Do You Hear Alarm Bells Ringing? Neither Do I. And That’s A Huge Problem.
Do You Hear Alarm Bells Ringing? Neither Do I. And That’s A Huge Problem.
Notes From the Field By Simon Black January 15, 2024
Do you hear alarm bells ringing? Neither do I. And that’s a huge problem.
It’s clear that just about everyone is ignoring what should be the biggest news of the day… an ominous milestone that may just signify the point of no return. I’ll explain--
Recent data published by the Congressional Budget Office show that, last year, “Discretionary Spending” in the Land of the Free totaled $1.7 trillion dollars.
Remember, “Discretionary Spending” is one of the three broad categories of federal spending; the other two are interest on the debt and mandatory spending.
Interest on the debt and mandatory spending (which includes programs like Social Security and Medicare) are like your monthly mortgage payment-- they get sucked out of the Treasury’s Department’s bank account every month. Congress doesn’t even debate or discuss those categories.
All of the haggling and bickering and politicking in Congress is purely over discretionary spending. And it includes almost everything else we think of as ‘government’, i.e. military, national parks, homeland security, embassies around the world, etc.
So, here’s what’s remarkable:
Again, discretionary spending totaled $1.7 trillion last year-- which includes US military expenditures.
However, the other spending categories-- mandatory spending (Social Security, Medicare, etc.) and interest on the debt-- were so vast that the federal government still had an enormous deficit for the year.
How enormous? $1.7 trillion enormous.
Look at those numbers again: Discretionary spending for the year was $1.7 trillion. The fiscal deficit for the year was also $1.7 trillion.
Conclusion? The government needed to eliminate ALL discretionary spending last year-- including the military-- in order to balance the budget.
Think about that. US spending is now so high that nearly everything we think of as government-- from the United States Marine Corps to Yosemite National Park-- needs to be completely eliminated in order to make ends meet.
Alarm bells should be ringing everywhere. But they’re not. Hardly anyone in power has even noticed.
Now, the US government has obviously been running huge deficits for decades. But it was rarely this bad.
In Fiscal Year 2018, for example, discretionary spending was $1.3 trillion. But the budget deficit was much less-- about $700 billion. Sure, that was bad. But not like 2023.
Going back even further, to 2007, discretionary spending was about $1 trillion. But the budget deficit was $162 billion that year-- i.e. bad, but manageable.
This problem has clearly become MUCH worse over time. And the government’s own projections show the trend will continue.
White House and Congressional Budget Office estimates forecast that this current fiscal year (FY24) may be slightly better; they’re projecting $1.6 trillion in discretionary spending… but ‘only’ a $1.425 trillion deficit.
But within about six years, the federal budget deficit will exceed ALL discretionary spending… every year.
In other words, by 2031, the US could permanently cut all discretionary spending, including the military, and STILL have a budget deficit.
As I’ve discussed many times before, there are very few options in this scenario.
One option is to default on the debt. But this is extremely unlikely given that it would cause a catastrophic financial crisis around the world.
A second option is to dramatically slash (and eventually eliminate) key programs like Social Security, Medicare, etc. But few politicians have the willingness to do so.
A third option would be an enormous asset sale, i.e. selling off Yellowstone National Park to China and other foreign investors. I will give you a lot more detail about this soon and show you exactly what the US owns… and why even such a radical approach still wouldn’t solve the problem.
Most likely the US will resort to the same tactic that bankrupt governments have relied on for centuries: inflation.
Septimus Severus was Roman Emperor in the 190s AD and found himself in a similar position; Rome’s fiscal deficit was massive, and he didn’t have enough money to pay his troops. So, over a four-year period, he debased the Roman denarius coin from 81.5% silver, down to 54% silver.
Debasing the coinage meant that he could produce more coins with less silver… and hence pay his soldiers with increasingly worthless money.
The United States will likely do the same thing but updated for modern times; the Federal Reserve will step in with a new ‘quantitative easing’ program that creates trillions upon trillions of dollars out of thin air.
This money will be used to finance US government deficits at artificially low (perhaps even negative) interest rates.
But just like the debasement of Roman currency, this approach will eventually create serious inflation in the US.
Remember-- I’m talking about a few years from now, not today. Inflation has fortunately been falling over the past several months, and I certainly hope that trend continues.
But if you look at the government’s own forecasts, it’s clear that there are very few options other than inflation after about 4-5 years from now, if not sooner.
This isn’t some wild, pessimistic conspiracy theory. I’m talking about the actual results from the last fiscal year, and the government’s own forecasts which project a terminal fiscal crisis by 2031.
That means it’s absolutely critical to look at these problems rationally… because politicians certainly aren’t doing that.
But there are solutions. If the data show that inflation could be a major problem down the road, then you still have a few years to plan for it and reduce its impact on your life.
And one of the best ways to do that is to own high quality real assets, i.e. scarce, critical, valuable resources that cannot be conjured out of thin air by central bankers or politicians.
We’ll have a lot more on this soon.
Simon Black, Founder Sovereign Man