To most on Wall Street the idea of a default on the U.S. National debt seems somewhat unfathomable. Yet we’ve reached the point where it’s become an inevitability, and given Donald Trump’s background, it’s interesting to consider whether he would actually consider an explicit default.
Currently the United States has over $20 trillion of publicly stated debt. To put that in perspective, when the second George Bush entered office, the amount was $5.7 trillion. By the time he left and Obama took over the amount had almost doubled to over $10 trillion. Now following Obama’s tenure the amount is over $20 trillion.
It’s not exactly as if we’re still dealing with a few pennies here or there.
Of course unfunded liabilities like Social Security and Medicare that aren’t factored in tack on more than another $100 trillion according to most estimates. Which is far enough from ideal in itself. Yet what’s even more startling is how Washington continues on as if there’s simply nothing to see here.
Consider the latest budget deal:
“The hard-fought budget deal would boost federal spending for both the military and domestic programs by almost $300 billion above limits set in a 2011 law over two years, in addition to nearly $90 billion in disaster aid for areas recovering from last year’s destructive storms. It would also suspend the government’s borrowing limit through March 1, 2019.”
Now Washington is breaking its own laws in order to go even further into debt rather than making any cuts. Which makes you wonder, if none of the decision makers seem even slightly concerned at this point, when will they?
Even the the director of the Office of Management and Budget seems to be throwing in the towel.
Mick Mulvaney, director of the Office of Management and Budget, said that the proposal shows Mr. Trump has—for now—given up on balancing the budget over the next decade.”
The unfortunate truth is that the United States treasury is already in default. Printing money and borrowing at even faster rates doesn’t change that underlying reality.
Consider how the debt ceiling is continually raised over and over again, while the treasury threatens default if it is not. Essentially the action can be described as refusing to repay what has already been borrowed unless further credit is extended.
Given Trump’s background, as well as the battle currently going on behind the scenes between him and the establishment system, it has to be at least a possibility that he might consider an explicit default.
Certainly it’s possible that he can continue the status quo and see if the default can be delayed to implode on the next president’s watch. Yet given the inevitable, as well as the growing evidence that he is engaged in a war against the banks and deep state, a financial reset is hardly out of the question. Whether that occurs because he thinks it’s the best financial option, or if it’s as a means of trying to weaken the deep state, it’s no longer out of the realm of possibility.
One way or another, the current pattern of spending endlessly with no means of repayment will eventually come to an end. And with Trump in the White House, it will be fascinating to see how this is ultimately resolved.
February 26, 2018