are always talking about. See new president Javier Milie in Argentina for an example of how this program can work to revitalize a country. Do you see any leader out there on the political landscape who might be willing to lead such an effort and sacrifice himself or herself in the process. I don’t see any who have a possibility of being elected.
The most likely scenario is something that I have talked about many times and have always feared as a solution we are being set up for and that is some type of globally managed, i.e. the World Economic Forum, central bank digital currency. The two debt outcomes of which CBDC is the second is also the most likely because it gives more control to our ruling elite and their global masters while keeping us enslaved, and without privacy. Perhaps we ordinary Americans could avoid some of the control by going to bitcoin or some other digital currency. You may hear the powers that be express a disdain for bitcoin, but if so, you should wonder why if digital is so bad that CBDC is so good.
Bitcoin just hit an all-time high and many see no where for it to go but up given the attitude of the government toward debt and privacy. Bitcoin and gold are hitting record highs as the world seeks alternatives to the debt burdened dollar. Since the Bretton Woods agreement after World War ll the dollar has been the world’s reserve meaning that other currencies have to be converted into dollars before international commerce could be conducted.
Other nations did not have to worry because their assets were as safe and solid as the dollar but then the U.S. decided to change the equation and stop all this live and let live libertarian nonsense. Russia got into a border war with another Eastern European country, a very common action to which hardly anyone cared or paid attention to. The U.S. let the world know that this is an international rules based global order and the U.S. makes those rules and decides who is in good graces and who isn’t. Russia was punished by having $300 billion in assets stored safely in the dollar, sanctioned, or confiscated by the ruler of the global order.
Other countries were sanctioned as well whenever they were out of compliance with U.S. rules. The U.S. decided to involve itself in the Russia-Ukraine war not just by giving money and weapons to the Ukrainians but also by using the international banking system in an admitted attempt to bleed Russia dry. Foreigners began to see how easily they can run afoul of the U.S. and how that can mean their assets are no longer safe and secure. The U.S. could use its control of the system and its reserve currency status to literally shut down their economies.
This series of events led Russia to look for alternatives and for alliances outside the dollar system. It was a gigantic mistake as Russia sought and found alliances with other nations that believed they were being bullied and were open to new alliances. The Biden administration apparently failed to realize that Russia’s vast deposits of natural resources insulated it from the bullying. If these alliances continue and the U.S. continues its meddling and bullying then the dollar could lose its reserve status and that would be a catastrophe for a nation with more than 34 trillion of debt and climbing every day.
Finally, folks, to avoid default and/or hyperinflation resulting in mass poverty and a much lower standard of living, deal with debt growth before it’s to late. Cut spending, close unnecessary government departments, come home and mind your own business.
At least that’s the way I see it,
Until next time folks,
This is Darrell Castle,
