The U.S. national debt will equal 98 percent of GDP by the end of this month, the debt’s largest size, compared to the size of the national economy, since the end of World War II, the Congressional Budget Office (CBO) reported.
The debt was heightened by about $2.7 trillion in new federal spending to fight the COVID virus pandemic and rescue the economy from the state-by-state shutdowns that threw tens of millions out of work and closed hundreds of thousands of businesses.
The debt grew from $17.7 trillion at the end of March to $20 trillion by 1 July. During the same period, the economy contracted by 9.5 percent. For the quarter, federal debt was 105.5 percent of GDP.
The record U.S. debt was 106 percent of GDP at the end of World War II.
The debt will continue to grow, equaling or exceeding the country’s total economic output during the federal fiscal year beginning 1 October, the agency added.
The U.S. will join Greece, Italy, Japan, and a few other countries whose national debt surpasses its national economic output.
Because of low interest rates set by the U.S. Federal Reserve last year, the U.S. government has saved 12 percent in interest payments, the CBO reported.
Even though interest rates are expected to remain near zero for the foreseeable future, “the soaring debt-to-GDP ratio is totally unsustainable,” said senior fellow Brian Riedl at the Manhattan Institute for Policy Research.
TREND FORECAST: The higher the debt load, the more the U.S. dollar will fall. The euro’s value topped $1.20 on 1 September, its highest value since May 2018, and the British pound reached $1.345, its highest value against the dollar this year, as the dollar lost as much as 0.4 percent against six major currencies.
China’s renminbi also climbed against the dollar to 6.81 per greenback, the renminbi’s highest value in more than a year.
The dollar has lost some of its allure now that the U.S. Federal Reserve has indicated it will keep interest rates near zero for the foreseeable future, and, in fact, we forecast rates will go negative by the end of this year or early 2021. And, the Fed’s aggressive monetary policy has eroded the dollar’s yield advantage.
While the dollar value is expected to continue its decline, considering the artificial money pumping schemes by nations across the globe, so, too, will their currencies be driven lower, thus pushing the dollar artificially higher.
The bottom line is that all of the digital cash, backed by nothing and printed on nothing, which central banks are pumping into markets and economies, will continue to drive their currencies lower. Thus, we maintain our forecast that gold and silver prices will hit new highs.
