Is USA's National Debt Nearing the Tipping Point?

 We have blogged on this topic for years.  Just when you think $10 trillion is too much debt, we raise it to $20 trillion and now with COVID relief funds being added by the trillions it's near $30 trillion.  There seems to be no end in sight!  But according to some authors writing for financial journals this is really no problem because "this time it's different."  According to them the $trillions is really just a number and has no real meaning because they believe USA can borrow all the money it wants!  There is no limit!

Last week, President Biden pitched a new plan to Americans before a joint session of Congress: more spending.

The just-released $1.8 trillion plan, presented just weeks after Biden signed a $1.9 trillion in COVID relief spending into law, includes "free" community college as well as universal preschool for all three and four-year-olds.

"Mr. Biden could usher in a new era that fundamentally expands the size and role of the federal government," The New York Times reported.

The announcement comes months after the Congressional Budget Office released a report projecting a $2.3 trillion deficit in 2021.

Biden's plan will almost certainly make the deficit worse. Though the plan contains various tax increases to fund its programs, the taxes are likely to fall well short of government outlays, economists say.

"The laws of economics are more rigid than the laws of the federal government, and these tax hikes are unlikely to yield the windfall Biden expects," Joshua Jahani, the managing director of Jahani and Associates, noted in a recent NBC News article.

As a result, the $28.2 trillion national debt will swell even faster. Worse, when unfunded liabilities are included in the balance sheet, as private companies are legally required to do, the debt exceeds $120 trillion.

How much risk these obligations present is unclear.

There is a school of thought that suggests these debts pose no serious risk. After all, in theory, a government can roll over its debt indefinitely. However, in a recent article for the Federal Reserve Bank of St. Louis, economist David Andolfatto noted that ultimately the government doesn't decide how much debt is bearable. The market does.

"There is presumably a limit to how much the market is willing or able to absorb in the way of Treasury securities, for a given price level (or inflation rate) and a given structure of interest rates," Andolfatto wrote. "However, no one really knows how high the debt-to-GDP ratio can get. We can only know once we get there."

Andolfatto is right that no one really knows the debt tipping point. But it's worth noting that the US debt-to-GDP ratio--essentially a country's debt compared to its annual economic output--was 129 percent at the end of 2020. In other words, the official US debt was nearly a third larger than the entire US economy.

That is considerably higher than Greece's debt-to-GDP ratio in 2010, when it received a bailout from the International Monetary Fund to avoid defaulting on its obligations.

The United States is not Greece, of course. Its economic potential is far greater, and it is operating under a currency it controls. But there's no denying that the US is in uncharted territory. 

Today, the federal government debt-to-GDP ratio is higher than it was at the conclusion of World War II, when the nation assembled one of the largest armies the world has ever seen. Perhaps even worse, the government is piling on debt faster than ever.

Here;  How Much National Debt Is Too Much? America May Soon Be At It's Tipping Point (prophecynewswatch.com)

So we won't know until we get there!  So what does that look like?  We have a bond auction and no one shows up to buy the US Treasury Bonds?  And then what?  Well, then we start to have a crisis of confidence.  And since our whole financial system is based on faith and confidence and the confidence has left the room, things could get ugly really quick.

As bonds mature and have to be refinanced the market demands more interest because they deem the bonds to hold more risk.  And when those rates on $30 trillion go up to 5%, 6%, 7% or more then the US Government doesn't collect enough taxes in all the land to even pay the interest on those bonds.  So then they have to raise taxes or print more money.  Both of those ideas would be bad for the economy and bad for the value of the US Dollar.

We continue to pray that God holds this country together until the rapture of the church.  People will be buying, selling, marrying, planting and building and will have no idea until it's too late.  Jesus comes to take His bride off this earth and take us to the place he has prepared for us.  If that wasn't true would he have told us such?

And when millions of Americans vanish and aren't around to pay their mortgages, car payments and taxes, America will start to collapse very quickly.

It's almost like we can see the writing on the wall.

Even so, Come Lord Jesus!  Your will be done!