It's a record!

Tomorrow the US will add $5.1 billion (almost £4 billion) to its national debt. The day after the bill will go up by the same amount. And the next day, and the day after and so on - the bill will go up by the same.

By the time you finish reading this $28 million will have been added to the bill. It costs the US federal government more than $900 billion (£662 billion) a year simply to cover the interest on its debt, which has just hit a new record - a shaming (and alarming) $37 trillion (£27 trillion). $37 trillion is estimated by some to be the value of the economies of China, Germany, Japan, India and the UK combined.

Flashing red

This staggering debt service bill is hugely wasteful. Just think of the medical, educational, socially useful achievements that could be funded by the almost $1 trillion the US pays annually in interest on the Treasury issued debt. This opportunity cost has a ripple effect throughout the national economy. Economic growth - the ever-receding light at the tunnel's end - is slower than it could be, thanks to the under-investment caused by paying interest on the debt.

If that were all, then things would be bad but not fatal. The fatality that will come, as night follows day, will not be for humans - at least not at the beginning - but for trust, for the American Dollar. If the US continues on its current route then several uncomfortable things will start to happen simultaneously.

The US will start to find lenders - foreign governments, investors, institutions - demand a higher interest rate for any fresh loans. Some of them may decide they don't want to play this game any longer. They may simply say no new loans.

There is growing speculation that the US could - without wanting to - become a defaulter and run out of money to pay the interest on its debt. That won't happen - America can simply create more Dollars, sufficient to cover the bills.

That of course is no answer. Signals are already flashing red.

Ditching the Dollar

Central banks are steadily losing faith in the Dollar, which has been used as the international reserve currency for the past six decades. in 2014 the Dollar's share of global foreign exchange reserves was 65%. Today it's 58%.

At the same time central banks have been buying more gold.

Central bankers are no more savvy than the rest of humanity. So what is it they are seeing which we are missing?

They sniff the death of the Dollar as a trustworthy currency. They know that every so often US politicians go through the charade of raising America's debt "ceiling", which in practice is no ceiling at all. The current debt ceiling deal expires this month so expect another round of political posturing in Congress.

Central bankers scan the horizon and wonder what might replace the Dollar. The Rouble? Too risky. The Renminbi? Too illiquid. The Euro? Too young, too artificial. What's left? Gold.

The rational choice

This is not the familiar gold bug ranting. It is rather a cold calm piece of empiricism, a look at the facts. The US debt is obviously on an unsustainable trajectory. The country's current political class is unwilling or unable to recognize that the welfare payments the state supports - in any case not generous by European standards - are steering straight towards rocks that are just a few years away.

It could continue those payments if it raised more revenue in taxation - but do turkeys vote for Thanksgiving? - or find a magic bullet to kick-start economic growth. A lot - too much? - is riding on AI.

At some point soon this ignored reality will hit home. The most likely eventuality is that the US creates more fiat currency to cover its bills. The Dollar's purchasing power will consequently no longer slowly erode thanks to inflation, but take a nose-dive.

There is one huge unknown, and one starkly obvious point as a result. The first is that no-one can know when the US hunger for more debt will run out of road. That the debt road has an ending is starkly plain. That end is unlikely to be pretty.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

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·        Not insured by the FDIC.

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