Summary:
We are witnessing deficit spending across the board, accompanied by massive debt accumulation, unprecedented in wartime. At the same time, the issuance of fictitious currency into the economic system is not backed by a physical commodity, such as gold or silver. It is supported by the illusion of complete faith in the system, of which, when the faith stops, no one will be foolish enough to buy the debt.
This system creates a cycle of dependency and desperation because only the government and the wealthy class benefit.
Article:
We often hear stories about consumers who borrow money on credit cards, unsecured loans, and real estate secured loans to finance short-term lifestyle experiences such as vacations, rock concerts, and tickets to the "big game.” This is part of a culture where people are enticed by the instant gratification of buying now and paying later. However, credit card debt comes with high interest rates, ranging from 12% to 30%, making debt repayment a significantly burdensome task.
Principal debt and accrued interest must be paid back in after-tax dollars, meaning that the consumer must earn dollars, pay taxes and fees, and then use what is left to pay off debt. In many cases, a consumer must earn $2 to pay off $1 of debt, a stark reminder of the weight of their financial burden.
Currently (mid-2025), we hear consumers using credit cards to pay for necessities such as food, rent, gas, and daycare. The gig is up, as consumers have spent all their discretionary income and must rely on credit. Let’s delve into how and why America has evolved into what can be termed the mother of all systemic pandemic debt addictions, akin to a colossal Ponzi Scheme. This term encapsulates the widespread and deeply ingrained habit of borrowing money, often beyond one’s means, leading to a cycle of debt and dependency that is arduous to break. Every discussion about debt class raises a red flag about fiat currency, inflation, and the erosion of the dollar’s purchasing power, creating a treadmill existence for the working class and lower levels of the dependent class, who do not work but receive transfer payments as a way of life. The potential consequences of this debt crisis are dire, and we must grasp the gravity of the situation and act swiftly.
Gross domestic product (GDP)
USA 2008 - $14.77 Trillion
USA 2013 - $16.50 Trillion
USA 2025 - $30.51 Trillion
The upward trajectory of the GDP is mindboggling.
https://www.macrotrends.net/global-metrics/countries/usa/united-states/gdp-gross-domestic-product
Consumers vs Wall Street:
Consumers must pay as they go or rely on high-interest credit cards to keep up with their expenses. Wall Street corporations invest in extremely high-leverage bets yielding astronomical profits, sometimes 99% leverage to 1% capital invested, as in derivatives. Wall Street generates high yields because it controls the market and employs a mechanism known as financialization. Since it is highly leveraged, it generates income from inflation-protected assets. They benefit from inflation, while consumers struggle to keep up with rising prices, creating an economic treadmill for the middle, lower middle class, and the dependent class.
Approximately 10% of the households in the US. Owns about 70% of the country’s wealth.
The bottom 50% US. Households own about 2 to 3% of the country’s total wealth.
https://www.investopedia.com/terms/f/financialization.asp
https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/
https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
Household Debt as of 2008 vs Mid-Year 2018 vs Mid-2025:
Household debt refers to the total debt of all individuals in a household. It includes consumer and mortgage debt, credit cards, personal and home equity lines of credit, secured and unsecured loans from banks and other financial institutions, as well as unpaid bills. In the first quarter of 2018, it reached $13.9 trillion, a $63 billion increase from the previous quarter. According to the Federal Reserve Bank of New York, household debt was $12.73 trillion in 2007.
2018- $13.7 Trillion
Mid-2025- $18.2 Trillion
Household debt has increased by 25% over the past 7 years.
When paying back household or consumer debt, the debtor must earn enough money to cover federal, state, and employer-related taxes on every dollar of principal reduction and interest accrual to reduce the debt. Debtor needs to earn $2.00 to pay off $1.00 of debt after taxation. $2.00 less 30% federal tax, less 10% state tax, less 10% employee-related taxes = $1.00 net. Now the $1.00 is available to pay interest accruals on debt, a little principle. If borrowers were taught exactly how devastating this process is, they would alter their decision-making.
While trying to pay off debt, consumers often face adjustable interest rates that range from 0% to 30%. Promotional 0% interest rates that must be paid off by a specific date are always reflected in the product’s higher price. Consumers may think they are getting a bargain, but they may be hit with a high interest rate if they do not repay the full amount within the given time frame. This constant threat of high interest rates significantly burdens the already heavy weight of consumer debt.
Consumers are constantly accruing interest on their outstanding debt balances. As interest rates rise, credit card interest rates will also increase, resulting in higher monthly payments for the interest portion of the fee. This means the total amount you owe will increase, making it even more challenging to pay off your debt. For tax purposes, consumer interest payments are not tax-deductible. For some business-related entities, interest payments are tax-deductible.
Residential Real Estate Debt (is included as a portion of the household debt):
For 2018, Americans owed $8.88 trillion in mortgage loans. Purchasing and financing a home is the norm. With the recent tax revision act, writing off interest has now been capped at $750,000 for a loan. Mortgage home equity debt not used to purchase or improve one’s residence is not deductible. These are forward-looking statements for mortgages funded as of 15 December 2017. New limits on mortgage deductions do not apply to loans funded before D15 December 2017. The property tax deduction is not capped at $10,000 per year. Could you call your accountant for clarification?
2008- $12.7 trillion on residential real estate
2018- $14.9 Trillion
Mid-2025- $12.84 trillion
The reduction is tied to rising interest rates and a lack of affordability.
This means that for future upper-end housing, above the write-off limits, the homeowner will have to pay federal and state taxes on each dollar spent on interest, principal, and property tax payments.
The homeowner will be required to earn $2.00 for every $1.00 spent on home ownership.
This will have a significant long-range effect on upper-end housing. One should consider a hypothetical example of purchasing a $5 million home, financing $4 million at 6%, 7%, or 8% interest with payments amortized over 30 years. Purchasers may decide on much smaller McMansions. At best, home ownership is a forced savings account with equity built over time, with lawyers, judgment creditors, and taxing authorities watching closely. The buzzards will continually circle the weakest prey.
As interest rates have been allowed to rise from their artificially low levels, home financing companies are under significant stress. On a forward-looking basis, lenders anticipate significant layoffs, downsizing, and closures.
Consumer Automobile Debt as of Mid-2018:
The Current outstanding debt for auto loans is $1.24 trillion, up almost $50 billion from just one year ago. The percentage of loans financed by subprime lending standards and rates is rising. Subprime interest rates range from 8% to 25% per annum.
2008- $1.642 trillion on auto loans
2018- $1.238 Trillion
Mid-2025- $1.642 Trillion
The percentage of car loans defaulting was 4.99%, with subprime loans reaching up to 6.6%.
To pay back the automobile debt, the debtor must earn enough to cover federal, state, and employer-related taxes on every dollar of principal reduction and interest accrual, thereby reducing the debt.
An automobile debtor must earn $2.00 to pay off $1.00 of debt after taxation. Some auto-related expenses can be deducted as business expenses for those who own or operate a business. Leasing an automobile allows a businessperson to deduct a percentage of the payment for business purposes.
Student Loan Debt:
In November 2007, the aggregate balance in the federal direct student loan program was $ 98.529 billion. In 2018, student loan debt totaled $1.5 trillion. A major contributor to this debt is the difficulty some debtors face in finding and keeping a job after graduating from college. Without a steady, high-paying job and the income, they will never be able to pay off this debt.
2008- $830 billion on student loans
2018- $1.5 trillion
Mid-2025- $1.777 trillion
Currently, 8% of the aggregate is more than 90% delinquent
To repay student debt, the debtor must earn enough to cover federal, state, and employer-related taxes on every dollar of principal reduction and interest accrual, thereby reducing the debt. Only $2500 of interest is tax-deductible each year.
A student debtor needs to earn $2.00 to pay off $1.00 of debt after taxation.
Those obligated to student debt constantly accrue interest on the outstanding balance. Interest rates are adjustable and will rise as rates increase, resulting in higher monthly payments for the interest portion of the fee. The current default rate for student loan debt ranges from 8.1% to 14.7% for Public Colleges and 7.4% for Private Colleges. Since the federal government guarantees most student debt, defaults become the obligation of the tax-paying public.
https://educationdata.org/student-loan-default-rate
https://www.bestcolleges.com/research/student-loan-default-rate-facts-statistics/
Commercial/Multifamily Outstanding Debt:
The current commercial/multifamily mortgage debt stood at $3.21 trillion as of the end of the first quarter of 2018. Of all the classifications of debt, borrowing money to invest in income-producing property makes the most sense for two reasons. Your operational leverage partly determines your yield, and cash flow from tenant income makes the payments. Of course, that suggests a discussion of property types, types of tenancies, vacancies, and yield/risk considerations--another article for another day.
2008- $10.6 trillion on commercial/multifamily debt
2018- $4.1 Trillion
Mid-2025- $4.8 Trillion
20% of the total is due in 2025
Currently, 6.6% of the aggregate is delinquent
Corporate Debt:
The current corporate debt outstanding is $6.3 trillion. Companies financea wide range of activities, includingm additional investment,o dividends, mergers and acquisitions, expansions, promotions, research and development, and stock buybacks. Corporations have been borrowing at historically low interest rates to boost share value.
As monetary conditions tighten, interest rates rise, debt service, and retiring accrued debt will become more difficult, and in many cases will come to a screeching halt, reflecting a downward spiral and many insolvencies, including bankruptcies. Reducing debt means that companies earn enough to pay federal and state taxes on every dollar of debt reduction. Interest in general is a deductible expense for companies fforever00 earned by the company, they may pay federal taxes at 25% (-50), state taxes at 10% (-20), multiple excise, tariff, and regulatory taxes of 10% or more (-20), leaving $1.10 to pay for interest and principal reduction of accrued debt. Tax rates will vary.
Sovereign Debt Meaning: USS Public Debt:
Government debt, also known as public debt, national debt, and sovereign debt, refers to the debt owed by a government. The government spends more money than it takes in through taxation. The government finances the difference by issuing debt. The government never considers reducing expenses and bureaucracy. In 2007, government debt totaled $9.008 trillion, accounting for 7.7% of gross domestic product (GDP). For 2018, the USS. Debt sits at $21.478 trillion or 107% of GDP. By 2021, we could see a sU.S.ggering $25 trillion in debt.USS Sovereign debt in 2008: $ 10. $10.3lion. Sovereign debt in 2013: $16.74 trillionUSUS)Sovereignn debt when Biden took office, 20 January 2021- $27.8 trillion USS Sovereign debt 2025- $36.9 trillion
The total unfunded Social Security and Medicare obligations are $78 trillion, greater than the sovereign debt. Since both programs have no reserves that are not derived from corresponding debt, they are currently funded through a pay-as-you-go approach using taxpayer funds.
https://www.cato.org/blog/medicare-social-security-are-responsible-95-percent-us-unfunded-obligations
Notice the massive increase in the trajectory of accumulated debt, which has risen by about $ 10 trillion in just 4 years of the Biden Administration.
https://www.statista.com/statistics/187867/public-debt-of-the-united-states-since-1990/
Why the big deal about consumption and debt?
The foundation of the American Enterprise is consumption and debt. We earn income to spend on the items necessary to survive, including food, shelter, medical care, transportation, and family support. Discretionary purchases consume the income above necessities. When incomes are insufficient to satisfy our spending habits, we are encouraged to borrow and accrue debt. Once the debt exists, our life paradigm shifts to a debt must. Paid back promptly with a significant penalty for late payments and defaults. This is a learned habit and is encouraged by most participants.
An Automobile purchase represents an example of the thousands of products available. A standard automobile contains about 30,000 distinctive parts. An upper-end automobile can contain up to 40,000. Each part must be manufactured by a company and then forwarded to a central location for assembly. From the raw materials extracted from the ground, plastics are chemically created by-products of oil; each part comes from a profit-motivated company. Each company hires staff who are paid compensation, including federal, state, and local taxes. The company will pay sales, excise, import tariffs, property taxes, and other taxation addons. Each company expects to earn a profit, which it will pay in taxes. If all participants pay taxes from the beginning to the end, the finished product price will rise by 30 to 40%, including the accumulation of taxes.
The auto purchaser must earn enough money to pay back all the prior chain of accrued taxes throughout the manufacturing process, plus current sales taxes, and new registration on the day of purchase. Then the proud new automobile owner had to earn the down payment, make monthly payments, and pay interest over an extended period. The new owner will pay state, federal, and unemployment compensation, as well as various other taxes, on every dollar spent on the principal price of the automobile, plus all interest charges.
Business-related expense deductibility will be considered. This will encourage consumers to purchase bigger, better, faster, prettier, and more expensive autos, which provides the businesses with only a marginally better deal. Write off during each calendar year; depreciation will provide some tax relief benefits.
Who are the primary beneficiaries of our us debt addiction?
The government and the wealthy class on Wall Street are the primary beneficiaries of the current system. Governments may even offer tax incentives to encourage consumers to take on more debt. Companies encourage you to drink more and take on more debt because the profits are in their pockets. Advertisers and media outlets bombard us with at least 7,000 daily ads. Hollywood, sports promoters, event promoters, and religious organizations benefit while encouraging spending. Social groups, friendships, significant partners, and casual dates encourage you to spend and consume more, with little thought about what it takes to repay the debt. There is “social pressure” to keep up with others.
When consumers and companies become insolvent, Lawyers, bankruptcy trustees, expert witnesses, court employees, and even the sheriff with his gun tucked tightly on his side benefit from their economic demise. At the same time, they watch you enter the court with your shoes off, belt off, and personal contents scanned for suspicion.
Now, for the mother of all debts, known as Unfunded and Underfunded debts in the USA. These debts are hidden from public view, as there is a pretense by the government and the media that they do not exist. They fall into three primary categories: retirement pension plans, Social Security, and Medicare. There is also a distinction between public employee pension under-funding and the public. —estimatesf the total underfunding obligations in the USSS are estimated to be over $100 trillion. Public employees’ underfunding is approximately $1.37 trillion, or 20% of the total commitments. They fully expect to be made whole, despite many employment retirement trusts being as much as 20% underfunded. That means only 80% of the pension system is funded. When unrealistic and fraudulent forecasts of expected yields failed to materialize, no one raised a brow. They now want taxpayers to bail them out and make them whole, but not the Social Security recipients? They expect preferential treatment.
The systemic debt crisis in the United States and the world is a ticking time bomb. You can’t control it, so do not develop immediate anxiety, as long as you have a cold six-pack in the refrigerator. However, you can choose not to let it control you. Start by reducing credit card and unsecured debt, and eliminate unnecessary payments requiring you to make $2.00 of earned income to pay down $1.00 of debt. Break the herd mentality and become a non-conformist. You may even be considered a renegade or something worse, like a deplorable.