![\"The](\"https:\/\/internationalman.com\/wp-content\/uploads\/2024\/01\/debt-spiral-shutterstock_243555664.jpg\")
<\/div>\nContrary to conventional wisdom, higher interest rates mean more inflation in the environment today.<\/p>\n
That\u2019s because the federal interest expense increases as interest rates rise.<\/p>\n
As the federal interest expense rises, so does the budget deficit.<\/p>\n
As the budget deficit increases, so does the currency debasement needed to finance it.<\/p>\n
Skyrocketing interest expense will have an enormous impact on the US budget.<\/p>\n
Even according to the US government\u2019s rosy projections, the interest expense on the federal debt will exceed $1 trillion for the first time in 2024\u2026 and it shows no sign of slowing down. On the contrary, it\u2019s growing exponentially.<\/p>\n
First, it\u2019s essential to understand the basics of the US federal budget.<\/p>\n
Let\u2019s zoom out and look at the largest components of the US federal budget from the latest available data in the chart below. (Click image to enlarge.)<\/p>\n
The biggest expenditures for the US government are so-called entitlements. It\u2019s not likely any politician will cut these. On the contrary, I expect them to continue to grow.<\/p>\n With the most precarious geopolitical situation since World War 2, so-called \u201cNational Defense\u201d seems unlikely to be cut. Instead, military spending is all but certain to increase.<\/p>\n Income Security is a catch-all category for different types of welfare. That\u2019s unlikely to be cut too.<\/p>\n Unless it becomes politically acceptable to cut things like Social Security, military spending, and welfare, efforts to make a dent in expenditures won\u2019t be meaningful.<\/p>\n Further, interest expense (Net Interest above) is set to explode higher.<\/p>\n The US government projects that the federal interest expense will exceed $1 trillion in 2024 for the first time. That means the interest expense will exceed defense and everything else in the budget except for Social Security, which it will also likely exceed soon.<\/p>\n As the cost of debt service is taking up a larger portion of the budget, there is less for other expenditures. That means the government has to borrow increasingly larger amounts to maintain basic functions.<\/p>\n However, it\u2019s worse than issuing more debt to cover Social Security and the military.<\/p>\n The US government is now borrowing money to pay interest on the federal debt, which has a compounding effect as the federal debt and interest expense grow exponentially.<\/p>\n I suspect we are close to the inflection point where it gets out of control. 2024 could be the year that it becomes evident the US is trapped in a debt spiral.<\/p>\n Here\u2019s the bottom line with the budget.<\/p>\n The most significant expenditures have nowhere to go but up.<\/p>\n But don\u2019t count on increased revenue to offset these increases. Even if tax rates went to 100%, it would not be enough to stop the deficits\u2014and the debt needed to finance them\u2014from growing.<\/p>\n The US government is out of options.<\/p>\n Therefore, the question is not whether it will default but how.<\/p>\n When faced with a choice, politicians always choose the most expedient option. In this case, that means issuing more debt rather than making tough budget decisions or explicitly defaulting.<\/p>\n There is a big problem with that, though.<\/p>\n As the amount of debt skyrockets, the interest rate rises to entice buyers and holders.<\/p>\n Allowing interest rates to rise high enough to entice natural buyers would bankrupt the US government because of the higher interest costs, which are set to become the largest item in the budget.<\/p>\n So, I would not expect the Fed to raise interest rates much more. In fact, they have already paused the rate hikes and are signaling a pivot to easing again, likely for this exact reason.<\/p>\n That means the Fed has effectively given up on bringing price inflation down even though the year-over-year change in the CPI remains above 4%, more than double the Fed\u2019s target of 2%.<\/p>\n In other words, even with their own crooked statistics and rigged game, the Fed has failed even to come close to their inflation target. It\u2019s a massive failure.<\/p>\n Bloomberg<\/em>\u00a0is already hailing it \u201cThe Great Monetary Pivot of 2024.\u201d<\/p>\n It\u2019s crucial to understand that by surrendering to inflation, the Fed is returning to the same policies that caused prices to rise in the first place.<\/p>\n So, if higher interest rates are off the table and cannot entice more natural buyers, who will finance these growing multi-trillion dollar budget deficits?<\/p>\n The only entity capable is the Federal Reserve, which buys Treasuries with dollars it creates out of thin air.<\/p>\n That\u2019s why I am convinced extreme currency debasement is the inevitable outcome.<\/strong><\/p>\n All the rest is noise.<\/p>\n The US government\u2019s only practical option is ever-increasing currency debasement\u2026 and it could devastate most people.<\/p>\n I suspect it will all go down soon\u2026 and it won\u2019t be pretty.<\/p>\n It will result in an enormous wealth transfer from savers and regular people to the parasitic class\u2014politicians, central bankers, and those connected to them.<\/p>\n Countless millions throughout history were wiped out financially\u2014or worse\u2014because they failed to see the correct Big Picture as their governments went bankrupt.<\/p>\n Don\u2019t be one of them.<\/p>\n That\u2019s exactly why I just released an\u00a0urgent new report<\/a>\u00a0with all the details, including what you must do to prepare.<\/p>\n<\/div>\n![\"\"](\"https:\/\/internationalman.com\/wp-content\/uploads\/2024\/01\/Budget-FY2023.jpg\")
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