The US national debt has reached US$26 trillion and is expected to reach US$30 trillion in 2021. Its total tax revenue is US$3.2 trillion. The interest rate on its debts is close to zero per cent. If the interest rate was to go up to ten per cent, the US will not be able to service its debts.
In the 1970s, the US interest rate went to about 20 per cent. This year it plans to create trillions more in debt. Since February the Federal Reserve balance sheet grew 70 per cent, the European Central Bank by 18 per cent and the Bank of Japan by eight per cent, while China’s balance sheet decreased.
The US debt to GDP ratio is 130.1 per cent, the highest in its history. After World War II its maximum debt to GDP was 106 per cent.
The US has a choice: default on its debt or print an extraordinary amount of money and inflate the debt away. It has had a trade deficit from 1982, which has been on an upward trajectory. Its industrial capacity has been gutted and it cannot rebuild it in less than ten years and with tens of trillions of dollars in investments. The collapse of the US dollar is coming within five years.
Its household debt was US$14.3 trillion at the end of March. More than eight per cent of its mortgages are in forebearance but when that ends will it be able to pay its mortgage?
According to Moody’s chief economist, 30 per cent of Americans will stop paying their mortgages. In the last ten weeks 42.6 million workers filed for unemployment in the US. The recent unemployment rate was 13.3 per cent but in the report its stated the actual unemployment number is about three per cent higher. It is manipulated data. According to the Department of Labor and Training, the US workforce in February was 164.546 million but in May the workforce was 158.227 million.
The social unrest caused by the police killing of George Floyd is a prelude to a future class war in the US. The country’s corporate debt is US$15.5 trillion, which is 77.9 per cent of its GDP, which has declined to US$19.9 trillion from US$21.7 trillion. The Federal Reserve’s buying of bonds, exchange-traded funds and cheap loans is keeping companies on life support. A total 773 businesses filed for bankruptcies in May, which is a 48 per cent increase.
If oil increases by one cent it will cost consumers US$1.42 billion annually. The US invests in shale oil although it has not made a profit.
The Congressional Budget Office said that covid19 pandemic will cost the economy US$15.7 trillion during the next ten years. In the first quarter of this year, 14 per cent of China’s exports was to the US while 16 per cent was to ASEAN countries, which is unprecedented. In 2018, 20 per cent of China’s exports was to the US.
Going into a cold war with China, Russia, Iran and Venezuela is unwise when the US is very vulnerable and it cannot defeat them militarily because China and Russia have nuclear weapons. Russia’s missile technology is superior to the US’s. Is America doing like the former Soviet Union, which engaged vigorously in a cold war until it collapsed?
BRIAN E PLUMMER