The Tipping Point

It’s an ultimatum lots of guys have heard: “I won’t move unless we’re married.”

That’s what my now-wife, then-girlfriend told me in a phone call we had back in the spring of 2020. She wasn’t being demanding about it in the slightest.

It was very matter-of-fact, and tied to a comment I made during COVID that I wish she’d move to Prague, where I was living at the time, because her proximity to me would be a lot more convenient for our relationship than us having to find third countries in and around Europe where we could meet up for a week or two at a time.

So it was, then, that her “I won’t move unless we’re married” was her simply noting that there was no way she was going to uproot her life and her son’s life in Crimea, where she was working as a history professor, and where her parents and friends live, to move to another country without an actual commitment.

And, thus, we had our relationship’s tipping point—the moment that began a months-long process that led to us marrying on a cliff in Montenegro on a gray and drizzly Monday.

Now, just to be clear, today’s dispatch is not about my marriage to Yulia from Crimea. It’s about tipping points and how it is that one moment can suddenly accelerate a situation.

Sometimes that tipping point moves you toward an event that improves your life—i.e. marrying a beautiful Crimean. Other times, it launches you toward an unavoidable disaster.

Unfortunately, I’m coming to you with a story about the latter. And it begins with this headline:

That headline hints at a tipping point that, if it’s not already afoot, soon will be.

You wouldn’t necessarily know that from the noted $1.14 trillion, a number pulled from the US Department of the Treasury’s Monthly Treasury Statement that details Uncle Sam’s receipts and outlays—his income and expenses—for the fiscal year so far through June 2024.

You have to swim through the 40-page report to understand the context.

I won’t subject you to all the mind-numbing data. What I will share with you, though, is this fact: The $1.14 trillion in interest payments on US debt this year represents 76% of the country’s expected income-tax receipts.

In plain terms: How secure would you feel in your financial life if the interest payments due on your credit cards every month—just the interest payments—sucked up 76% of your paycheck?

If that’s not a tipping point accelerating your personal finances toward disaster, then it’s certainly tipping-point adjacent.

Back to Uncle Sam…

No country can survive for very long when almost all of its personal income-tax revenue must fund just the interest expense on the debt. And I want to over-emphasize and highlight that point again: The 76% is just for interest payments. Not principal reduction.

Just interest.

That leaves 24 cents of every tax dollar raised to fund the rest of the country’s ongoing needs.

This is why America has to borrow so heavily and why it must continually borrow ever-more money every year. Twenty-four cents of every tax dollar is not enough money—not remotely enough—to run the country.

But here’s the bigger problem: That 76% will, guaranteed, grow to 80%. And then to 90%. And then one day we will see a headline noting that America’s interest payments are consuming more than 100% of tax revenue.

That’s not a guess. That’s not me being some curmudgeonly writer. That’s not me being some kind of perma-bear who has a bad attitude toward the US economy.

It’s just the natural progression of extreme debt.

The US borrows money just to repay the interest on previous borrowings. It’s not paying down principal; it’s adding to the principal owed. Which is why the debt keeps growing larger every year.

And the debt growing larger every year logically means that interest payments on the debt grow larger every year (unless the Federal Reserve takes interest rates back to near 0%).

Again I’ll ask: How would your life crumble if your monthly paycheck wasn’t big enough to cover just the interest payments on your credit cards? How would you afford rent or mortgage? Electricity and water? Insurance? Food? A car payment… or, heck, a bus pass?

There is simply no way the math works—for families, businesses, or governments.

I don’t care what brand of economic voodoo DC subscribes to, Uncle Sam spending 76% of his tax haul on interest payments is a tipping point that will lead America into a financial crisis.

Of course, it’s not like this was unexpected.

Last fall, I warned that the US was racing toward $1 trillion in annual interest payments. I tweeted about it too, only to have an actual economist tell me how wrong I was.

Yet here we are—El Jefe was right… though I did undershoot expectations.

I thought we’d “approach” $1 trillion in annual interest payments. I didn’t expect we’d blow past it so forcefully.

Worse, we have a presidential election coming up, and regardless of who wins, Sammy’s debt problem will worsen. Which means the 2024 election will likely hasten America’s date with the fiscal/monetary/social crisis I’ve been predicting for a while now. (My bet: A crisis lands in the 2027-28 time frame.)

I want to tell you that the Fed can reduce Uncle Sam’s pain by trimming interest rates, which would reduce debt-repayment costs. But that’s a lie. The global bond market is setting rates on US Treasuries, and with China and Japan madly dumping tens of billions of dollars of US paper, the value of US debt is diving, forcing rates higher on the new debt America must sell.

I didn’t start this column with the intention of segueing into a crypto takeaway. But the fact is that once Main Street Americans realize the depths of the dollar crisis to come, gold and crypto (and Swiss francs) are going to be the safest ports in the storm.

Which means gold and crypto are likely to face their own tipping point soon.

Better to have some money there before that happens.