top of page

The Great Ponzi Scheme (Vol. 4)

Updated: Feb 7, 2023

analyticsbox | Jun 06, 2021

Human Icons

Biden’s infrastructure investment –

how will it really be paid for?

Recently some news commentators suggested that the government should borrow money like businesses do in order to finance infrastructure projects. Well, here’s the problem with that…

Total US Federal Debt as of 8:12 PM est. on June 15th 2021

Before any business borrows money, they must answer a lender’s first question, ‘How will you repay the interest and principal?’ Typically, they must show history or believable projections for cash flow to do that. The better they show financial ability, the better their credit rating, the lower the risk and the lower the interest rate. If a business has no ability to repay a loan and are a risk of bankruptcy, lenders will not lend to them, no matter how high the interest rate.

So, let’s think about the US government. How will it repay lenders?

Let’s look first to earnings, called surplus in government lingo. There is no projection I have seen that shows a surplus for the next 10 years (in my adult life of over 50 years, I only recall a few years of surplus). Usually, a President shows a projection that magically balances the budget in the distant future, which never comes. I don’t think we even went thru that fantasy this year.

So then, how will we repay as we accumulate more and more debt, (currently almost $30,000,000,000,000 - that’s 30 Trillion!) and more interest expense, which makes it harder and harder to have a surplus. And the unfunded liabilities, now over three times greater than the actual debt, keeps growing as well.

It’s simple, we will borrow more to repay the old. And we have an AA credit rating which shows how ‘strong’ we are, so we can! (Downgraded from AAA and don’t ask me how that is arrived at, seems like more fairy dust.) Call it what you like, I call it a Ponzi Scheme. When lenders wake up and stop lending, there will be a default, which would be a worldwide economic catastrophe.

To avoid this in the short run, since we own the money printing press, we could just print more money. Ask Venezuela how that story ends. Anyone want to trade places with them?

There is no viable solution on the table today, but there are solutions, but that requires discipline. If we do not act, future solutions will be more painful as the problem gets worse. UNTIL - there is NO solution!

15 views0 comments


bottom of page