U.S. Government Financial Balance Sheet One Step Closer To Blowing Up

The U.S. Government’s balance sheet is one step closer to blowing up as its debt, and interest expense hit new record highs.  And when I say “new record highs,” I am not exaggerating.  It’s been a while since I checked the data on the TreasuryDirect.gov website, but when I researched the figures for this article, I was quite surprised by just how quickly the numbers are rising.

Thus, it’s also no wonder the stock markets continue to grind higher and higher because, without the U.S. Government’s unlimited check-writing ability, the markets would have collapsed years ago.  So, to all the Keynesian wanna-be’s who believe the Central Banks can print our way to prosperity forever, please tap your shoes together three times and say, “Everything will be okay because I have my 401k.”

Let’s get started with the tremendous surge in the U.S. Government interest expense.  Well, it seems as if things are really starting to get crazy at the U.S. Treasury when its interest expense in July jumped by a whopping 41% year-over-year.  That’s correct.  The U.S. Government paid $40.5 billion in interest expense this July versus $28.7 billion for the same month last year.  That is one heck of an increase.

If we look at the following two tables, we can see that the percentage increase of the interest expense in July is much higher than the previous months:

The interest expense the U.S. Government paid in Apil, May, and June was up 22%, 28%, and 6% respectively versus the same months in 2017.  However, July was up 41% compared to July last year.  Furthermore, total U.S. interest expense in 2017 was $458 billion while the amount paid this year is $455 billion and we still have two months remaining.

The U.S. Government paid $54 billion to service its debt in the last two months of the fiscal year last year.  So, if we assume a 20% increase of that figure, the U.S. Treasury will have to fork out another $65 billion for August and September for a total of $520 billion in 2018.

And, the reasons for the rapidly rising interest expense are the ballooning debt and higher interest rate.  We can see this quite clearly in the following chart:

Total U.S. public debt shot up to $21.3 trillion in July versus $19.8 trillion during the same period last year.  While the public debt increased 8% during this period, as I mentioned above, the interest expense surged by 41%.  So, the rapidly rising cost to service the U.S. debt will become an ever-increasing burden for the accountants at the U.S. Treasury and Federal Reserve.

Now, the chart above only shows the U.S. public debt as of July 31st.  Here is a table from the TreasuryDirect.gov website showing the increase in debt for August and a few days in September:

In just a little more than a month, Uncle Sam added another $200 billion to the public coffers.  At that pace, it would be over $2 trillion a year… LOL.  Unfortunately, we Americans have become numb to this sort of financial insanity.  Thus, trying to be frugal or smart about spending money in a land of Spend-Thrifts and Credit-Card Junkies, makes one seem like a real oddball.  I know, I am one of them.

While I can go out and buy a new car, I rather drive my old beat-up Ford pickup truck.  When I drive down the highway during the weekend and see a family in a large $60,000 four-wheel drive pickup truck, pulling a $40,000 RV with a trailer behind it holding two ATV’s at $10,000 a pop, I wonder how many paid cash for that???  Of course, it’s likely a fraction.  Everyone is up to their eyeballs with payment plans and debt.

After all… this is the American way.

So… the fun everyone is enjoying on borrowed money will likely go on a bit longer.  Yes, it’s hard to predict when the music stops.  But, when it does, there may only be 1 chair for every 50 Americans.  As comedian George Carlin would say… “THIS IS WHEN THE REAL FUN BEGINS.”

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35 Comments on "U.S. Government Financial Balance Sheet One Step Closer To Blowing Up"

  1. Thanks Steve.

    I know, it’s OT here, but I have a suggestion: An assessment from your perspective of new shale oil areas in USA – apart from whats left in Bakken, Eagleford and Permian. Niobrara? Somewhere else?

  2. Michael Kohlhaas | September 7, 2018 at 2:55 am | Reply

    Before US blows up everything else will be already down the dumpster.

    • It seems to be heading that direction already. You have Brazil, Venezuela, Portugal, Argentina, Turkey, Italy, Spain, Greece, India all of them either with massive economic problems near collapse or their currency is in free fall. Then you have the UK and EU with their Brexit problems. This doesn’t include immigration problems or the soon to be ANC meltdown as they march hand in hand with Zimbabwe when they kick out all the white farmers and try and feed their population with black farmers who don’t have the experience to feed a massive population.

      So it appears if you take a step back and look at the bigger picture, the periphery is already coming under strain.

      • The term “peripherial countries” are seldom used today. I am surprised to see you still use the dichotomy of centre and periphery. I and my friends have been using the dichotomy for years and still use it because of its simplicity and usefulness that help us in our study on the dynamics of the half apes civilization in this planet.

        • And indeed, Bukharin, the Fogs of Fiat has the monopoly of ‘Divide and Conquer’. For now. Do you feel lucky?

          Btw, it is ‘my friends and me’, not ‘me and my friends’. You should be more careful.

        • That’s no way to talk about inbred Caucasians.

        • Spanky Bernanke | September 7, 2018 at 8:56 pm | Reply

          Yes, indded. And, in California, the CEO of Tesla doesn’t smoke weed–it’s “cannabis.” LMAO
          http://www.usdebtclock.org/
          So, Steve, at the debt clock, we show that in the year 2000, we had 157 million working and today we have 156 million. So 18 years later we have less folks working with an expanding economy? Are we just that frickin’ awesomely productive?

      • Indeed Rodster. In stress, the blood flows to vital organs first.

        • 150 million workers need to cover half a trillion interest bill….that’s over $3000 per worker…..before any other government services are covered. No wonder the IRS must chase down every dollar.

  3. Steve, I can relate. Got a 4X4 with 130000 miles on it and don’t have any credit cards. (cut them up about 14 years ago.) Owe about sixty grand on a house with approx. 4 hundred thou in equity over it. I’m subject to lose some of that when the real estate bubble pops if I don’t sell it 1st. All in all, I sleep at night.lol.

  4. Rumplestiltskin | September 7, 2018 at 6:47 am | Reply

    There is one easy solution that the government is loathed to make and that is to just stop paying the banks that interest. Ask yourselves, just what would or could the banks do. They would do nothing, but try and sue the United States. That is when the FED would lose all credibility and a good point for Trump to get rid of it and go back to the gold standard. Both the government and the FED know that raising interest rates would “kill the goose that laid the golden egg” for the criminal FED. So the FED will fall in line and do what it is told or go out of business.

    In not paying that interest the FED would go broke, but then the government would have enough money to guarantee all deposits, IRAs, 401s, etc.

    • If the US didn’t pay the interest, the dollar would collapse within a week of the fact being certain. And the periphery will fall first likely causing a stronger dollar but not for long.

  5. Nah Rumple the USG won’t default. They will take the time-honored government solution of inflating the unpayable debt away, by sacrificing the paper dollar.

  6. Well Steve, the table I look at has something like a 20% increase in the price of groceries I put on it.
    Can’t tap my shoes and send affection toward my 401k because for 6 or 7 years now I haven’t made any contributions having read so many telling why that’d be long run dumb.
    Have stacked PM’s for years now & have what I think of as a nice stack that slowly continues to grow in weight as it shrinks in value. Sure seems like the best thing for me would be the BS game the USG has been playing for so long, keeps on rollin’ and the can keeps getting kicked on down the proverbial road, yanno?

  7. DEBT. It’s the debt.

    The Fed and the US Treasury have been dumping massive amounts of public debt on the bond market, upwards of $1.8 trillion in fiscal year 2019 alone.
    The Fed has ALWAYS been too late or too early. At present is no different. They are raising rates and tightening going into a shrinking, global economic downturn. Mix in a trade war with ever increasing tariffs being imposed, and you have short sighted political gamesmanship that has the opposite result of attempting to protect the workforce.
    The amount of debt overhang from the debt boom of the pre-2008 period, in conjunction with the amount of new debt created since, precludes very little new debt creation to drive growth. Since there is not enough productive economic activity to pay the old debt down. In this situation, only an extended period of low interest rates and monetary expansion can keep the economy from collapsing.
    In other words, the Fed is too late. When the current global economic bust washes over these shores, the Feds hands will be securely tied. No wriggle room left. Thats when they will turn to the only tool they have – the printing press, and will destroy whats left of the dollar.

    • DisappearingCulture | September 8, 2018 at 9:36 am | Reply

      “They [the Fed] are raising rates and tightening going into a shrinking, global economic downturn.”
      There is only ONE logical reason to do this, but I doubt the decision makers are raising rated for the ONLY logical reason…to be able to lower them again as part of their ammunition to fight the coming recession.

      • A Banquet of Consequences.

        There is military style warfare and then there is financial warfare.
        With the Fed shrinking it’s balance sheet and raising rates, its putting tremendous pressure on the FX market vis a vis’ the periphery. Add in an expansion of already high trade tariffs and you have a banquet table well set for the consequences to come.

        • DisappearingCulture | September 9, 2018 at 8:21 am | Reply

          “With the Fed shrinking it’s balance sheet and raising rates…”

          Of course hidden from public disclosure we don’t know if they really are shrinking their balance sheet. There is no telling what they are “buying”.

  8. Indeed the Fed and other central banksters will print, print and print more. The
    banks whom are the owners of the central banks will through fraktional banking create
    even more credit. This how a elite of banksters organise a massive wealth transfer on a global scale. Be prepared for the printing party still could be years away before the reset.

  9. Who will have the money to buy my silver at $1,000 a pop when this thing blows up? Nobody?

    • You won’t sell silver for dollars. You buy real property with silver. Land, equipment, water supply, etc. Maybe provide some means of digging out a living (depending on how bad things get)for your family, friends, people in need who will work.

      • As long as the internet is working, you will likely buy “real property” using crypto’s which perform a certificate of ownership. One will likely be able to swap silver for cryptos or vise verse. at the local coin shop. Presently the Silver/Litecoin ratio is 6.25. I’d keep an eye on that if you are interested in arbitraging your silver.

    • Billy Lone Bear | September 8, 2018 at 8:19 am | Reply

      The same entity that bought $20,000 bitcoin, million dollar shacks in Silicon Valley, $10,000 rhodium and Amazon stock in 2018, the market.

      It’s interesting that question gets brought up for silver if it goes up to an extraordinary number. Yet other assets somehow don’t. Don’t wait for $1000 wait for a GSR of 20, DSR of 200, HSR of 2000.

    • Land in Arkansas and Oklahoma was selling for as low as 50 cents per acre in the 1930’s. There was no money except for a few who bought up property for nothing.

  10. Chris in Arkansas | September 8, 2018 at 4:42 am | Reply

    Somebody always has the money to buy PMs, and lots of it. We always seem to think everyone will be in the same boat during an economic collapse. There will still be those that have lots of deployable wealth and they’ll be chasing anything of value to preserve some of it while also buying up high value but cheaply priced assets. I can’t quantify it but I suspect there will be more than enough currency in some form or another to buy up a finite pile of PMs. I also believe cryptos will reduce some of the demand for PMs as dollars are parked in online accounts that can be accessed and spent globally but we are in i chartered territory with cryptos. No developed country has been through a financial crisis where those with wealth can move funds into cryptos so we just don’t know how feasible it will be to use that strategy. I like war games, and thinking through every scenario in a collapse still brings me back to the strategy of buying into alternate forms of assets like PMs, investing in recession proof industries and productive real estate. Just giving up isn’t in my playbook. Just wish I had more money to work with – don’t we all?

    • DisappearingCulture | September 8, 2018 at 9:46 am | Reply

      “I also believe cryptos will reduce some of the demand for PMs as dollars are parked in online accounts that can be accessed and spent globally but we are in i chartered territory with cryptos. No developed country has been through a financial crisis where those with wealth can move funds into cryptos so we just don’t know how feasible it will be to use that strategy.”

      MAYBE…but cryptos are a whole lot of next to nothing. Seriously folks, very very few have plans to use them as currency. And other than that utility feature, no one has been able to communicate what one actually OWNS with a crypto. Do you own part of a company like with a stock? No. Anything tangible? No. Do you even have a promise like you do with U.S. debt [bonds]? No. You have to hope that more fiat will rush in at some point driving the price of a concept up.

    • Chris in Arkansas,

      I totally agree with you about “Somebody always has the money to buy Precious Metals.” The more I look at the markets, the more I understand them. Right now, the precious metals market is totally off the RADAR. Thus, the gold and silver prices being so low are a direct reflection of the present market sentiment and interest. However, when the RETAIL & PROFESSIONAL INVESTORS rotate out of the TECH, FANG and other HIGH ROLLING STOCKS today and into the PM’s and Gold & Silver Miners, well then, you are going to see a remake of 2009-2011. But, I believe it’s going to be even more explosive than it was in 2009-2011.

      Oh… that’s coming and there is a lot of BIG MONEY still on the sidelines.

      The difference this time is that when everyone was SICK to their stomachs about the miners like Silver Wheaton (now Wheaton Metals) falling to $2.50 a share at the end of 2008, EVERYTHING ELSE was falling. Moreover, the broader markets didn’t find a bottom until Feb-Mar 2009. This time around, everyone is SICK to their stomachs about GOLD & SILVER and the miners before the MAJOR MARKET CORRECTION has even begun.

      This is the BIG DIFFERENCE that we precious metals investors need to understand.

      steve

  11. Larry Kudlow said this week that Argentina, to stabilize, could set up a “currency board linked to the dollar, but you can’t create a single new Peso”. Haha, wise bold words from the top currency printing country in the world.

    If we saw Amazon stock rising in price from a finite set supply of currency, it should be news. But we see Stocks rising from an infinite amount of cash. Investors are excited. If the stock market had one million silver dollars to play with, Amazon stock, if indeed it’s a good sound growing company, would profit from other stocks losing their silver dollars (like in the old days). But the stock market is ever expanding from infused printed money. Infused money is pushing up stock prices, not quality. Infused money has to go somewhere (this year from tax cuts). The stock market is an unbacked bubble. The US debt is a no collateral debt bubble. I’ll keep my silver dollars with me, cause they’re not making any more.

  12. Thanks, Steve!!

  13. That Chart Showing the National Debt and Interest Per Month is really scary with a bit of context.

    First, Annualized that 40 Billion/Month equates to $480 Billion/Year.
    Second, Entire DOD Budget is $640 Billion.
    Third, Interest Rates are currently only at 2%.

    So… If Interest Rates go to just 3% (Assuming no increase in National Debt) then Interest on National Debt will be $720 Billion and be larger than even our insanely expensive military.

    RIP USD/USA

  14. I enjoy living simply. If you have to go to the bank to get that means that you can’t afford it. Buy used and pay cash. I love my 28 yr old chevy truck. No rusting here in AZ. Seems like the folks driving these new 50k plus trucks are generally always in a hurry and pretty cranky.

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