Daniel Lacalle: How Government Debt Is Killing the US Dollar

In the span of a year, the federal debt has risen by nearly $2 trillion, and is now topping $35 trillion. This represents a hefty deficit in what government spends versus what it brings in from taxes.

Meanwhile, whether the economy drifts up or down, there could be an additional $16 trillion added to the debt by 2034. That’s a baseline that does not include some potential changes that could result following the presidential election.

Crunching the numbers, the total accumulated debt over the past three years, measured against growth, paints an ugly picture. The United States has increased its debt significantly and only gotten slow growth. By one measure, it’s the worst such performance in 90 years.

In order to operate, governments need money. Besides taxing, they can borrow. Taxing imposes a cost on those who have to pay the tax, whatever form it takes. Borrowing means the government has an additional spending obligation to pay back that debt.

Either way, rising debt and continued government spending over tax revenues point to a worsening balance sheet.

Eventually, things could reach a tipping point. And taxes will either need to rise, or government spending will need to shift to paying down debt. Either of those events could have a negative impact on the economy.

This weakening of the dollar may suggest why commodities such as gold and silver have been trending higher this year, and why that trend may continue.

To read the full analysis, click here.