National Debt Balloon Bearish for U.S. Dollar, Positive for Metals

National Debt  turning into Debt crisisWith the U.S. government forecast to incur budget deficits year-over-year through to 2025, our rising national debt is turning into a debt crisis that will have long-term negative effects on our economy and currency valuation. In particular, two ticking debt time bombs are lurking nearby.

Official National Debt Figures to 2025

According to the Congressional Budget Office, the U.S. government is expected to incur budget deficits each year until at least 2025. This year, it is expected to overspend by $468 billion. By 2025, this amount is expected to increase to over $1.0 trillion annually. (Source: Congressional Budget Office, January 26, 2015.)

Something very interesting to note here: five months into its current 2015 fiscal year, the U.S. government has already incurred a budget deficit of $387 billion. (Source: U.S. Department of the Treasury web site, last accessed March 23, 2015.)

Saying the very least, I will not be surprised if the budget deficit this year is twice what’s expected. On average, the U.S. government in the past five months has overspent by $77.0 billion a month. If it continues to do the same, the forecasted government deficit of $468 billion for the entire year will be hit in only six months—the government’s debt is rising this year twice as fast as was projected by the Congressional Budget Office.

The national debt, according to official data, is projected to reach almost $22.0 trillion by 2025. If the U.S. government continues to overspend like it’s doing this year, just a few years down the road, the official figures will look like a joke.

The “official” numbers are too optimistic. They are based on the current conditions without any hiccups along the way like an economic slowdown or crisis, wars, higher interest rates, and so on—events that can force the U.S. government to expend a significant amount of funds in a short period of time.

Two Ticking Debt Time Bombs

Above all, I am looking at two factors that could send U.S. public debt skyrocketing higher: student debt and underfunded state pensions.

Student debt in the U.S. has increased beyond $1.1 trillion. The problem: the U.S. government has become a major player in the student loan market over the years. Now, we are seeing the delinquency rates for student loans rising, but the government has yet to write-off any of these loans.

The other unknown I am watching is pension systems at the state level. Despite stock markets going higher, because of the historic low interest rates, many state governments can’t meet their future pension obligations.

To give you an idea about how bad the situation really is, look at New Jersey’s pension system. The state only contributed 38% of what was needed for the pension fund between 2001 and 2013. It’s facing a pension crisis now. The state pension fund is scheduled to run out of money by 2027. (Source:, March 12, 2015.)

New Jersey is just one example. There are many other state pension funds that are in a similar situation. Will the state pension funds need a bailout, too?

Massive Public Debt and Its Victims

When a family spends more money than it earns, there eventually comes a point where it just can’t keep on going without severe consequences—bankruptcy.

Right now, the U.S. government is in a very similar situation. Over the past few years, it has borrowed way too much. Going forward, it is expected to borrow even more. If student loan defaults increase and the government eventually has to rescue state pension systems, my prediction of $34.0 trillion in government debt could become reality very soon.

If this happens, as the family that can’t pay what it has borrowed says, “I can’t pay,” the U.S. government might have to do the same, unless it starts printing money into infinity. With this, the dollar will plummet in value and the buying power of Americans will deteriorate.

Looking at all this, I can’t help but be bearish on the U.S. dollar and be bullish on precious metals.