The U.S. will soon bump up against the debt ceiling for the 79th time. We’re currently $31 trillion in debt. That’s $93,000 of debt for every man, woman, and child in America. Each of my kids is starting off life with $93,000 of debt, and it’s going up every day.
Here’s a picture from the Treasury Department’s own website:
It’s not good. We’re borrowing against the future at unsustainable rates. We’re not producing what we really need to sustain our economy, so we’re borrowing money to make it feel like we’re doing well.
This is not sustainable. I have no idea when that dam is going to break. But it will break.
I’ve been reading Ray Dalio’s latest book Principles for Dealing with the Changing World Order. It’s a devastating analysis of the cyclical rise and fall of economic powers, and it’s hard to avoid the conclusion that the U.S. is in the declining phase of a cycle that has been repeated over and over throughout history.
For better or worse, the U.S. has been in a unique position of power for eighty years – since WWII. Today we’re in the late stages of an economic power cycle where we’re borrowing beyond our means to help people feel like things are OK, even though they aren’t. We can’t borrow our way into prosperity indefinitely.
It’s unreal how trillions of dollars today ebb and flow based on words from the high priests of monetary and fiscal policy. It has little to do with the real economy. It’s all narrative and propaganda designed to mask the growing risks.
There’s a word for this. It’s called gaslighting. We’re being told: “Everything’s OK and those feelings you’re having about things being not OK, well, they’re not real and they’ll eventually go away.”
You want a wake-up call for the kind of declines that are taking place behind the façade of American prosperity? According to The Wall Street Journal, “Nearly three out of five high-school girls in the U.S. who were surveyed reported feelings of persistent sadness or hopelessness in 2021, a roughly 60% increase over the past decade, new research from the Centers for Disease Control and Prevention found.”
It’s happening everywhere. It’s happening in markets. It’s happening with teenage girls. People don’t know what’s up or what’s down anymore. It’s hard to feel good about where you’re going when you can’t ever get your bearings.
Dalio has studied economic cycles going back 500 years now. He has identified 18 stages of the rise and fall of a world economic power. Here is Dalio’s picture of the 18 stages of world powers:
The column on the right with all the characteristics of a declining world economic power should be a pretty sobering thing for any American to look at. We have large debts. We are printing money. We have internal conflict. We have weak leadership. We still enjoy the world’s dominant reserve currency, thankfully. If we were to ever lose that exorbitant privilege, I could see civil war and revolution entering the picture.
It’s all a bit bleak and dark, I know, but there is a silver lining. We’re going through this decline because we’ve been so successful over the past 80 years. We’ve accumulated enormous power and wealth, and we’ve still got a lot to rebuild upon – if we manage the decline phase cooperatively and intelligently.
This economic cycle is natural and largely inevitable. We start scrappy, lean, and competitive. We accumulate power and wealth. We get fat and complacent. We lose power and wealth. We start to fight with our neighbors to maintain our standard of living while the pie shrinks. It’s all very predictable!
So, what can we do about it? Well, the first thing that we can do is to acknowledge where we are in the cycle. If we can start by recognizing where we are instead of pretending we’re somewhere else, we have a chance to manage the decline and position ourselves (or at least our children) for the next rise.
If we continue to pretend that everything is OK when it isn’t, we risk a truly catastrophic decline – one from which it might be very difficult to recover. And, yes, we even risk civil war.
I don’t know what the exact answer is to the question of raising the debt ceiling limit, but I know that the answer is NOT, “Just keep raising it. Better yet, abolish it?” I also doubt that the answer is to go nuclear and send the federal government into default.
It’s time for us to sober up and to put away the bottle. (Did you see all those booze ads during the Super Bowl? Yikes!)
We have work to do. We can’t let our weak leaders continue to kick the can down the road anymore. We allow that to happen when we buy into their bite-size, cheap us-versus-them narratives.
We all have to start to give more than we take.
Fight the noise,
Dr. Richard Smith
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