Debt

Economies run along fairly smoothly at times, as long as their is a level of trust that tomorrow will be similar to today.

This means there is widespread belief that bills will be paid, items will retain value and credit can be extended.

Credit is to a large extent what economies depend on, since without it we would have to satisfy all our obligations when they happen.

Credit is of course also a dangerous thing when you use more of it than you can afford.

The obligation to pay in the future requires income in the future, enough income to cover current requirements and credit payments.

Many companies and individuals can't afford to do that without getting additional credit.

In fact that's the situation the United States is in.

To pay the notes and bonds coming due it has to borrow more money, which it promises to pay in the future.

Our debt has been rising since the Clinton years, the last time we had a budget surplus.  With the recent tax cuts and spending increases it is increasing much faster.

Right now there are plenty of buyers willing to buy our debt, its still considered safe, but how long is that going to last?

Let's be clear.  Ultimately, the debt can be paid since we control the value of our money.

It is still something of a house of cards since if uncertainty enters, interest rates will rise, making the debt more expensive, creating more uncertainty, causing interest rates to rise, etc. etc.

You see this happen to companies (Toys-r-Us) fairly frequently where the downturn in their business wasn't by itself enough to ruin them, but the high debt levels were.

We could be fast approaching a tipping point as we see trade wars added to a situation where less taxes are being collected while spending increases.

Maybe not yet, maybe.