The Canary in U.S. Treasury Mines
A simple explanation of the next financial crisis in the United States.
Suppose you lost your job and you needed groceries to feed your family. You have a relationship with the local grocery store owner. He trusts you.
He allows you to charge your food. You promise the owner to pay later. He sets a 2% interest for the privilege of charging your groceries. He asks that you pay the accumulated interest every month until you repay your Total Debt.
But then something happens.
Your new job doesn’t provide enough income to pay back the store owner for last week’s groceries, and even worse, there’s not enough income to cover this week’s groceries.
However, as long as you continue to pay the monthly interest on the debt, the store owner lets you increase your Total Debt. So, on the 31st of every month, you make your Interest Payment on your Total Debt and keep charging your groceries.
Total Debt is all the money you owe the store, which continues to increase monthly as you buy more groceries and charge them.
Interest Payments are the monies you pay monthly in interest charges for the privilege of increasing your Total Debt at the grocery store.
However, the store owner becomes increasingly concerned. Your Total Debt keeps rising, and the store is short of cash. He tells you he must raise the interest rate he’s charging you. You’re sucking him dry.
“Of course,” he says, “You can pay off your Total Debt, and we’ll end our agreement. I’ll also have the cash I need!”
But you can’t pay your Total Debt. So, true to his word, the store owner increased the interest from 2% to 3%. Then, the following month, from 3% to 4%, then from 4% to 5% the next month. Maybe he skips a month, but soon he’s back to raising interest from 5% to 6%, then 7% to 8%.
For heaven’s sake! You can’t pay your Total Debt, and your Interest Payments are skyrocketing!
So, you call all your friends every Tuesday and tell them about your predicament.
Your friends trust you, like the store owner once did. They give you cash, and you write on a napkin your pledge to pay your friends back with interest.
The napkin you sign is worthless, except for “the full faith and credit” that your friends have in your ability to pay back Total Debt and Interest Payments, which make the napkin valuable.
However, you have now entered into a financial death spiral. Your Interest Payments become the most significant expense in your household.
You can’t keep the lights on anymore.
Worst of all, your friends stop showing up on Tuesdays to loan you money.
The Next Financial Crisis in the U.S.
Fewer friends of the United States are coming to the weekly U.S. Treasury auctions.
Weak attendance at weekly Treasury auctions is the canary in the U.S. Treasury mine.
In the late 1800s, miners sometimes died from toxic gases released in coal mines. Miners learned to place canaries in cages in the coal mine, and if the bird dropped over in distress or death, the miners knew to evacuate the mine.
A canary in a coal mine symbolizes an early warning. The bird's distress signals danger ahead.
Every week, the United States government borrows from other nations to make its monthly Interest Payments on the United States government's Total Debt.
The loans are called United States Treasury Bills.
Total Debt for the United States government is on a parabolic increase, shooting past 33 trillion dollars, and will reach 41 trillion dollars by the end of 2024. Last month, Total Debt for the U.S. government increased by 600 BILLION DOLLARS, an amount never seen before.
Today, the U.S. government’s Total Debt is 33.7 TRILLION dollars.
That does not include government “promises to pay” (Social Security, Medicare, etc.), which pushes Total Debt past 120 TRILLION dollars, an incomprehensible amount.
Worse, monthly Interest Payments on U.S. government debt are rising at an unsustainable level due to increasing interest rates.
The United States is in a financial death spiral. Soon, Interest Payments on Total Debt will be more than Social Security, Welfare Payments, and Defense Spending.
Our former financial friends (China, Russia, and other BRICS nations) are no longer showing up to lend us money. For the first time in history, China has sold - not bought - U.S. Treasuries every month for the past two years except one (March 2023) - see chart below.
The Big Question for 2024
Goldman's chief equity strategist David Kostin asked the big question last weekend:
"Who will buy $1,784,000,000,000 of newly-issued U.S. Treasuries next year?
When nobody shows up to loan the government money at U.S. Treasury auctions, the United States goes belly up (bankrupt).
Of course, the United States government can’t let that happen.
The last time NOBODY showed up at a Treasury auction was in September 2019.
It shocked the United States financial system. After the shock occurred…
COVID-19 hit the next month in China and the United States three months later.
To avoid U.S. bankruptcy, it may be necessary for there to be a “global crisis” (war, pandemic, financial collapse, or terrorism).
Such a global crisis gives the U.S. government the excuse to weaken the dollar by lowering interest rates to zero or sub-zero, increasing Quantitative Easing (which is a fancy name for the U.S. government buying its debt, similar to you opening a new credit card to pay an old credit card), and for the U.S. government to give away cash to citizens like candy (welfare payments disguised as “stimulus funds”).
Inflation benefits the crooked and the immoral by allowing them to pay off yesterday’s debts with today’s worthless money. The government tells us they “must get a handle on inflation.” I’m telling you that it’s good talk, but the reality is just the opposite.
Inflation helps a bankrupt, immoral government.
Back to our original illustration of the grocery store.
If you somehow had the power to convince the store owner that a bunch of napkins you signed promising to repay your debts was real money and that the more napkins you bring in, the better, you could buy your way out of past debt with worthless paper napkins.
The American dollar is not real money.
It’s a paper napkin with a signature that only has worth because people have “full faith and credit” in the United States government.
Russia, China, and Arab nations are trying to destroy everyone’s faith in the USA.
What the Bible Says About Debt
I have a degree in macroeconomics and finance. I do not give financial advice, nor should you expect any financial recommendations from me.
I help people live by faith in God, in the hope that comes from living by biblical principles, and with love for others.
The sacred Scriptures say this about debt:
Exodus 22:14 - If anything is borrowed, it should be paid back. If what is borrowed is lost or injured, full restitution must be made.
Psalm 37:21 - The wicked borrows but does not pay back, but the righteous is generous and gives.
Proverbs 22:7 - The borrower is servant to the lender.
Proverbs 22:26 - Do not become guarantors for debts.
Debt isn’t a sin. Not paying back debt is.
The United States is in the impossible position of being unable to repay its debts.
Therefore, my encouragement to you is simple:
Trust God daily for your bread, not a bankrupt government.
Learn to be self-sufficient and content in all things by the grace of God.
Become your own bank and farm; owe no one anything save love.
If you don’t know how to do the latter, a little time and research will unlock the key.
Rachelle and I appreciate your support of Wade Burleson at Istoria Ministries.
This Canary in the U.S. Treasury Mine Substack article is free. Feel free to share it.
It really is amazing how war and pandemics appear just in time for the Fed to dole out money. Mostly to big banks and Wall Street but also to voters to keep politicians in office. Trust God, not government.
GREAT post, Wade. It simplifies a very complex economic issue, "national debt and spending", to a level that even someone like me can finally understand a lot better.
I have always wondered, "When does the out of control spending of the US Government come back to hold us accountable; the way a household suffers bankruptcy, repossession of home, car, when failing to be responsible for their spending and debt exorbitance?"
I believe your explanation addresses that and it seems that our day of reckoning lies just over the horizon. Thanks.