The U.S. Thermonuclear Debt Bomb Trump Can't Defuse

The headlines this week have been about the rising risk of thermonuclear war between NATO, which is firing missiles into pre-war Russia under the pretense of 'the Biden Administration authorizing' Ukrainian 'deep strikes', and the world's leading nuclear power, the Russian Federation. But even assuming the that the world avoids such a conflagration, there is a debt problem that has long since gone critical toward full radioactive meltdown in the United States.

For many years, the US government debt load, now standing at over $36 trillion, has been the talk of purported adults in the room in Washington. For all those who understand what is at stake beyond the chitchat at D.C. cocktail parties or centrist think tanks, I wrote about the inevitable American sovereign debt crisis in August. I also spoke about this subject in my interview with ExitStrategy.World's co-founder VJ Varghese in September. Now the debt reactor criticality has already been reached, whereby servicing the national debt has become almost the largest item in the federal budget, surpassing so-called 'defense' spending.

Regardless of the second Trump Administration coming in January with stated intentions to Drain the Swamp, the choice looms in the next several years between default on the national debt or printing crazy amounts of money to 'service' it. Limited gimmicks such as minting dollar for dollar stable coins such as Tether (USDT) supposedly backed by U.S. Treasuries dumped by the Chinese, Saudis or other former creditors to the federal government won't suffice.

What's mentioned less often than the 100 trillion plus in unfunded liabilities of the U.S. government over the next several decades is the second largest debt bubble in human history, one that could potentially surpass the debt bubble Washington has created: the US private debt and derivatives explosion. As it stands today that debt has spiraled upward to $31.1 trillion dollars. As incredible as that figure may seem, the most indebted debt/fiat-money addicted power in world history is just ahead of the second biggest and fastest growing bubble: to its collective citizenry, who cannot, of course print their own monies. Though with crypo meme-coins, a few citizens try to do so.

Lets break it down and its tendencies:

The tottering Jenga tower of corporate debt

The total debt owed by US corporations stands at around $12.1 trillion dollars as of July 2024. In the first half of 2024, it grew by 3.3% or $399 billion, with a breakdown of investment grade growth of $386 billion and speculative (that is junk bonds and short term commercial paper) class making up $13 billion. We can expect about the same levels for the second half of 2024 and a present forecast of $1.5 trillion in growth for 2025. Of course, investment grade debt is often very far from investment grade in reality, as investors found out during the 2008-2009 Global Financial Crisis.

The US stock markets are plagued by roaming hordes of zombie corporations of all shapes and sizes. These financially undead hordes exist solely on the basis of easy money of which they can never get enough. The moment the easy money dries up, these revenant corps will collapse into the grave of dead corporations with Enron, Worldcom, Bear Stearns and Lehman Brothers. In many such corporations, the race is on between the owners who are selling off their stocks and cashing out and the looming credit collapse.

Of course the shock effect that this will have in the form of mass layoffs as in 2008-2009 and again during the Plandemic of 2020 and the illiquidity required to 'restructure' the unpayable Consumer Debt is incalculable.

Debt derivatives and inter-corporate credit default swaps As a side note, this is not just about manufacturing or sales or services, but also finance. Yes, the very lords of selling debt are equally indebted themselves. Of the $12.1 trillion debt owned, the financial sector owes $3.2 trillion of that, so it’s a self-licking ice-cream cone.

Pension funds as owners of consumer and municipal debt

Another notion to consider: much of this mountain range of debt is owned by pension funds. When these companies collapse or worse, when whole economic sectors collapse, pensions are going to be wiped out and people who were saving for a nice retirement are going to be faced with living out their remaining days in poverty. And Boomers and older GenXers cannot count on those “generous” payments from Social Security either. Never mind that SS never pays off nearly what they take out of a person’s lifelong earnings, but the SS Trust Fund as an organization is beyond insolvent and living off of the money the US government prints and pumps in. So, when the ongoing Sovereign Debt Crisis crushes the USD, those SS payouts will go the same way as everything else.

The rate of collapse in various sectors is also spectacular. As an example:

The retail markets have been hit hardest so far. For the U.S., the UK and increasingly deindustrializing EU being service and consumer-based economies, as opposed to being based on manufacturing; this should not come as a surprise. Even credit card debt growth cannot keep this economy afloat.

The empty big box stores, pharmacy closures and other signs of retail apocalypse

For the first three quarters of 2024, US retailers have announced the closure of over 6,400 stores.

This is backed up by the business networking platform Alignable’s September Revenue & Rent Report, which reported that a staggering 48% of small businesses were unable to pay their full rent in October. This is up from the previous record of 41% in August 2024.

As ever, it is always interesting how the Western, specifically American business media is ignorant or ignoring, distracting the public from these baleful realities.

The far less rosy numbers 'adjustment' once Trump takes office

The second half of this private debt is the consumer debt, which is equally spectacular and outdoes the corporate debt, which is very dependent on consumer debt. Since the American consumer is unable to maintain his salary, whose buying power is shrinking quickly before the onslaught of real inflation, as opposed to that fantasy figure the US government “calculates” for the masses. More on this subject in a follow-on piece on fraudulent statistics and how some of the more rosy stats could be 'statistically adjusted' in 2025 once Donald Trump re-takes office.

The US consumer is so far underwater that he will not be able to service his debts even as they continue to grow. That means that in the medium to long run, houses and cars will be repossessed and dumped on the secondary markets for resale (or with entire blocks being bought up by private equity and converted to rentals with new rental neighborhoods construction grinding to a halt). New goods orders are set to continue shrinking.

All of this will, as seen during the GFC, redound on the viability of U.S. and trans-Atlantic corporate debt.

So let's get into the numbers on how many Americans use credit cards for necessities...

Credit card debt in the U.S. has broken new records of $1.17 trillion. This would be bad in and of itself if people were using the credit cards to purchase luxury or limited time purchases such as appliances that their paychecks can't stretch to reach. However, more and more consumers are using credit cards to buy groceries, pay electric bills, or fill up their gas tanks. Yes, this means the consumer is covering the gap between his actual salary and the necessities of life with mostly high interest credit debt.

The numbers out for Q3 2024 show that US consumer debt is up $24 billion, as for YOY it's up 8.1%. How many salaries went up 8.1% YOY 2023-2024? Very few and those that did probably didn't need credit.

Student loans are up to $1.61 trillion. This is the biggest Ponzi scheme of them all. When I entered university for the first time, at NCSU, in 1990, my in-state resident tuition was $400 per semester. I spent $350 on all my textbooks, many of which were used. Today that in-state tuition is well over $8,000 per semester and textbooks cost as much on one as I spent on all.

The student loan debt bubble

Of course, back in those dark ages of 1990, there were far fewer student loans; the US government had not decided to “help” students with student loans. When they did, they conveniently set no controls on how much universities could increase tuition, say indexed to the rate of inflation. So universities were faced with a huge inflow of “free” money, which was free for them, as they could now charge outrageous rates for the same services and diplomas. For most of their students, this was and is their first instance of debt, which they assume that they can pay off much much later in life, even as interest accrues faster than they can hope to get future raises. To boot, U.S. bankruptcy laws offer no escape from student loan debt, only limited and temporary relief from the payments.

Going abroad for higher education and to obtain lawful migration status in a stable country is a way out for young Americans

The smart young American or Canadian would be looking for careers that do not require such slave-debt or to get his degree somewhere other than in the USA and Canada. Universities in Russia, Latin America and even most of the EU cost pennies on the dollar compared to American debt diploma mills, and often provide a better education as well as an opportunity to obtain a second residency with a pathway to new citizenship.

How much of an impact is the student loan debt on society? In a 2024 survey by the Consumer Financial Protection Bureau, almost a third of student loan debtors have admitted to skipping meals, doing without needed medications or health-damaging steps in order to make their payments. Another 38% admitted they had to use their credit cards to cover daily or regular expenses shortfalls.

How hard does this hit the rest of the economy/society? An amazing 48% of borrowers said they seriously delayed home purchases and 26% delayed marriage and starting families due to debt on education that is supposed to put their recipients into a higher pay ranges that should pay off that debt. The net result is American birth rates lower than during the Great Depression, when Americans who did marry married much earlier in life thereby impacting the overall fertility of society less. Obviously, a lot is broken in this system.

The mortgages and housing bubble 3.0

The remaining $14.6 trillion in consumer debt is mostly held in mortgages and car loans--the bubbles that burst during the post 9/11 Recession in milder form and far more severely, during the 2007-2009 mortgages and associated credit default swaps crisis that accelerated the GFC. On the one hand, owning property is good, as the land will still be there even if the loan goes into default (and as realtors love to say, that they aren't making any more land--except a few countries are). But the house on that land, increasingly shoddily built to low construction standards out of boards and sheet rock, won't last a life time without major and continued investments.

As for auto loans, buying a brand new car is the worst investment that a human being with any rationality can possibly make. The moment your signature goes on that contract and you drive off the car lot, your investment is down 20% on average. Now that is pure insanity!

Obviously, as the GFC of 2008-2009 exposed, the U.S. economic system is broken, from the top down, and no sector is safe. The only thing for a rational actor to do is to flee to another nation with a more rational banking and less debt-based system.

Scariest of all is the fact that these two debt bubbles for the federal government and underwater corporations and consumers do not include a third debt bubble: that of American municipalities. The GFC and the more recent P(l)andemic shock saw whole cities and counties going bankrupt, cutting all services and firing all public servants, that is, descending into unpoliced zones. There is not a single heavily urban county in the US and definitely not one large town or city that isn't drowning in debt, with only the most rural states out West in favorable debt situations due to their natural resources. But that's a story for another article.