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We need a debt plan

One of the big topics of this electoral year in the U.S. will be the budget #deficit and the level of #debt. On December 31st, another milestone was passed: the U.S. Federal debt reached $34Tn. It took only 3 months to increase by $1Tn, and 6 months, after the hiatus from the debt ceiling negotiations, to increase by $2.5Tn. It’s tempting to extrapolate the trend and project $40Tn by the end of 2024, and if we continue with this exponential growth, we may get there, perhaps even sooner than we think. But at some point, the negative effects on debt will be felt in the economy: for instance, the cost of servicing that debt is now $1Tn per year. It has double over the last 2 years and if long term rates don’t fall enough, the Treasury may be forced to lock in those rates on new debt. The U.S. dollar index, is fighting the 100 level against majors, and it’s difficult to see a strong dollar with current debt dynamics. The task for the last 2 years has been lowering inflation. The task for the next 10 years needs to be lowering the debt.

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Chart source: Tavi Costa, Crescat Capital

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