U.S. national debt…is not a problem, says Gary Shilling…until we either see “a tremendous amount of inflation or a complete breakdown in confidence in US Treasury obligations.” Once that happens, the world’s largest economy is at risk of an exploding ‘debt bomb.’
The comments above and below, from an article by the staff of Financialsense.com, have been edited ([ ]) and abridged (…) to a limited degree by munKNEE.com to provide a faster and easier read.
…The two scenarios of inflation and a breakdown in confidence are unlikely to come all at once or without any warning signs.
- Rising inflationary pressures,
- a commensurate rise in yields (and interest costs for borrowers),
- an increasing number of defaults,
- and less willingness by investors to lend capital (a loss of confidence),
will be the most likely process we’ll see play out in the years ahead… (See Gary Shilling on US Debt Bomb, Financial Shocks for more.)
When should we expect the debt bomb to hit?
…Dr. Alan Beaulieu at ITR Economics call for a 1930s-style Depression around 2030 (Source: US Economy to Skirt Recession Until 2019, Hit a Brick Wall in 2030)…based on a number of converging trends:
- global inflation,
- healthcare costs,
- entitlement spending,
- and a burgeoning national debt.
(The timeline for his 2030 call (including a 2019 recession) was first laid out in a 2014 book titled, Prosperity in an Age of Decline, and we conducted an in-depth book interview with Dr. Beaulieu on FS Insider two years ago (see Is the US Headed Towards a Great Depression? ITR Economics’ Dr. Alan Beaulieu Explains).
Dr. Beaulieu believes the trigger will start with Japan because:
- Their numbers are worse than ours in terms of debt and demographics.
- They don’t have enough children and they don’t like immigration.
Eventually Beaulieu sees the Japanese government having to sell US Treasuries in such large quantities that it puts downward pressure on the U.S. dollar and leads to higher interest rates. Japan “begins a trend that starts to snowball,” he said. (source)
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