Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

National Debt

A budget deficit is when you are spending more than you are taking in as income. When a government incurs several years of budget deficits, it then builds a national debt, which is the accumulation of the deficits. Government debt is the total amount owed by the central government, also called national debt. To cover shortfall between spending and income, a government will issue government bonds and bills. These are promises by the government that the money it borrows will be returned, with an interest payment as the cost of borrowing. Since all government debt is paid by income generated by the citizens of the country, this debt is really the burden of the taxpayers. In addition to outstanding securities issued by a government, it can be said that unfunded future liabilities are also considered government debt, such as future pension plans and health costs.

National Debt Rising 2.3 Times Faster than Budget Deficit?

By for Profit Confidential

National Debt Rising 2.3 Times Faster than Budget DeficitFor the U.S. government’s fiscal year ended September 30, 2014, the government registered a budget deficit of $483 billion—the lowest budget deficit since 2007. In fiscal 2013, the budget deficit was $680 billion. In each of the previous four fiscal years, it was more than $1.0 trillion per annum. (Source: U.S. Department of the Treasury, October 15, 2014.)

On the surface, this is great news.

And logically, one would think, the lower the budget deficit, the slower the growth of the national debt. If the budget deficit comes in at $100 billion, for example, the government will have to borrow money to pay for its budget deficit gap and raise the national debt by $100 billion.

But in fiscal year 2014, this wasn’t the case.

On October 1, 2013, the U.S. national debt stood at $16.74 trillion and on October 1, 2014, the national debt sat at $17.87 trillion—an increase of $1.13 trillion. Over a 12-month period, our national debt grew by 2.3 times the amount the budget deficit grew! (Source: U.S. Treasury Direct web site, last accessed October 23, 2014.)

No one is really questioning the sudden increase in the national debt compared to the budget deficit. Personally, I haven’t come across any articles on major news channels or heard of any explanation from government agencies about this.

How can this be happening? How can the national debt be rising 2.3 times faster than the budget deficit over the same period of time?

Dear reader, something doesn’t jive here. Either the government’s operating budget excludes some expenses, or there’s a problem somewhere in the numbers.

It just doesn’t make … Read More

Where the U.S. Dollar Is Headed and What It Means to You

By for Profit Confidential

U.S. Dollar Is HeadedFor the U.S. federal government’s fiscal year, which ends this Tuesday, the Congressional Budget Office (CBO) predicts a budget deficit of $506 billion. (Source: Congressional Budget Office web site, September 26, 2014.)

But just because our annual deficit is declining, that doesn’t mean our national debt is rising by an equal amount.

In fact, between September 20, 2013 and September 20, 2014, the U.S. national debt increased by $1.0 trillion. (Source: Treasury Direct, last accessed September 23, 2014.)

And the government is expected to post budget deficits until at least 2024.

According to a report released by the CBO, the U.S. government’s budget deficits will amount to $7.19 trillion between 2015 and 2024. (Source: Congressional Budget Office, August 27, 2014.) That’s roughly $780 billion a year on average.

Each year the government incurs a budget deficit, it has to borrow money to pay for its expenses and as a result, the national debt increases.

With the national debt now at $17.7 trillion, adding another $7.19 trillion takes the total to $24.89 trillion within 10 years. But as I showed you earlier in this story, government debt is rising at a much faster pace than national debt.

My prediction: a national debt of $34.0 trillion within 10 years.

For the current fiscal year, the U.S. government is estimated to pay $430 billion in interest on the national debt. The Federal Reserve has stated it plans to raise interest rates starting in 2015 and will continue to do so right through to 2017.

According to the CBO, interest payments on the government’s debt will triple within 10 years.

While I’m sure traders … Read More

The Sobering Issue

By for Profit Confidential

Why Our National Debt Will Double From HereAccording to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the projections go.

Yes, the government’s own estimates are that our country will run a budget deficit every year for as long as the government’s forecasts go.

That’s quite unbelievable. We live in a country where the government (and politicians) feel it is okay to continue being “negative” every year, indefinitely. It’s like I’ve written many times: if our government were a business, it would have gone bankrupt long ago. But the government, through its non-owned agency, the Federal Reserve, has the luxury of printing paper money to fund its budget deficit and debt. If a business did that—printed money to pay its bills—that would be illegal.

Today, the U.S. national debt stands at $17.6 trillion with about $7.0 trillion of that incurred under the Obama Administration. (Is it any wonder a CNN/ORC International poll said this morning that 35% of Americans say they want President Obama impeached with about two-thirds saying he should be removed from office?)

But what happens to the budget deficit once interest rates start going up? We’ve already heard from the Federal Reserve that interest rates will be sharply higher at the end of 2015 and 2016 than they are now.

Earlier this month, the U.S. Department of the Treasury was able to borrow money (issued long-term bonds) at an interest … Read More

Double Bottom in for Gold Prices?

By for Profit Confidential

Gold Bullion Fear Index CollapsesWhile the Federal Reserve has cut back on its money printing program, the fact of the matter is that the “official” U.S. national debt is closing in on $18.0 trillion. The unofficial national debt (when obligations like Social Security, Medicare, Medicaid, welfare, and now Obamacare are taken into consideration) is closer to $200 trillion.

The Japanese national debt just hit one quadrillion yuan.

Many countries in the eurozone are drowning under debt. The European Central Bank recently started talking about printing money to finally get the eurozone out of its mess.

All of this is very well-known to Profit Confidential readers.

Why do I bring this up again today? I’m back focusing on debt because it is becoming more and more apparent that the only way to reduce the record national debt many industrialized countries have accumulated since the Credit Crisis of 2008 is to print even more money.

And the collapse in the volatility of gold bullion prices could be pointing to just that. To see what I’m talking about, take a look at this chart:

Volatility Index - CBOE Gold INDX ChartChart courtesy of www.StockCharts.com

In April of 2013, when the sharp decline in gold bullion prices began, volatility for gold prices was very high. Since then, the volatility index for gold, an index that essentially gauges investors’ fear factor for gold bullion prices, has collapsed.

And when we look at the price chart of gold bullion (see next chart below), we see strong support for the metal just below the $1,200-an-ounce level. This level has been tested twice and on both occasions, gold failed to fall below $1,200. In technical analysis, this is … Read More

Sneaky New Taxes Way Government Debt Will Get Paid Down?

By for Profit Confidential

Getting Ready Mansion TaxAs it stands, the U.S. national debt has skyrocketed to above $17.4 trillion. With this year’s budget deficit expected to be around $500 billion, we’ll be at a national debt of $18.0 trillion in no time. In fact, a $30.0-trillion national debt is not out of the question by the end of the next decade.

Any way you look at these very big numbers, it is the American taxpayer who is on the hook for the years the government mismanaged finances.

If we look at the Greek example, that country’s government, too, rigorously spent money, registering massive budget deficits year after year. This caused Greece’s national debt to get to a point where it was unable to make payments on what it borrowed. Those who bailed out the Greek government asked for changes. This resulted in the lowering of pension payments to Greek citizens and austerity measures across the board.

The U.S. has more national debt than any other country in the global economy. At some point—and I don’t know when, as the can just keeps getting kicked down the road—either taxes will need to go up or austerity measures will need to be introduced to deal with the debt mess.

And since we now have so many people in this country dependent on government handouts and support, I think we’ll see higher taxes before we see austerity in the U.S.

Consider this: New York City’s mayor, Bill de Blasio, is considering a “mansion tax.” This is essentially an extra tax on homes valued at more than $1.0 million. He wants the proceeds from the tax to go towards adding … Read More

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