analyticsbox | Oct 26, 2022
The Doom Loop is a vicious cycle, which we are about to enter
The Doom Loop has a couple of meanings, one political and one economic. Let’s just focus on the economic version. Put simply, rising debt and higher interest costs generate larger deficits which have to be financed with more debt, which raises the interest cost more, adding to the debt. Eventually a nation cannot escape from this ‘loop’, and the debt eventually gets unmanageable leading to financial disaster. No, we are not there - yet. But if we continue as we are headed, that is where we will end up. Let’s examine the situation today.
Today we have $31 Trillion in interest bearing debt. In August, the interest expense was $88 Billion or $1.06 Trillion annualized.
Interest rates are rising, so let’s assume they will soon average 4% (most rates are already there, so as debt rolls over with rising interest rates, that may be conservative. And that is made worse since the Fed has stopped buying bonds, so demand and prices may go even lower, which means higher interest rates.)
If we borrowed no more, the costs would rise to $1.24 Trillion at 4%.
The forecast from CBO (Congressional Budget Office) is that with no new programs, the deficits and additional debt over the next 10 years will be $14.5 Trillion, bringing us to about $45 Trillion.
Then interest would be $1.8 Trillion IF we add no new programs and interest rates hold at 4%.
New programs are added constantly by our politicians to ‘buy votes’. Bigger Deficits.
Inflation has already increased the cost of Entitlement programs over the CBO projections (8.7% increase in Social Security for next year) along with other cost increases. Bigger Deficits.
Recession is probably coming next year which will reduce revenue, and, with a declining stock market, capital gains taxes will also be reduced. Bigger Deficits.
We are already in a perpetual state of deficits, which will only be made worse by the increasing debt.
If we do not course correct, we will soon get into the Doom Loop.
The good news is that with good economic policy, we can avoid all that. The bad news is there is no one moving the needle to good economic policy.
BOTTOM LINE
If you don’t get the picture, then you are just not paying attention. We are headed for the proverbial iceberg, so let’s change course. Now, while we still can.
It is up to the ‘voting public’ to tell Congress to fix it before we get into the Doom Loop.
Go to our website and use the Contact Congress feature to send them a message.
Don't procrastinate, do it NOW.
LEARN ECONOMICS, THEN VOTE SMART
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