US Government’s Fiscal Fatigue

Google search “Financial Report of the United States”’ and it pulls up the US government’s financial statements.  The recent year’s balance sheet which as of September year end 2020 reports a net negative financial position of $26 trillion dollars (it’s higher today).  Basically, this is negative equity.  Usually this would point to bankruptcy, yet since the US government has a printing press it can print as much money as it needs to pay off its debts, so hypothetically bankruptcy doesn’t apply to it.  

From the early 1900’s the US government has printed so many US dollars that it has devalued the US dollar approximately 98%.  A single US dollar’s worth in the early 1900’s would have allowed the purchaser to buy about 25 small cups of McDonald’s coffee, whereas today a single US dollar’s value would buy a single cup of small coffee.  

The devaluation of the US currency through over printing has driven the costs of goods higher over the years, and there is no end in sight, since deflation could be dangerous at this point.  This situation not only affects US citizens, but also other countries that rely on the US dollar.

This trend of budgetary mismanagement has put us where we are at today with over $26 trillion of debt, and a government that is attempting to use the financial technique of inflation as a way of reducing the debt.  In order for this to work higher revenue has to occur to capture the inflation which means increased taxes.    

US Government 2020 Revenue

In 2020 the US Government’s revenue was $3.4 trillion and expenses were $6.5 trillion equaling a deficit of $3.1 trillion.  A large majority of the US government’s expenses come from social security, medicare, and medicaid.  These programs and a few others have inflationary increase components built into them to keep up with rising inflation.

In real estate investment, inflating away debt is a hidden wealth builder, but for the US government it’s hard to know.  In order for the inflation technique to work the debt component usually remains constant.  The challenge for the US government is these mandatory expenses of social security and other programs due to their cost of living components.

us government inflation

Historically, when a country’s debt-to-GDP ratio exceeded 200% that usually meant the failure of their fiat currency.  The US is currently above 100%.  In fact, according to the web the general failure rate of fiat currency over history has occurred after 35 years or above the 200% threshold.  The US and a few others have out performed this by decades, and today Japan’s debt-to-GDP (which is the highest of all countries) exceeds the 200% number and is surviving.  

As the 2020 US Government reports state, “The continuous rise of the debt-to-GDP ratio projections based on the assumptions in this Financial Report indicates that current policy is not sustainable.”  Let us hope this inflationary balloon doesn’t get over filled and pops.

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