The United States’ national debt is increasing at an unprecedented rate, forcing analysts to evaluate the country’s fiscal direction. According to the Treasury’s FiscalData portal, an incredible $97.7 billion was added to the national debt between August 16th and August 22nd, bringing the ultimate total to a mind-boggling $32.759 trillion.
A Sobering Look Back at Two Decades of Spending
In a new blog post, renowned financial expert Larry Mcdonald deconstructs America’s “jaw-dropping” spending binge during the last two decades. He makes an astounding claim: “Since 2020, the US government has unleashed an astounding $25 TRILLION in expenditures.” To put this in context, the market capitalization of the S& P 500 is $37 trillion. Spending since 2020 amounts to a staggering 68% of the total S& P 500 market cap.”
Mcdonald, a well-known CNBC contributor and popular book, makes a dire prophecy of impending “financial repression.” He explains that the Federal Reserve’s primary goal is to limit the actual returns on savings while keeping them below the inflation rate. He points out that this technique avoids the politically difficult problem of explicit tax increases.
The Federal Reserve’s Tender Balancing Act
As Mcdonald predicts that sweeping tax increases and significant spending cuts are unlikely to pass muster in the Congress maze, he says the Federal Reserve is walking a tightrope. This venerable organization is employing a deliberate, long-term approach.
“The US government’s adoption of financial repression serves as an indirect mechanism to chip away at the towering government debt, eventually aligning the debt-to-GDP ratio with sustainability,” Mcdonald explains. On the other hand, the Federal Reserve’s aims are more nuanced: they want to keep inflation above the average interest rate expense for the US government. A critical but secondary challenge is carrying this out without causing hyperinflation. This is why they’re taking small steps—a 15-year project, not a quick fix.”
The Bottom Line: An Economic Landscape in Transition
With the US national debt reaching historic heights, the complexities of financial repression emerge. The Federal Reserve’s cautious approach, as Larry Mcdonald’s perceptive analysis reveals, walks a delicate line between budgetary stability and avoiding inflationary risks. The next decade and a half may witness a delicate financial dance as the country grapples with managing its massive debt while attempting to balance economic growth and stability.
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