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The US Borrows $1T in 100 Days. What is the Future?

Published by honor in category Market News on 15.03.2024
Gold price (XAU-GBP)
1,873.86 GBP/oz
  
- GBP22.31
Silver price (XAG-GBP)
21.95 GBP/oz
  
- GBP0.33

Gold’s recent record high reflects irresponsible and unsustainable spending by the US government. This has been aided by the Federal Reserve, which is now admonishing the government for excessive debt levels, writes financial commentator and author Peter Schiff.

Below is the writing of Peter Schiff on the topic, which appeared on the SchiffGold portal:

In the last three months, the national debt of the United States has increased by a trillion dollars. The CBO projects that the national debt will rise to an unfathomable $54 trillion within 10 years. If the current trend continues, interest payments on the national debt will exceed the defense budget next year. Considering all this, the question arises: how long can this debt bubble continue to expand?

It is very strange that the head of the Federal Reserve, Jerome Powell, who ran the biggest money printing campaign in American history during the corona crisis, is now talking about the un-sustainability of debt levels. He tries to hold a line where the Federal Reserve does not comment on the country’s fiscal policy. But it is clear from his comments that he wants to blame politicians for the situation, not the central bank’s money printing.

The learn more about the federal reserve read here: What is The Federal Reserve?

Although politicians play a very large part in this game, the Federal Reserve has never once mentioned that they play a role in its warnings about the national debt:

In the long run, the current US fiscal policy is unsustainable. US government policy is unsustainable. It simply means that the debt is growing faster than the economy. So it is unsustainable. I don’t think this message is controversial in any way. Everyone knows that we must return to a sustainable fiscal policy

Even if the government suddenly starts spending responsibly and improves the budget, it’s hard to see how that can be done after printing $3 trillion in 2020.

In a Free Market, Interest Rates Would be Even Higher

And as always, the Fed has only one real tool in its toolbox: outright changes in interest rates to either stimulate or limit borrowing. Another option is to directly intervene in the market by printing money. By the end of this year, the central bank is expected to cut interest rates, which will help ease the burden of interest payments, but at the same time bring new money into the economy. People are already up to their ears in debt and using credit cards for basic needs. When interest rates are brought down, even more loans are taken out and things are bought that one cannot really afford.

Growth in loans and deposits increases the money supply (the amount of money in circulation) in an environment where inflation is already a problem. This adds fuel to the fire that was lit during the 2020 corona crisis (covid-19 pandemic). The post-corona rate hikes have not been enough to steer us away from this path. If the interest rates could develop freely in the market, they would be much higher than the current interest rates.

Excessive borrowing is gradually reducing the attractiveness of US government bonds, because there are more and more worries about whether the country will actually be able to repay its debts . This reduces the demand for bonds, making it increasingly difficult to borrow such large sums from the market.

The US Government’s Rating is Falling

Because of all this, rating agencies Fitch and Moody’s lowered the US credit rating last year . Fitch lowered the rating from AAA to AA+, Moody’s changed the rating outlook from “stable” to “negative.” If the Federal Reserve’s interest rate hikes are not accompanied by a reduction in government spending or an increase in revenue, it will not be possible to reduce budget deficits.

As the situation has worsened dramatically, lawmakers in several states want to begin limiting the federal government’s spending power. Lawmakers in Idaho and Wyoming have called on other states to tackle the problem. Idaho has proposed an amendment to the constitution that would greatly limit the spending and power of the central government. The Idaho Senate passed a resolution calling for the following:

  1. Impose limits on the budget of the Federal Government;
  2. Reduce the power and jurisdiction of the federal government;
  3. Reduce the term of office of public officials and members of Congress. Currently, identical requests have been sent to Congress by other state legislators.

The question now is whether there is anything at all that can get US finances back on a sustainable path. We are headed for a collapse of the US dollar and a complete reset of the monetary system. As long as the Federal Reserve exists, getting rid of the debt bubble economy will remain a pipe dream.

The recent record highs in gold and bitcoin prices show us how the market reacts to a decline in the value of debt. Central banks are buying gold at record levels, which is likely to continue for years to come. The banking system agrees with me that inflation is by no means over.

Key Takeaways

Peter Schiff’s analysis presents a dire warning about the trajectory of U.S. fiscal and monetary policy, underlining the urgency of a strategic pivot towards sustainability. The alarming speed at which the national debt has expanded, coupled with the Federal Reserve’s contradictory stance on monetary expansion and fiscal responsibility, paints a complex picture of economic challenges ahead. Despite the Fed’s critique of government spending, its own role in facilitating a burgeoning debt through historically low interest rates and quantitative easing cannot be overlooked.

The downward adjustments of the U.S.’s credit rating and the growing concerns over the government’s ability to manage its debts highlight the broader implications of fiscal imprudence.

State lawmakers’ movements towards limiting federal spending power reflect a growing consensus on the need for profound fiscal reform

However, Schiff suggests that without a significant overhaul of the Federal Reserve’s system policies and a reevaluation of fiscal priorities, the prospects for realigning the U.S. economy on a path of sustainable economic growth remain dim.

The implications of Schiff’s commentary extend beyond the realm of financial markets and financial institutions, suggesting a potential reset of the monetary system itself. The surge in goods and services specifically in precious metals and cryptocurrencies signals a broader mistrust in fiat currencies, underscoring the urgency for policy reforms.

As Schiff articulates, the bottom line is that the path forward requires not just an acknowledgment of the un-sustainability of current fiscal and monetary policies but a concerted effort towards systemic changes that can avert the looming financial instability. The road ahead is fraught with challenges, but the alternative – a continuation of unsustainable policies – poses risks that could have far-reaching consequences for the U.S. economy and the global financial system at large.

Gold price (XAU-GBP)
1,873.86 GBP/oz
  
- GBP22.31
Silver price (XAG-GBP)
21.95 GBP/oz
  
- GBP0.33

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