A Trillion here and a Trillion there, and pretty soon we're talking real money. That's a haggard old joke but the "T" for trillion has replaced the "B" for billions. And you bet a Trillion is a lot.
Check out the National Debt...https://www.usdebtclock.org/#...have a box of Kleenex nearby.
Every Mom running a household has the right to ask why the government can't balance its checkbook. After all, she can't just keep writing checks once her balance hits zero. That's a crime called check fraud but when the government does it they call it Modern Monetary Theory. Yup, printing money out of thin air is quite the trick. It is in fact a shell game...the Federal Reserve buys US Bonds by creating dollars on a ledger and the bonds become an "asset" on their Balance Sheet. This allows the US government to keep borrowing month after month and adds to the National Debt in the amount it is deficit spending. If the rest of the world bought enough US Bonds, the Federal Reserve wouldn't have to do this. So it is a supply and demand thing...too many US Bonds offered and not enough US Bond buyers.
We used to pay our national cost of governing through imposition and collection of taxes. Oh, they still collect the taxes but that is not even close to enough to pay the bills. Hence, deficit spending and the Fed accommodates the madness by printing more money (see above). Interest rates play big in this scheme because when interest rates are at or near zero, the US taxes collected can pay the interest which is still in the hundred of billions yearly. But what happens if interest rates rise? Eventually, the interest expenses will use up all of what is called the discretionary spending amount and that will become a disaster and that could lead to a genuine default. The USD has has been the World's Reserve Currency which means many of the world's transactions especially oil are always priced in terms of the US Dollar. That position was part of the result when the Bretton Woods Agreement came about back in 1944. World currencies were still on the Gold Standard then so it was a very different time. Modern Era currencies have all but dropped backing their currencies with Gold and have become what is call FIAT CURRENCIES backed by "good faith and credit". There isn't much of that going around lately so the USD has lost some of it luster. The World Reserve Currency status can change if the rest of the world loses faith in the US. Then, we can't just borrow anymore and the value of the USD will crash leaving the Bond auction vacant with just the Federal Reserve buying.
Will the USD crash? I personally believe it will. Because like you, if the world sees their neighbor living high on credit cards, they just won't lend to them anymore. This is as much a moral decision as a fiscal one. People rightfully like and appreciate others who pay their bills. When the party is over and the US can't pay it's bills, reality will hit and it won't be pretty. What currency will replace the USD as the World Reserve Currency? Could be China, or if the world wises up it will go back to Gold backed currencies and THAT will end the free money era we have witnessed for so many years forcing discipline. It will be a tough discipline, but it will restore the future hopes of the next generation and beyond. It just isn't fair to borrow and spend now sending the bill forward 30 or more years. It has long been said that every child born in the USA is born in debt. And that is as true a statement as ever has been made.
A child born in 2021 will have a $66,874 share of publicly held federal debt the day it takes its first breath...and some future day those babes will be less innocent and perhaps tear up the credit card. With such irresponsible leadership spending like drunken sailors, maybe someone in the next generation will rise and right the ship.
Until then, diversify out of the USD.
Good luck!
Donn Marier
DM-Your Own CFO