James Hickman
James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.
Yesterday the Treasury Department announced that they expected to increase the national debt by a whopping $760 billion this quarter alone… and another $202 billion next quarter.
In short that means almost $1 trillion added to the national debt just in the first half of this year. And, again, these are the Treasury Department’s own estimates.
Obviously, that’s a pretty horrible result; even a senior Treasury official acknowledged that they have “significantly increased” their bond sales and the national debt. Not that they’re doing anything to stop the trend.
But there’s an even greater risk that the Treasury Department faces this year that is hardly being discussed anywhere.
Over the next twelve months, more than $6 trillion in existing US government debt is set to mature… and will need to be paid back somehow.
So, to give you an example, back in 2014, the federal government issued $264 billion in 10-year Treasury notes.
Well, it’s now 2024, ie 10 years later. Meaning that $264 billion worth of 10-year notes issued in 2014 will become due and payable this year.
In 2017, they issued $368.8 billion worth of seven-year notes. And those seven-year notes issued in 2017 are due and payable this year.
You get the idea. The point is that the total sum of Treasury Bonds, Notes, and Bills outstanding that will become due and payable this year exceeds $6 trillion.
So, in ADDITION to the $1 trillion in NEW debt that they’re forecasting just in the first six months of 2024, the Treasury Department is also going to have to pay back $6 trillion of existing debt.
Naturally the Treasury Department doesn’t have $6 trillion lying around to pay back its bondholders. So instead of paying anyone back, they just borrow new money to repay the old money.
Now, this doesn’t actually increase the national debt. If they borrow $6 trillion in new bonds, but then pay back $6 trillion in old bonds, the net change to the debt is ZERO.
So, what’s the problem?
The problem is that interest rates are MUCH higher than they were two, three, five, seven, and 10 years ago when those old bonds were first issued.
In 2021, for example, the Treasury Department issued almost $1 trillion in three-year bonds back when interest rates were nearly zero per cent.
But since those three-year bonds from 2021 are due and payable this year, the Treasury Department will have to borrow new money at today’s interest rates… which are hovering around FOUR per cent.
And higher interest rates mean that the government’s annual interest bill will soar.
Think about it like this – $6+ trillion of existing debt needs to be refinanced. And given how much higher interest rates are, this will likely cost the government more than $200 billion per year in additional interest payments.
PLUS, they’re expecting $1 trillion of new debt in the first six months of the year, plus probably another $1 trillion in the second half of the year.
Altogether, the government’s total interest bill could easily increase by more than $300 billion per year in 2024.
And this same trend will continue in 2025, 2026, and beyond.
Right now, gross interest on the debt is already roughly $1 trillion per year. But in three years’ time, annual interest could surpass $2 trillion annually. And in 10 years, annual interest could reach $4 to $5 trillion.
Anyone who thinks this isn’t an obvious, catastrophic problem in the making (which demands immediate attention) needs to have his/her head examined.
And yet the government is full of people who shake hands with thin air and happily ignore the present and future carnage that they’re creating.
Don’t hold your breath for the Inspired Idiots in charge to fix this; I’ve written before that there is a VERY narrow window of opportunity to solve this problem… but they’re doing absolutely nothing about it.
But that doesn’t mean that you or I have to be held hostage by their incompetence.
I’ve argued that one of the highly probable consequences of this mess will be SIGNIFICANT inflation. After all, most likely it will be the Federal Reserve that facilitates all this new debt.
This is what the Fed has done for most of the past 15 years. Just look at the huge run-up in the national debt between 2020 and 2022: over 80 per cent of that money (~$5 trillion) came from the Federal Reserve.
And if creating $5 trillion in new money resulted in nine per cent inflation, how much inflation will we see if the Fed creates $15 to $20 trillion of new money? No one knows for sure, but it probably won’t be two per cent.
But if we can make such a strong argument for inflation… and anticipate a steep rise in prices over the next five to 10 years, there’s no reason why we can’t take steps NOW to reduce the impact of future inflation, or even benefit from it.
This doesn’t even necessarily require a lot of capital. For example, one could invest in long-term options on certain assets (including gold or silver futures), so that a small amount of money could pay out very large returns down the road.
The key point is that there are plenty of sensible ways to plan for future inflation, which we will continue to discuss in future letters.
But this isn’t even Plan B thinking anymore. Anticipating inflation should be Plan A.
