This is a story that’s funny, ironic and very sad; a comedy of errors and a tragedy for all Americans.
I’ll tell you exactly what it is in just a moment. First, though, take a good, hard look at this chart …
As you can see, this is not a new issue. In fact, the problem started during the American Revolution. Back then, some folks feared the new nation would never make it. It almost didn’t.
It was equally bad during the Civil War, when the nation was split in two and more Americans died than during any other U.S. war before or after.
During World War I, my father, who was a young boy at the time, saw how tough it was. He was just 9 years old. But his teacher in school demanded that he and his friends do something about it personally.
“Then came the Great Depression and the problem got a lot worse,” he told me when I was about 9 myself. “Twice as bad, in fact. Millions of Americans suffered as a result.”
Next, in World War II, the problem really got out of hand. There was a good reason, though. The nation faced an existential threat like none other.
What about now? This monster problem is far bigger than at any time in U.S. history. It’s …
The Godzilla of Government Debt
It’s the same kind of debt that forced my father and his fourth-grade friends to walk the streets of Harlem in 1917, hawking War Bonds to anyone not too busy to listen …. and not too poor to buy.
And the chart I just showed you, courtesy of the bipartisan Congressional Budget Office (CBO), grossly understates the problem:
First, it shows only U.S. government debt owed to the public. If you add the government debt owed to federal agencies — especially the Federal Reserve — it’s much, much worse.
Second, it excludes the government debts of several federal agencies. (Same old smoke-and-mirrors government accounting that neither Republicans nor Democrats have ever bothered to fix!)
Third, it excludes unfunded government obligations for Medicare, Social Security and veterans’ benefits. These are huge — estimated at as much as more than ten times the officially recognized debt.
In its latest report, “The 2017 Long-Term Budget Outlook,” the CBO admits the problem … sort of.
“If current laws remained generally unchanged,” their officials write, “the United States would face steadily increasing federal budget deficits and debt over the next 30 years — reaching the highest level of debt relative to GDP ever experienced in this country.”
True … except for the fact that, with honest accounting, it has already reached the highest level relative to GDP ever experienced in this country.
And the CBO is supposed to be bipartisan. But …
It’s the extreme partisanship in
Washington that’s so funny and so sad.
|Martin’s father, Irving Weiss, circa 1959|
It’s a very old story. In fact, ever since I was 9 years old, I remember Dad talking about it all the time.
He did more to help President Eisenhower balance the budget in 1960 than practically any man alive at the time. So I figured he knew a thing or two about the subject.
“When the folks from party A are in power,” he lamented, “party B attacks them for ‘spending like drunken sailors’ and ‘looting the nation’s future with horrendous federal deficits.’ Then, when the guys from party B are in power, they’re the ones who spend like drunken sailors and loot the nation’s future. As if they have no recollection of what they themselves just said. A convenient forgettery about an inconvenient reality!”
I asked him how this all came about in the first place.
“During the Revolutionary War, the Civil War and the world wars, there was a reason for the government to borrow and spend. It was the only way the country could win. But now, since 1946, a new economic theory has swept the world.”
“Since 1946? What happened in 1946?” I queried.
“That’s when a British economist, John Maynard Keynes, died — actually just a few months before you were born, Martin. And that’s when governments all over the world started putting his ideas into practice. Basically, he challenged the idea that free markets were enough to always put people to work and keep the economy stable. To fix the deficiencies of free markets, Keynes argued, the government needs to intervene more directly. It needs to stimulate the economy when it’s down; cool it off when it’s overheating.”
“How does it stimulate the economy when it’s down?” I asked.
“Two ways. It can overspend by running a deficit. Or it can inject more money into the bloodstream of the economy.”
“What’s wrong with that?” I wondered out loud.
“In theory, I guess it could make sense. But it’s a political trap.”
“What do you mean by that?”
Dad settled back in his seat and let out a long sigh. “Because when the economy is down and people are out of work, they love the government stimulus. But when things are going well and everyone’s having a great time, no one wants the government to slow down the music, let alone end the party. If anything, they want even more stimulus to keep the party going.
“So, in practice,” he continued, “the Keynes theory doesn’t work. Right now, for example, do you see a depression in this country? Do you see people on bread lines? No! The worst we’ve seen recently was a shallow, eight-month recession, and it already ended over a year ago. And yet, despite the good times, here we are, with Washington running a huge deficit!”
That was in the early 1960s when the federal debt was around 50% of GDP, near the highest since World War II. Now it’s 107% of GDP. (Even with the dishonest accounting.) But despite the dire state of affairs, politicians never seem to change.
Democrats attacked Republicans for huge deficits under Bush.
Republicans attacked Democrats for huge deficits under Obama.
And now Democrats are back to attacking Republicans for deficits under Trump.
But anyone who believes that they actually attack the problem — as soon as they have the power to do so — is living in a dream world that would make Disney’s Fantasyland seem like “Naked and Afraid.”
That’s the funny thing. But not in a laughable sense. It’s actually very strange … and sad.
Back when I was 11, I asked my father why government debts and deficits were so bad. I fully expected him to talk about recessions, depressions and panics. And he did.
But then he said something else that I have never forgotten: “Debt and deficits mess up the way the government decides things,” he said, shaking his head with disapproval.
“They’re supposed to make decisions that are best for me and you, best for your future. Instead, they make decisions that are best for paying their darn debts.
“They push interest rates way low. That way they themselves don’t have to pay as much interest.
“They let the dollar fall in value. That makes it easier for them to pay the debts. It lets them pay with cheaper money.
“And it doesn’t stop there. A weaker currency brings inflation. The inflation makes it hugely expensive for average people to buy food and clothing, pay their rent, go to college. But for people with a lot of property, it makes them feel richer because the price of their stocks and real estate goes up. People start resenting others more. And everything goes downhill from there. People out of work. Protests on the streets. Fighting. Civil war.”
My father taught me this over a half century ago. Now, even without much inflation, nearly everything he said would happen is happening — FAST. And if there’s more inflation coming, it will be even worse.
Governments will find ways to default, either outright or via more subtle kinds of subterfuge. Investors who own government bonds will lose up to half of their principal, while those with the right hedges will make fortunes.
Exactly when and where? How can you protect yourself? How can you grow your wealth despite — or even because of — this frightening Armageddon?
To answer these pressing questions is precisely why we held our emergency subscriber conference last week.
It’s why I have made the video recordings available to you. Free to subscribers.
It’s why my team hustled to write down every single word and make the full transcripts available, too. Also free.
It’s why we devoted months to writing our just-released e-book, Countdown to Armageddon. Your cost? Free, for now.
Here’s the key: The full consequences of the debt monster are not going to strike in just one day. They will play out in a four-phase process that begins now, starts accelerating in late October and continues until the end of 2022 — five full years.
That’s why I’ve created a special new service to help investors survive — and thrive — during this period, and why I’m personally paying for the last three years of every five-year membership.
Good luck and God bless!