US Gross National Debt to Spike by $800 Billion in October?

The other option: too ugly to even imagine.

“There is zero chance, no chance we won’t raise the debt ceiling,” swore Senate Majority Leader Mitch McConnell (R., Ky.) at an event in Louisville, Kentucky, on Monday.

He who couldn’t get his Republican ducks all lined up in a row to get any major legislation passed this year was confident that the Senate would pass a bill that would raise the debt ceiling so that the government could continue to pay for things that Congress told the Government to pay for, and so that the government could service its debts, rather than default on them.

Treasury Secretary Steven Mnuchin was there with him, pleading once again for a “clean” debt-ceiling increase, according to the Wall Street Journal. His “magic super Treasury powers” that allow the government to conserve cash to avoid having to issue more debt will expire at the end of September, he said.

“This is not about spending money,” he said. “This is about paying for what we’ve spent, and we cannot put the credit of the United States on the line.”

The debt ceiling is just under $20 trillion. While the government can issue bonds to redeem maturing bonds – and it does this all the time – it cannot allow the gross national debt to go beyond the debt ceiling.

But because it has to continue to pay for things that Congress mandated in its various spending bills over the years, the Treasury scrounges up the money from other government accounts, robbing Peter to pay Paul, so to speak. For example it temporarily short-changes the Civil Service Retirement and Disability Fund. These “extraordinary measures,” as they’re called, or the “magic super Treasury powers,” as Mnuchin called it, run out after a while.

Mnuchin said in his last letter to Congress that the out-of-money-date is September 29. But as in the past, the real out-of-money date can probably be stretched into October.

These shenanigans make the entire world shake its collective head and pray that Congress, after going through its charade, will for the umpteenth time raise the debt limit. The other option is a US default. Its global consequences are too ugly to even imagine.

But this charade has some peculiar effects, beyond its entertainment value: for months on end, it covers up the true extent of US government debt, and the current surge of this debt.

This chart shows the gross national debt going back to 2011, including the last two debt-ceiling fights. Note the long flat lines leading into October or November, followed each time by an enormous spike:

  • On October 17, 2013, the day after the debt ceiling was raised, gross national debt jumped $328 billion in one day and then continued to surge.
  • On November 2, 2015, the day after the debt ceiling was raised, gross national debt jumped $340 billion and then continued to surge. In the two weeks after the debt-ceiling increase, it soared by $520 billion.

This year, the show is going to be even more magnificent. My guess is that the debt will spike $420 billion a business day or two after the debt ceiling is lifted and then continue to surge, and that it will jump by close to $800 billion in the 30 days following the debt-ceiling increase.

This will put the US gross national debt at around $20.6 trillion before the year is up. And there will be debt out the wazoo going forward.

If Congress doesn’t raise the debt limit to allow the Treasury to issue bonds to bring in this cash, the US will default on its debts and/or fail to make other payments that it is obligated to make. So, as one former Treasury official told the Washington Post in July, officials are now “brushing up on options in the ‘crazy drawer.’”

Lawmakers will return to Washington after Labor Day to tackle the debt ceiling. If there were a good chance they’d fail, I – who no longer shorts anything anymore – would short everything and curl up into a fetal position until the dust settles.

However, I’m confident that the drama queens, after going through maximum theatrics and bluster, will manage to raise the debt ceiling. They managed each time before. And they’ll manage this time too. They’re political animals, but they’re not stupid. I’m sure of that, knock on wood, fingers crossed.

So what happens when the Fed begins to unwind QE? The bank advisory panel told the Treasury Department that the accompanying decline in stocks and bonds will be “a financial engineering shock,” but it won’t be “systemic.” So just “let markets clear,” they said. Read…  Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept. Get Antsy

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  111 comments for “US Gross National Debt to Spike by $800 Billion in October?

  1. Colin Williams says:

    The Shits About To Hit The Fan This Winter October Plus Into 2018 Onwards ****

    • kevin says:

      Folks have been chanting SHTF…SHTF, SHTF since 2008 but the S*** never does hit the fan. It just drops to floor in one plop, and life goes on.

      Looka’here, unless a giant meteor hits the Earth within the next million years or so, no S*** is going to hit any fans at all. lol. Humankind have been through worst hell with the two World Wars with many cities bombed back to the stone age and yet barely 20 years later each time, everything is built back up with a vengeance.

      In all likelihood, these debt load are just minor hiccups for a sovereign nation able to print their way of out the mess. Money itself is just an imaginary concept, just as any accounting system is an invention for keeping track of value.

      If you can’t pay your debts, you’re in trouble because there is a power above you to enforce payment (i.e. the bankster or the government)
      If a company cheats in accounting, they are also getting in the deep end, if the auditor catches them cooking the books.
      If a government cheats, who catches them? No one. The Auditor-General belongs to the government. They are the highest authority in the land vested with all the sovereign powers including printing money out of thin air. A country may get investors pulling their money out, like say Venezuela or Argentina, but if that nation is the current military might on the planet, then no one is going lose faith in that country.

      For example, if Russia defaults on her debts, which other country dares to barge into her country and demand payment? No one.
      Conversely, if Argentina defaults on her debts to US, even US investors dares to impound her vessels as payment in kind. This is simply because US is a much greater military might than Argentina and can walk into her country and seize whatever assets necessary for payment.

      The same analogy goes with your street thugs. The gang with the bigger knives calls the shot. If the local street thugs demand protection money from you (i.e. taxes), you better pay up. Then the street thugs will “protect” you from other rival gangs. That is, until the Mafia with tommy guns and grenades shows up and declares all the streets now belongs to them, then you declare allegiance to the new “sovereign” law of the land. Its really that simple at its basic level.

      Thus, there is a much deeper linkage between the Military-Industrial complex with Wall Street than most folks can envisage. Military might enables inflationary economics and makes for Monetary strength. It happened in ancient Rome and ancient Chinese empires too. If your military falls, your money dies with it because a sovereign nation is also an imaginary concept and is propped up only by her standing army. If a rival military power becomes far stronger than yours, your monetary value drops because the people knows the mightier nation may ignore or override your accounting systems.

      That is the reason why, all Superpowers (USA/ Russia/ China etc.) strives to ensure they have the mightiest militaries. They are protecting their monetary value more than anything else.

      • Truth Always says:

        Kevin speaks the truth. This charade will go on forever…

        However – just because the White House is occupied by Trump – maybe there is a remote chance deep state would conjure a failure for his administration by not letting the debt ceiling increase.

        Still the eclipse that would bring might light up the deep state in unpredictable ways and cause global chaos- so i still give that a low overall probability.

        • Nicko2 says:

          The system is working as designed. US debt is irrelevant. Don’t worry about it.

        • thelocalpragmatist says:

          “Kevin speaks the truth. This charade will go on forever…”

          Yeah, just like in Venezuela….

      • Jimmy says:

        The Law of the jungle.
        Thanks for your post.

      • Ambrose Bierce says:

        the ability of one gang to dominate all others is a matter of organization. that’s why they call it “the organization” there is no penultimate organization.
        there is no military tribute coming in from Afghanistan, or anywhere else. do we enforce dollar hegemony with military might, that one is tinfoil hat country. “here take these dollars or I’ll shoot you”.
        Russia and China are not superpowers, we won the Cold War, and the age of great empires ended about the same time. (Neocons are stuck in the past but they do have a partnership with liberal progressives to drag the nation of Islam, kicking screaming into the 21th century)
        investors dont buy bonds for the interest, they buy them on margin to collateralize them and buy riskier assets, much like a money center bank pays you .1% for a savings deposit and then invests that money in stocks to earn 10%.
        so the real end of the debt ceiling game “lets issue even more monopoly money,” is when no one wants it anymore, when stocks take a turn, OR when the bond buyers can no longer collateralize those bonds, and that is a dark murky IF and WHEN, when does your bank say NO you cannot have a HELOC, or a PLOC, or you can only margin HALF not all of it, or all plus 10% in the case of a mortgage.
        the problem isnt with the people issuing the debt, they are like farmers growing corn, its the people who turn that corn into cornflakes or moonshine. that little bit of alchemy benefits everyone, so government is happy to feed the speculation machine.
        in theory there is no end, soon Yellen will be able to buy stocks, and QE will be Qualitative Easing, the biggest can down the longest road ever, and by enforcing backstops on selloffs caused by margin calls. Stop the market, cancel ALL trades, reliquify the sellers.
        yes in theory it should all work unless there is no profit in buying corn and reselling it, (profit margin zero, like the great depression) or the people who finance these deals pull back. in the first GD government put price controls on agricultural products and it drove the farmers to bankruptcy. so it never worked with that green and it shouldnt work with their green, but they keep trying.

      • MWL says:

        Hmmm. ” … Military might enables inflationary economics and makes for Monetary strength. It happened in ancient Rome and ancient Chinese empires too …. ”

        So how did things work out for those two empires over the long haul?

        (Admittedly the “long haul” – for us as well as them – can be truly long – longer then most deem possible. Still, that will provide little comfort if we just happen to be the ones holding the bag at the end of the “long haul”. As the late, great Harry Browne once noted, “Never forget that history may be saving its worst case scenario for you to sample personally.” ;-)

        • Harvey says:

          No empires last forever, and no country is so exceptional that it is an exception from history, period.

    • Cynic says:

      Rather, it is just like India: it’s everywhere, worse and worse, but never one spectacular , all-obliterating deposit…..

  2. John says:

    Never fear, of course the bums will raise their debt ceiling. Does any heroin addict just up and quit? Nether does someone who spends other peoples money. The only thing that will bring them to quit their bad habits is barrels of tar and bags of chicken feathers.

    • Lars says:

      As Greenspan and Bernanke after him, had no choice in following the Japanese example of reducing central bank interest rates to ZERO, (thusly countering the Yen Carry Trade, and instituting the Dollar Carry Trade), The Fed and Congress have NO choice but to keep the same upward ‘slope’ to the US Public Debt ‘chart line’ continuing. It’s a long and winding road they keep kicking the can down, and where it ends is uncertain in many ways.

  3. Gershon says:

    Wait until the Fed prints away all those debts and obligations. Pick up a copy of Adam Fergusson’s “When Money Dies” to get a preview of coming attractions once the Fed debases the currency into worthlessness.

    • Willy2 says:

      – $ 20 trillion in US government debt is the guarantee that we’ll see deflation first BEFORE there’s the slightest chance for Hyper-Inflation.
      – If the FED would starting (literally) printing money (= HyperInflation) then even then we’ll get DEFLATION. Because Hyper-Inflation is actually EXTREMELY Deflationary. That’s something only a few people really understand.

      • Gil Obrero says:

        Well said.

        It absolutely amazes me, even after I carefully explain the mechanism that printing money causes to start up and cause deflation.

        It is like it is something their minds or imagination cannot countenance, as if such a thing as deflation by money printing is a fantasy, a fairy story, something that could never happen in the real world.

        Even some of the most intelligent people I know simply do not see how the process to deflation works..

        • Mickey says:

          gee whiz folks: all the money created the last several years has been inflationary-in the stock and bond markets. The deflation in the stock and bond markets will come. When is the question to be answered.

          It happened in Germany 1923–November which followed a parabolic move up in the stock market there. Then the currency crashed, Gold and silver went sky high, and anything denominated in Marks took a powder

      • Willy2 says:

        Here’s why Hyper-Inflation is actually Deflationary:

        – In Deflation the value of a (Treasury or corporate) bond (=credit) drops in value from say $ 1000 to say $ 500. The (traded) value of credit then drops (= rising interest rates).

        – In Hyper-Inflation (HI) the (traded) price of a bunch of (Treasury or corporate) bonds remains/can stay flat at say $ 1000 or $ 10,000. But when HI hits the US the EUR/USD would rise from the current ~ 1.18 to say 1180, 11800 or (much) much higher. Then we here in the US would also see gasoline go up from the current $ 2, $3 or $ 4 through the roof to say $20,000 or $200,000 a gallon. Gold would also “go ballistic” to say $ 1 million an ounce.

        – Did the EUR/USD, oil & gold rise to such levels in the (recent) past ? No. So, all this talk about QE causing HI is sheer nonsense. QE is – without a shadow doubt – inflationary but it didn’t cause HI.

        Today with that (T- or corporate) bond I can buy A LOT OF gasoline. But when HI hits the US then I can buy only very little gasoline with that (T-) bond. In other words, in HI the REAL value/the purchasing power of credit melts away.

        So, Deflation is that the (REAL) value/purchasing power of credit melts away. Either in outright deflation or in Hyper-Inflation.

        • OutLookingIn says:

          Inflation is purely a monetary event.
          Hyper inflation is purely a currency event.

        • Bobber says:

          I don’t understand the distinction you are making. Inflation (or hyperinflation) is when a future dollar buys less. Deflation (or hyperdeflation) is when a future dollar buys more. They are not the same.

        • Willy2 says:

          – Agree. In hyperinflation cash loses value and people want to hold tangible assets. E.g. gold, commodities, farmland.
          – In deflation cash (re-)gains value relative to other things (gold, commodities, stocks, bonds, etc.) and people want to hold cash.
          – But was am talking about the value of debt/credit. And then in both cases (Hyper-Inflation & Deflation) the (REAL) purchasing power of credit (e.g. a T-bond) shrinks.

        • QQQBall says:

          Bullshit. In hyper-inflation LT fixed-rate bonds do not stay flat…

        • wratfink says:

          Inflation: the increase in the money supply expansion of credit, etc…. more dollars to buy the same slice of pie.

          Deflation: the decrease in the money supply by default or deleveraging or “balance sheet reduction”…less dollars required for the same slice.

  4. Michael says:

    Not quite. The only thing that will stop the charade will be the point at which no one will accept dollars in trade.

  5. Liza says:

    Wolf, are you estimating that $800 billion will be the total deficit this year ? A White House statement said that the deficit could run $750 billion. Of course, the deficit could be higher if tax receipts are lower than expected.

    • Wolf Richter says:


      I’m saying the DEBT will jump by $800 billion during a 30-day period.

      As I have shown in prior articles, and as I will show again this fall, due to the way the federal “deficit” is accounted for, it’s always a lot lower than the increase in debt. In other words, the debt increases far faster than the cumulative deficits (the magic of government accounting).

      The article (linked below) from last fall has charts comparing annual deficits and annual increases in debt. The differences are huge. It says:

      “Since 2003, the government deficits published by the Office of Management and Budget amounted to $9.26 trillion. So the Treasury should have had to borrow that much to make up the difference. But over the same period, the national debt rose by $13.3 trillion. Meaning, $4.04 trillion had gone up in smoke.”

      So this year too, the increase in debt would normally be far larger than the deficit. BUT the fiscal year ends on September 30, and the debt ceiling might not be raised until October, so that there will be essentially no debt increase in fiscal 2017. It will all be pushed into fiscal 2018, which starts Oct 1. So fiscal 2018 might show a close to $2 trillion increase in the debt, while fiscal 2017 might have only a slight increase. To get a better picture, you will have to add the debt of fiscal 2017 and fiscal 2018 together and divide by 2 as an approximation.

      • mickey says:

        since 1983, the growth in US debt exceeded reported deficits by $7.5 trillion.

        But its only $7.5 Trillion of taxpayer money thats evaporated.
        I had to go back and dig up historic info as I could not find that info put together like that.

  6. Willy2 says:

    – The entire “Raise the debt ceiling” debate is kabuki, a “dog and pony show”. When did Congress NOT raise the debt ceiling ?

    • Rates says:

      During one of David Stockman’s dreams. And since he’s been wrong in pretty much EVERY one of his debt ceiling predictions, you know what’s gonna happen with this one.

      • John M says:


        Stockman looks like a clown until he’s proven right then he looks like a genius..

        • Winston says:

          “Stockman looks like a clown until he’s proven right then he looks like a genius..”

          Whereas Greenspan was a “genius” maestro until he was proven wrong. The “genius” Bernank will be next but he has, like Greenspan, conveniently retired before that had a chance to happen.

        • Rates says:

          A broken clock is right twice a day. All systems self destruct. Which empire has stood a thousand years? Making those kinds of observation does not make one a genius. Being able to time the event is what counts. Not just for trading purposes rather that it demonstrates that one knows what one’s talking about.

        • Smingles says:


          And Greenspan continues to prove himself anything but a “genius” every time he opens his mouth.

          It’s like he never learned anything. It’s quite frankly amazing how consistently wrong he is on almost everything in regards to the debt markets, as he is obviously an intellectually capable person.

          He has been saying that the bond market is in a bubble and that higher rates are right around the corner for years now, and he has been wrong, wrong, wrong.

          And he never admits it. I suppose that probably fits in with his Ayn Randian philosophy. He’s kind of a piece of —- if you ask me.

  7. Mark says:

    Absent some act or omission of breathtaking negligence, ignorance and/or stupidity (with the Congress and this administration nothing can be ruled out), they’ll raise the debt ceiling as usual.

    Then again, the experts said Brexit couldn’t happen and Trump couldn’t be elected…

  8. Bobber says:

    The hard right has no credibility on this. In exchange for a debt ceiling increase, they demand fiscal reform, but they are unwilling to put tax increases on the table. I call that irresponsible.

    That’s like saying, I’m going to spit on the pie unless I get 90% of it.

    I agree with using the debt ceiling as a way to enforce fiscal reform, but it’s unreasonable to dictate the type of fiscal reform.

    • Smingles says:

      “Fiscal reform” from the right is a dog whistle for cutting taxes for the upper class, while gutting social welfare spending for poor Americans to “pay for it”… even though it ends up making the fiscal situation worse… leading to more requests for tax cuts, and more requests for spending cuts. You see, tax cuts for the “job creators” creates a larger pi… no, I’m sorry, I can’t even sarcastically write out the rest of that drivel– which is still being trotted out, in 2017, by the right.

      It’s quite literally evil. Now I’ll probably have to listen to some right-wing snowflake whine about how his hard earned dollars are stolen from him to support welfare queens buying Ferraris. Good grief.

  9. economicminor says:

    Thanks Wolf for another fine piece of journalism.

    Well something is going to break the markets. And as dysfunctional as Congress has been, who knows. This time may be different!

  10. Mike R. says:

    I’m not so sure this go around. Seems like the country is moving more towards the old saying: “Cut off your nose to spite your face.”

    The anger and frustration seems to be increasing on both sides. Maybe a stalemate will result.

  11. Old Engineer says:

    The kabuki is not about whether or not the ceiling will get raised. The kabuki is about what each interest group can extract to further their own agenda in order to agree to vote for it. The extractions will benefit a small number of people, be unrelated to government finances, and otherwise would have no chance of enactment.

  12. Raymond C. Rogers says:

    For fun, download the CBO ten year budget and debt projection sheet.

    Talk about some wild numbers, and these don’t even account for a recession of any kind.

    Download it for yourself. 2017 is marked for a budget deficit of 550 billion (and we know these numbers are higher). Look at 2026 with a projected deficit of 1.3 trillion. This only includes the massive governments that currently exist. Wait until an infrastructure plan is voted for. Wait until single payer is ushered in or “free college” for that matter. On top of all of this, a recession is likely to come in the next 10 years and really make it a party.

    Make sure your about 25 lbs overweight by then, you might need the fat storage. Maybe someone can write Venezuela for Dummies: North American Style.

    • Raymond C. Rogers says:

      I should add that this was published in March of 2016. The great unwind of QE and any cost increase on interest of the debt is also not included.

    • IdahoPotato says:

      Single payer will cost significantly less than the current American hybrid system.

      Right now the U.S. spends 1.3 tn$ annually for crappy healthcare for its citizens. The most generous version of single payer (the Sanders version) is expected to cost about the same.

      The benefits would go to ordinary American consumers and the taxpayers, not to the big pharma and insurance companies. Can’t have that ‘cos “free markets”. Or something.

      • Raymond C. Rogers says:

        If you believe that I have a bridge to sell you. The same damn thING was said about the Unaffordable Care Act. Putting a new item in the federal grocery cart is not going to save money for the federal government. Some individuals may benifit, but not the aggregate.

        We don’t have a free market right now, nor since most of us have been alive. Wolfstreet did an article on the free market system in Mexico. You can actually shop for a doctor, get your surgery done, get one pages of paperwork, and be out the door at a fraction of a cost. That is the market, what we have is a tangle of regulations created by the insurance companies you cite.

        Very few things are accomplished at the price the government says will happen. And if you happen to get the right price, you wont get the quality promised.

  13. John Griffith says:

    So when will a digital currency replace an irrational colloquial and politically influenced denomination? It will happen, it’s just when.

    • nick kelly says:

      A digital currency has nothing to do with the topic, which is the government spending more than income. Converting to bitcoin or one of the dozen odd main competitors does not help someone who gets paid ten bitcoins a month but spends fifteen.
      The fundamental cause of the problem is that politicians get elected by promising goodies. The electorate does not care whether it is paid in dollars, bitcoin or cowrie shells as long as they are convertible to goodies.
      Add to this demographics: the number of workers taxed to support a given number of retirees. It is rapidly closing in on an impossible ratio.
      So the government borrows the difference. (As any campaign manager will tell you, you really don’t want to f&ck with retirees or the AARP)

      Switching to a different currency, digital or not cannot alter the fact that it must be convertible to consumable stuff. Governments’ income (municipal, state, federal) does not cover the promised stuff.

      • Kent says:

        To further this, people want goodies. They just don’t want to pay for them. But rich folks are happy to loan the government the difference, with interest of course.

        • kam says:

          “rich folks are happy to loan the government the difference,”

          Wow. $20 Trillion in “rich folks” savings buying up U.S. government debt. As in all modern banking there is less than 5 cents supporting the other 95 cents of mirage.

          In other words, the American public will be paying 100 cents plus interest to debt holders with very little skin in the game.

          Fractional reserve banking, central bank money/credit creation (out of thin air) would be illegal except the government is doing it for themselves and their friends (who are not the general public).

  14. Wilbur58 says:

    The real story here is Republican. They use this time every year to gut social programs and raise payments to the military and other monopolies.

    They pretend they’ll default, but then say, “Okay, fine… if we cut this and this… then we’ll allow more payments to the top .1%.”

    Honestly, I wish one year these morons would actually fail to raise the debt limit. It’s such a non-story, but it arouses the libertarians into a talking-in-tongues blather. Oh my god… gubbidy-gubbidy-government debt!

    It’s irrelevant. The US can’t default because it can just make more money. There’s no issue. I suppose it could intentionally say, “No, I’m not going to pay what I’ve promised.” But I would think that these ‘family values’ fake-conservatives would at least pretend that it’s a good idea to make good on your debts. Still, don’t miss the chance to… just scream and yell because… debt!

    What’s of far greater consequence is the private debt, not the public.

    • Karl Kolchak says:

      I suppose it could intentionally say, “No, I’m not going to pay what I’ve promised.”

      That’s exactly what not raising the debt ceiling means.

    • Raymond C. Rogers says:

      Your totally right, no problems here. This article that Wolf wrote is just nonsense. Let’s just make more money. I mean look at Venezuela, nobody beats that market. Everyone in the market is rolling in money.

      Seriously, those of you have no clue of the necessity of a military who would be able challenge the Chinese if they chose to close down the shipping lanes of commerce. Many of allies, are welfare queens, and allow the United States to shoulder most of the slack for defense spending. Europe would not be spending peanuts on defense if the United States did not exist. Europe’s defense mentality is let the US pay for it. Back when several European countries wanted Gaddafi to go, they had rely on US airlift and refueling capability. And this is not solely a Trump point, Gates said as much in 2011.

      Take a look at the federal budget. The DOD is not the 800 lb gorilla in the room. Sure I have my issues with the waste, but the entire DOD budget will not satisfy the cries of “moar, moar, moar”.

      Do you know how much money is not spent to help people? Try the interest on the debt, which is more money and a greater percentage of the federal buget as time passes. Just as mindless consumers think they need a new car every five years and sell their lives to attain that lifestyle, so too do these same people condone a government that does the same. It’s all about the “me, here, now” entitlement mentality. Future generations in the US are royally screwed.

      What do you tell your kids and grandkids?
      Hey its been a nice ride, enjoy the bill.

      Needs and wants are two seperate concepts.

      • Wilbur58 says:

        Typical Republican rhetoric.

        Spending 5 times what we have to on Military? Good. All social spending? Bad.

        Yeah yeah, we get it.

        “Europe’s mentality is to let the US pay for military.” Duh, same as the Japanese. We won’t let them build up a strong military. See World War II. As a Republican, you’re supposed to like that.

        We need to keep spending because of China? Both can blow the world to smithereens. So can Russia and a couple of other countries. What’s your point?

        Future generations aren’t screwed because of public debt. But they are because of private debt.

        All that interest you’re worried about? It’s primarily owed to banks and other Americans, not China.

        When will non-rich right wingers ever understand that our current problems are due to financial capitalism… and the banks/monopolies running our government… instead of the government itself, conceptually?

        • TJ Martin says:

          1) A minor pedantic correction . Our current problems are due to the current state of Hyper-Capitalism .. not financial capitalism . And yes at the risk of criticism I’ll say it again . That state of Hyper-Capitlosim verging on Anarcho – Capitalism is fueled by an overall adherence to the teachings of Ayn Rand

          2) But you hit the nail on the head with military spending with the overwhelming majority of our tax dollar paying for the military .. next in line being corporate and business subsidies … with everything else including infrastructure , social spending , the arts , health care and research , government employees paychecks etc etc sharing what little’s left of the pie .

          3) And kudos for the private versus public debt . Thats what most people do not get . The public sector can survive massive amounts of debt .. to a point … whereas the private cannot

          In as far as the rest of Mr Rogers comment is concerned … a King Crimson song title says it all ;

          ” One More Red Nightmare ” cause thats what he’s having … one Red nightmare after another never having gotten past McCarthyism still entrenched in fear and loathing .. where ever he may be

        • nick kelly says:

          Leaving aside the other points: ‘US won’t let Japan build military’.
          The US has been hounding Japan for a decade to expand its military.

    • Frederick says:

      Wilbur 58 I understand your arguement but I think others might disagree with that solution like our creditors i.e. China Japan etc

      • Wilbur58 says:

        Oh no. Quelle horreur.

        • Mickey says:

          2/3 of what we spend goes to health and welfare. Promises we made but will not be able to keep.
          we have 74 million on Medicaid now-thats under the age 65

          whats the present value cost of keeping that 74 million covered with an average cost of %,000 per year.

          we have 64 million who have paid in for medicare and Social Security-(everything is now pay as you go)

          we have prescription drugs.

          a lot of obamacare costs ar ein medicaid, and being pushed down to states-which cannot afford that.
          I think 10% of medicaid cots are now bing paid for by states, and that increases in the future.

          Its the great american giveaway and why mos timmigrants want to come here-we are living beyond our means and others want in on the action.

        • IdahoPotato says:

          Sorry to disappoint you.

          “Legal immigrants cannot get welfare for their first five years of residency with few exceptions. Unauthorized immigrants, of course, are not eligible for welfare at all.”

          “Most immigrants” add more to the system than they take away.

    • Steve says:

      Wilbur, the real story is NOT Republicans or Democrats, both of whom are guilty. The problem is the intellectual dishonesty of people like you, me and everyone else in this Country.

      Both parties are one in the same. Neither gives 2 cents about you, me or anyone other than who donates to their next campaign or helps line their pocket. Both parties play the debt ceiling game with equal vigor. And regardless of taxes both parties will spend more than they take in.

      I say reduce taxes. The less money they have the better. Since deficits don’t matter and all. Starve the beast. The Federal Government has no business in Education, Health Care or Retirement. Those either belong to the State’s or Individual.

      It’s long past time for people to start taking responsibility for their choices in life. We all make choices and some are good and some are bad. Borrowing $100k for a art/history major is a bad decision that has consequences. So is spending $60k when you only make $50k just so you can ‘keep up with the Jones’. BUT ‘THE’ dumbest of all decisions is to continue to vote into office those that reward bad decisions with bailouts, regardless of whether its an individual, Enterprise or targeted group of individuals.

      • Wilbur58 says:


        I have plenty of problems with the Democrats too, who are basically Republican-lite.

        I’m a fiscal progressive socialist who happens to be extremely tough on crime.

        You, however, are a Republican, period. Your comment is straight out of their talking points.

        Of course the state should play a role in education, healthcare, and poverty of the elderly.

        1) The New Deal education programs helped build the most educated and prosperous middle class this planet has ever known.

        2) Our private employer-based for profit healthcare system has led us into complete meltdown. We pay twice as much as others, but with worse results. Why do we need private for profit health insurance? Just conceptually? It makes no sense. All you need are actuaries. Oh right, we need bonuses for good claims-denial ratios.

        3) Social Security would have worked fine as originally implemented. But at this point, I’m beginning to wonder if it would just be cheaper and simpler to have universal income for the elderly.

        • Lee says:

          “The New Deal education programs helped build the most educated and prosperous middle class this planet has ever known. ”

          No WWII and the millions of Americans that served in the Armed Forces that allowed them to qualify for such programs as the GI Bill and other educational opportunities built a prosperous America which was and has been destroyed over the past 50 years by a bunch of idiot elitists in government, education, and business.

        • Steve says:

          First of all, I am not a republican. I am a Conservative. There is a difference which most on the liberal left don’t understand. We believe in personal responsibility for our actions and do not expect the Government to bail our ass out everytime we screw up. The same cannot be said for the progressive left. And yes this means I abhor the corporate bailouts and welfare crap so let’s put that BS argument to bed now.

          Secondly, If the States ran Healthcare, Education and SS, then you would potentially get 50 different mini-experiments where the best would ultimately rise to the top.

          California looked at UHC and the cost was astronomical. But let Cali become a progressive socialist State. Let Texas become a Conservative State and let’s see what the results would be.

          By guess is that the following would happen.
          Cali: A large migration of non-productive people would move there to collect the give-a-way’s that socialist always seem to believe is everyone’s Right. Taxes would rise to a level that is not sustainable and the tax base (those who actually pay taxes) would leave.

          Texas: Would have limited Government, low taxes, and innovative people would migrate here and create a solid productive society. Those looking for a free handout would certainly not move here.

          Would both have their issues, sure. As no system is perfect. But I’ll take the Texas system over Cali any day of the week.

          Lastly, SS is a Ponsi Scheme at its core and by definition will never be sustainable and is an abomination.

          As always everyone is entitled to their opinions and should be allowed to voice them. Regardless of how much we may disagree or dislike the voice. Something the progressive left sure seems hell bent on taking away.

          Have a great week.

  15. memento mori says:

    “There are four ways in which you can spend money.
    You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”
    Milton Friedman

    • Kent says:

      Of course every penny of that spending ends up in someone’s pocket. To be spent yet again.

  16. Julian says:

    Government shutdown!

    Let’s have 1 Trump!!

  17. Realist says:

    Weimar coming to a country close to you one beautiful day …. It did work in Weimar, they got rid of all government debt denominated in marks, so why not the same trick in dollars ? The elite did just fine, thd plebs don’t count.

    • MrBill says:

      If we are ever forced to pay a significant portion of our GDP in gold for war reparations such that it’s creates scarcity in the country, then yes, we might end up just like Weimar. Otherwise this is a poor analogy.

      • Smingles says:

        Yeah, I always have to chuckle at these apocalyptic analogies that really have nothing in common with the US in 2017.

        Weimar Germany

        Am I missing any others? lol

    • Anon1970 says:

      The elite, in the end, did not do fine at all. You are forgetting the rise of the Third Reich and the destruction caused by World War II.

    • Smingles says:

      One of the things I think a vast majority of Americans who partake in these discussions don’t get is…

      If the US were a company, or even an individual, our balance sheet would be phenomenal.

      Our offshore oil and gas assets are worth well over $100 TRILLION alone.

      We are not a household that is in debt with a negative net worth. We are a household that carries debt, and has a huge net worth.

  18. Karl Kolchak says:

    So basically, in order to raise the ceiling enough to get past the midterm elections a Republican president and congress will have to increase it by at least $2 billion and somehow sell that to their base.

    Pass the popcorn.

    • Anon1970 says:

      Did you mean two TRILLION dollars? Two billion is chump change these days when one is talking about the national debt.

    • Mickey says:

      we need to increase it by the 800 billion just to cover what was already spend and borrowed from other fed agancy funds. Then have to fund from Sept 30, 2017 to February 2019 to get past teh election and get us to a new congress. Thats 17 months, call it a year and a half.

      run rate sure as hell looks like the 800 bil (1/2 year) Wolf is describing, or 2 trill run rate per year.
      Means they have to have 3 trillion for hte 17 months, and 800 billion for the past, or kick up debt ceiling to around 24 trillion and extend to March 1 2019. If I am too high, its “only” about 23 trillion then.

      that will resonate well.

      US debt is going parabolic with low interest rates. 25 trillion at a measley 4% is 1 trillion a year for interest.
      that 1 tril is more than defense spending.

      we have a huge problem and we ignore it, meaning some day it blows up in our faces.

  19. Jim C says:

    It is good to have never ending credit, isn’t it? Just keep swiping it. More IOUs. Keep printing that dang money! Debt ceiling is only a concept. Would you barter my seashells for your oranges?

  20. Greg Holmes says:

    Heck chaps, you know that you cannot unwind a ponzi scheme.
    Same here in the UK, but at least we only pretend that we live in a democracy, we are ruled by Lords and Knights of the realm and all that jazz.
    So the Ponzi rolls on, the rich get richer, the poor, well they are lined up for, who knows. According to the OECD life expectancy is falling here, also in the USA.

  21. Kent says:

    Should be fun. We’ll watch Republicans demand cuts in spending in order to increase the debt ceiling. Followed by watching tax reform which will cut income and increase the debt. Wash, rinse, repeat.

  22. unit472 says:

    While the facile solution of the MMT set maybe alluring the numbers matter in the real world of Government appropriations. If the economic theorists suggest there is virtually no limit on the number of dollars that can be printed, borrowed or QE’d into existance to finance government spending, there are 535 real human beings in the Congress that have to actually appropriate money. Debt service is a real constraint on their ability. The more they have to spend on that feeds back into what they can spend on everything else.

    In that sense interest is pernicious as paying it buys nothing the Congress can re-elect itself with and causes temper tantrums and worse with the public who face real cuts in their entitlements, subsidies and pork barrel projects.

    For this reason I do not see how the Fed can ‘normalize’ interest rates to the levels of a 2005/6. The fiscal situation won’t allow it.

    • Kent says:

      “Debt service is a real constraint on their ability. The more they have to spend on that feeds back into what they can spend on everything else.”

      I disagree. The federal government can always, always just borrow (or tax) more and continue to pay. There is no limit to the amount of dollars available. So it can make higher debt payments and pay entitlements, etc…

      The reason is the government actually writes the checks first. So the money is already there to tax or borrow back.

      • Kent says:

        To add: none of that means the federal government should be spending money on some of the stuff it is spending it on. But the constraints are moral, not fiscal.

      • Mike R. says:

        Tidy theory.

        What if the money the government “spends first” decides not to invest in government bonds? Say it gets saved under the mattress or goes into stocks?

        Likewise, how does the government tax all of this “money spent first”, if it has chosen not to invest in government bonds?

        • Kent says:

          The money ends up in the banks. The fed’s primary dealer banks are required by law to be market makers for the treasury bond market.

  23. hidflect says:

    Good for gold.

  24. Kye Goodwin says:

    I’m sure glad I’ve discovered Modern Monetary Theory because I finally have a way to understand all this silliness about national debt. Sovereign countries have debt. It is never payed off. There is no possibility of forced default because the currency issuer has an unlimited supply of its own money. National debt is part of a functioning monetary system. It is the ultimate source of most of the private savings that accumulate as the economy grows.

    The US is the only nation with a legislated debt limit. If America manages to prevent it’s national debt from growing as it should in proportion to it’s GDP, then the economy will enter a permanent recession.

    • Wolf Richter says:

      Modern Monetary Theory is an economic religion, and as such requires a “leap of faith.” It only makes sense to true believers that have made that leap of faith and never looked back to question it. For those not making that leap of faith and not willing to venture into the divine possibilities of what we call “money printing,” MMT makes no sense at all, and for them, it just boils down to money-printing propaganda.

      That said, the debt ceiling charade in the US is truly silly.

      • cdr says:

        “Modern Monetary Theory is an economic religion”

        To the acolyte, such as the business reporter or the teacher or the others who still need to believe in a higher power, you are 100% correct. Challenging the belief in the need for inflation is blasphemy.

        Me, I’m a pragmatist. Fraud is my hobby (understanding, not partaking in). I see a world wide scam. It’s a variant of bank robbing vs owning a bank vs controlling a central bank … different levels of theft are possible. Controlling the central bank means controlling monetary theory ==> controlling people who promote your ideas ==> rewarding the supporters and marginalizing the rest. ‘The Public Good’ is a sales tool. Disaster is the distraction needed to use the sales tool.

        Tell me honestly: how is inflation going to help the Eurozone deal with the higher rates that will follow the removal of ECB QE? How will Draghi saying “Eureka! we finally have inflation” make monetized debt and unnaturally low rates unnecessary? Is it even not laughable to claim Wall Street will say “Finally inflation, now Yellen can put rates back to where they belong?” If this seem implausible, then ask yourself, why do we have QE in the first place?

    • nick kelly says:

      History is littered with thousands of collapsed currencies due to the issuer just not worrying about debt and printing money.

      In the days before paper money this was achieved by debasing silver coins. Some of these official counterfeits are thousands of years old.
      Greece was expelled from the Latin Union in the late 18 hundreds for debased coins. A co-conspirator: The Papal States.

      The first really big experiment in the West with paper money was John Laws in mid 17 hundreds France. This collapsed and Law, who had been put in charge of the French economy had to flee.
      This episode is considered a cause of the French Revolution.

      Argentina has had to abandon at least one currency.
      Recently Zimbabwe’s currency became worthless and it ‘dollarized’, switched to using the US dollar.
      The last notes issued had face denominations in the billions.
      There are a bunch of these huge number bills out there from a bunch of countries including Germany and Greece.
      Because it costs REAL money to print money. If Zimbabwe had printed denominations of ten or twenty, it wouldn’t have covered the cost of the paper and ink.

      ‘the currency issuer has an unlimited supply of its own money’

      True. But no one OUTSIDE Zimbabwe wanted it. Near the end, no one inside wanted it either. The country returned to medieval barter which is very inefficient.

      All African countries have their own currencies. Most are so broke you can only phone collect from them.

      File Modern Monetary Theory somewhere between Anti-Gravity and The Rapture.

  25. Petunia says:

    Most govt contractors know that if you don’t get your invoices paid by the end of August, you won’t get paid until October. The surpluses in the budgets are used for employee bonuses. The govt is the only place where money owed but not used to pay bills is considered savings.

    If I wanted to see whether or not they will play games over the debt limit I would look at the treasury futures. Any expected volatility will spike the volumes.

    They will probably raise the debt ceiling, like they always do. If they don’t Trump will use it as an excuse to fire everybody he can. I don’t think the dems want to go there.

  26. Thunderstruck says:

    ” I – who no longer shorts anything anymore – would short everything and curl up into a fetal position until the dust settles.”

    If it could be that bad, why not close out your positions *right now* and wait until the (possible) Tsunami has passed?

    Of course, to avoid the capital gains tax burden for “‘cashing out”, you’d have to find some safe haven to “park your cash on the sidelines” in. I don’t have a clue as to what that’d be, but possibly something tied into the MIC as we always seem to be able to pull out of an economic funk when we go to war. Maybe something like rental housing near a major military installation – they’re gonna’ need to staff up prior to committing to action.

  27. Hkan says:

    Is there somehow some way getting around/postpone/ignore/manipulate any way even how crazy it seems to avoid this crash we all wait for?

    Dig deep Wolf….

    Guess i not only one curious…

  28. Kent says:

    “If Congress doesn’t raise the debt limit to allow the Treasury to issue bonds to bring in this cash, the US will default on its debts and/or fail to make other payments that it is obligated to make.”

    Section 4 of the 14th amendment to the Constitution states in part:

    “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

    So, I think the feds would be bound to fail to meet other obligations. So who do conservatives want to pi$$ off the most: the elderly by cutting SS, the AMA and AHA by cutting Medicare/Medicaid, or the MIC by cutting the military? Hmmm… 3 deeply conservative constituencies… I guess that’s why we hire these guys: to make the tough decisions.

    Chances of a failure to raise the debt ceiling: zero.

    • Kent says:

      Of course, if you don’t want to have to do this in the future, Republicans could always raise taxes to a high enough level to pay for the spending they are obligating the federal government to. Wouldn’t that be the fiscally responsible thing to do?/sarc

    • Steve says:

      Where in the Constitution does it provide for the ‘Federal’ Government to provide healthcare, SS, or Education to its servants? Defense Yes. The others NO.

      • Kent says:

        Where does the Constitution provide for defense using anything other than state militias?

        • Steve says:

          Sect 8.11-16.

        • Kent says:

          i think a clean reading along with the 2nd amendment shows a clear intention to only maintain a standing military, outside of the militias, in extraordinary situations.

  29. Kye Goodwin says:

    Wolf, Thanks much for your response. You can understand that calling Modern Monetary Theory a religion doesn’t sound like substantive criticism to this recent “convert”. Between Steve Keen and the MMT folks, both inspired by Minsky, I feel like I’m now getting some where in understanding economics. These heterodox economists seem to be less faith-based and more data-driven than the mainstream. Maybe you should have another look.

    • cdr says:

      Kye, if you need to decide which economist best defines the mainstream, then you are nearly ready to pull the curtain aside.

      Doctors of medicine don’t have competing germ theories. Dentists don’t have different schools of thought on how to fill teeth. Farmers don’t debate corn. Gravity isn’t subject to question.

      Yet economists have schools of thought, which, by definition, describe a faith based profession, nor a science. If you disagree with me, then please take a go at telling me and everyone else why economists are special and are not subject to results that are provable and repeatable as described by them.

      BTW, I agree their theories are repeatable but only if you apply a fraud model to the description.

      • Cynic says:

        Economists are like he theologians of the Middle Ages.

        Rationalisers of the status quo, according to the ideology and interests of their employers.

        Nothing more, nothing less.

        ‘Thou shalt be judged by thy fundamental axioms!’ :)

      • nick kelly says:

        The original Nobel prizes, as determined by Alfred Noble (inventor of dynamite) had no mention of a prize for economics. This was an afterthought (I think after Nobel’s death) of the Bank of Sweden.

        I have read that the blood family of Nobel wants the prize withdrawn, after Nobel laureates brought about the LTCM crisis in 1998.

  30. mean chicken says:

    “Raise The Debt Limit” – Now there’s something Congress CAN accomplish, in spades! Nice work if you can get it!

    I’ve been looking into the restaurant depression I keep reading about…

    Amongst all larger cap restaurant stocks, I find only one with negative returns over the past two years.

  31. Kye Goodwin says:

    Cdr, thanks for your interest. You seem to imply that this sorry state of economics will persist forever, but I think that progress is possible. Steve Keen’s effort to get economics on a footing more like physics is impressive. He simulates economies in software, then “runs” them for a few years to see what happens. At least he can create models that fall into a depression under certain conditions, something mainstream equilibrium models can’t predict or explain.

    Anyway, many can explain this better than I and there are lots of Net resources available.

    • Saltcreep says:

      I disagree about the availability of resources. Most economic models take energy and resources for granted and infinitely available through generating economic activity, when the relationship is mostly the other way round.

      There is a limited pool of energy and resources available to draw upon. Reserves of non renewable resources are intermittently added to through discoveries, and technology can over time improve the marginal viability (but is also subject to diminishing returns). But our rate of depletion has been increasing exponentially, whereas new discoveries of highly productive, economically viable sources of many key resources are declining. In the last 30 years or so alone we’ve consumed more resources than in all prior human history…

      To me it appears pretty clear that the exponential growth of debt since the 80s is linked to the declining productivity of our resource base, particularly of easy conventional oil, upon which virtually everything in our economies depends. We have created societies with high technology and enormous populations that need vast amounts of very productive energy and resources to function. But the availability of sufficiently productive energy is past its peak, so we turned to debt. Debt can create an illusion of viability and profitability, when in this environment it is in fact just a heap of promises that won’t be made good upon in real terms.

      As we moved from horses to coal to oil, releasing millions’ of years worth of stored energy into our economies and environment in the process, we let our hubris get the better of us, and we started thinking it was all down to our own cleverness, when essentially we were just excessively consuming today what could have been preserved for the long term. We are using debt to greatly extend our overshoot, and it will have devastating consequences, both in socioeconomic terms and in environmental terms.

      • cdr says:


        Debt is used when rates are low and it’s easy to borrow at low rates. Assets get flipped and eventually the last one holding the overpriced asset loses. Then comes the govt bailout and it starts all over again as best as it can. Energy production is just another thing to borrow for, although its major distinction is that it represents actual wealth as opposed to paper assets which just go up by the skill of the flippers and the availability of cash to skim.

        I used to care about resource use. Now it’s just a fact based scam like so many other things.

  32. michael Engel says:

    I look at the spikes on the chart in a slightly different way : they are
    Boehner spikes.
    Boehner didn’t cave in, he won for the American people.

    • cdr says:

      Why didn’t you post this on top a day ago? The mind boggles at the fun you could have with it. A wasted opportunity.

  33. michael Engel says:

    cdr, I wait until there are no more readers on this blog, but one.
    I have much more to say about the….

  34. Tom says:

    That which is broken cannot be fixed.
    That which is real can never be broken.
    Focus on what is real,
    And the rest will fade away.

  35. rl says:

    The charade will go on until a revolution appears.

  36. DV says:

    I wonder if anyone noticed: much of what was printed by Fed (its official balance sheet expanded from about 850 billion to 4.5 trillion) ended up in the Asian (mostly Chinese) forex reserves. The Chinese reserves grew fourfold – from about 1 trillion to over 4 trillion (before going back to 3 trillion). The Chinese economy (fueled by monetary expansion backed by growing forex reserves) became three times larger in size – from 3.5 trillion to well over 11 trillion in less than 10 years.

  37. andy says:

    America is bust and can’t pay its debt (in real purchasing power – but it can print the face value).

    One of two things must happen:
    1) if it doesn’t print-it defaults.
    2) If it does print – hyper inflation and skyrocketing interest rates eventually take over.

    Simple really.

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