As humanity ages the numbers of people with dementia will surge

The world is ill-prepared for the frightening human, economic and social implications




A few days shy of her 90th birthday, tortured by leg ulcers and arthritis, Vera, one of some 850,000 Britons with dementia, has kept herself alive, it seems, to meet her first grandchild, due any moment now.

But when the happy day comes and the baby is brought to her, she is confused. She recognises her daughter-in-law, but is puzzled by the bundle in her arms. “That’s nice, dear,” she says.

“But why have you brought me a coconut?”

Dementia is a cruel condition, robbing people of their deepest joys and hopes. It may start as a “mild cognitive impairment” (mci): forgetfulness or “senior moments”. But as it progresses, attacking mental agility and eating away memory, it steals much of what counts as identity.

When severe, people become incapable of looking after themselves. They lose the ability to read, cook and shop.

They forget to drink and get dehydrated, or become incontinent. They suffer delusions, or become frightened or angry, or they sink into an apathetic slump. They require care for all their waking hours, and often supervision when asleep.


The covid-19 pandemic has been a huge ordeal for people with dementia. The loss of routine and social contacts under lockdown have hastened cognitive decline. Dementia patients have proved highly susceptible to the virus—in Britain some studies suggest it has been the commonest “pre-existing condition” in those dying from covid-19. And deaths where “dementia” has been identified as the cause have also risen.

In April it came second only to covid-19. Those with dementia often have conditions that make them vulnerable—above all, being old, but also being overweight, depressed, smoking, having high blood pressure or diabetes.

And dementia makes it hard to understand the danger of the virus, or to remember social-distancing or hygiene precautions. Many have endured the pandemic in care homes, which have accounted for nearly half of all deaths from covid-19 in the rich world.

Dementia affects more than 50m people worldwide, a number that is rising fast. It has many causes and is imperfectly understood. But nobody doubts that its prevalence increases with age.

By some estimates, 1.7% of 65- to 69-year-olds have dementia, and its incidence (the number of new cases) doubles every five years to the age of 90. Another estimate is that at the age of 85, between a third and a half of people have dementia.

In this sense dementia is collateral damage from one of humanity’s triumphs: increased lifespans. A hundred years ago life expectancy at birth was not much more than 30. By 1960 it had reached 52.

Today it is about 70 for men and 75 for women, and in rich countries, over 80 apiece.

Nonagenarians and even centenarians are no longer rare. Despite covid-19 medical progress will continue, further lengthening lives.

Yet dementia is stubbornly resistant to efforts to find a cure. It was long seen as a natural part of growing old, the last of the seven ages of man defined by Shakespeare’s Jaques: “second childishness and mere oblivion”.

Kate Swaffer, an Australian diagnosed with dementia in 2008 who chairs Dementia Alliance International, a campaigning group, sums up the advice she got: “Go home and prepare to die.”

Another estimate is that, at the age of 85, between a third and a half of people have dementia

Dementia used to be called “senile dementia” or simply “senility”. But a small minority of sufferers are not old at all. In 1906 Alois Alzheimer, a German psychiatrist, conducted an autopsy on Auguste Deter, a woman who had developed dementia in her 40s.

He noticed abnormalities also found in the brains of older people with dementia. Of the dozens of forms of dementia identified, the pathology known as “Alzheimer’s disease” is the commonest, accounting for between 60% and 80% of cases. Next, each accounting for 5-10%, are vascular dementia, caused by an inadequate flow of blood to the brain, and Lewy body dementia.

All forms of dementia become more prevalent in old age, and so will become more widespread as life expectancy rises. As people in less well-off parts of the world enjoy longer lives, that is where three-quarters of new cases will arise.

In 2015 the oecd estimated that by 2030 the number of cases of dementia would increase by 50% in rich countries and 80% in poorer ones. Some 82m people will have dementia by 2030 and 152m by 2050.

Encouraging recent research in America and parts of Europe suggests that changing lifestyles may be bringing down the incidence of age-specific dementia. But it appears to be rising elsewhere, so global projections are unlikely to be revised downwards.

Dementia disproportionately affects women, even allowing for their longer life expectancy. In America two-thirds of people with Alzheimer’s are female, and 60% of carers at home are women. China has more people with dementia than any other country—an estimated 9.5m people (it includes Taiwan in its total).

India, a younger country, with a median age of 28 compared with China’s 38, and lower life expectancy (70 compared with 77) had some 4m in 2018, mostly undiagnosed, a number that may reach 7.5m by 2030. Other places with big numbers are the European Union, with an estimated 9.1m in 2018, America (about 6m) and Japan (5m).

Set against the size of the world’s population, these numbers may seem manageable. That is illusory. Nowhere in the world, rich or poor, is equipped to deal with the scale of the problems created by dementia. No cure exists, and even the most hopeful new therapies will have only a mild impact. So all these dementia patients will need to be cared for—often for many years.




Humane care will require vast numbers of people, and huge sums of money. An estimate cited by the World Health Organisation (who) put the annual global cost of caring for people with dementia at $1trn in 2018, rising to $2trn by 2030, a total “that could undermine social and economic development globally and overwhelm health and social services, including long-term care systems specifically”.

In Japan, governments have for decades tried to create systems to deal with the problem, but officials admit they are unsustainable. There will be neither money nor carers enough to cope. In 2018 the average lifetime cost of care for an American with dementia was put at nearly $350,000, with 70% being the costs of care at home by families. Many poorer countries have yet to confront the problem at all.

The covid-19 pandemic has shown the fragility of many health-care systems, and drawn attention to the large numbers of people with dementia who occupy hospital beds mainly because of a lack of alternative facilities to care for them. When the virus is defeated, dementia will continue to spread.

In her book “Where Memories Go”, a memoir of her mother who had Alzheimer’s, Sally Magnusson, a journalist, calls dementia “perhaps the greatest social, medical, economic, scientific, philosophical and ethical challenge of our times”. Hyperbole? Yet many politicians seem to agree with Ms Magnusson.

In 2013 David Cameron, Britain’s prime minister, used his chairmanship of the g8 to convene a “dementia summit”. Other leaders have adopted the cause. Moon Jae-in, South Korea’s president, campaigned on a pledge to get the state to take on more of the burden of dementia care. In 2017 the who published a “global action plan on the public-health response to dementia”.

So dementia could hardly be said to be below the radar. In Britain, for example, 52% of people know somebody with the condition. And it has not spared the famous: Ronald Reagan and Margaret Thatcher had dementia, along with many other statesmen, sports stars and writers.

Eminently forgettable

Yet campaigners working for dementia charities around the world have a point when they argue that theirs is an underfunded cause. Covid-19 is likely only to make things worse, as the pandemic sucks in money and medical expertise. Already dementia research receives far less money than cancer or coronary heart disease (chd).

A global study in 2018 found 250,000 papers on dementia compared with 3m on cancer. That matches funding in Britain, according to the charity Alzheimer’s Research uk, where dementia attracts 7.4% of the sums that go into cancer, and 12% of the money for chd.

And everywhere, the costs of long-term care for people with dementia can be crippling—and are not usually covered by health insurers.

The comparative neglect of dementia has several causes. One is that it often falls between different government agencies. In the absence of useful medical interventions, health ministries do not want the strain of looking after untreatable and perhaps otherwise healthy people on their budgets. Often the provision of long-term care is the responsibility of local governments, so its availability and quality vary wildly.

More fundamentally, the old notion that dementia is a natural part of the ageing process is deep-rooted—held by two-thirds of people and even by 62% of medical practitioners, according to a survey last year by Alzheimer’s Disease International (adi), an advocacy group. It also found that one in five people attributed dementia to bad luck and almost 10% to God’s will.

As many as 2% blamed witchcraft. That belief, held in some African countries, where those with dementia may be shunned or persecuted, is the starkest example of the stigma attached to dementia. No other disability, Ms Swaffer points out, is treated in the way hers was dismissed.

As adi puts it in its 2019 annual report: “When a person has dementia, the condition takes over as the main descriptor of who they are. The stigma cancels the individual’s personality or personal history.”

On top of the stigma the condition brings, there is another reason why people prefer not to confront the dementia emergency: fear. Knowing how likely they are to develop it, and seeing the difficult lives of those who already have, they prefer to look the other way—and just hope that a cure will one day be found.

China’s Trial by Fire

The Communist Party feels validated by the crucible that has been 2020.

By: Phillip Orchard

From the COVID-19 outbreak to the subsequent economic crisis, with catastrophic flooding of the Yangtze River thrown in for good measure, 2020 has subjected the Communist Party of China to one existential crisis after another.

Yet, Chinese President Xi Jinping seems to have a preternatural ability to swoop in and save the day.

Not only does his administration appear to have come out from these calamities unscathed, but in some ways it seems to have grown stronger, more confident and more determined to dictate terms to foes foreign and domestic than ever – with Xi himself seizing every chance to turn crisis into opportunity to cement his power.

It was Xi, for example, who Chinese propagandists say commanded the decisive battles in the “People’s War” against the invisible enemy, the coronavirus.

It was Xi, according to his own comments during an August inspection tour of flood damage along the Yangtze, who’s continuing a centurieslong tradition of Chinese leaders demonstrating their mandate to lead by taming floodwaters.

It was Xi who successfully waged a war on financial risk and who prepared China for the day when the U.S. would try to blunt China’s rise as a way to distract from its own problems, or so the narrative goes.

It’s Xi who state media has increasingly been referring to as “the People’s Leader,” elevating the president to almost Mao-like status.

All this should pour cold water on persistent rumors of discontent with Xi in the upper ranks of the Communist Party of China. Of course, as Chinese elites wrangle for power and influence ahead of the Party Congress in 2022 – when Xi is expected to shatter CPC norms by sticking around for a third term as party chairman – palace intrigue will only intensify.

And in a country like China, the next crisis is always just around the corner Beijing is invariably choosing between bad options for dealing with immense problems, with many of its short-term fixes deepening its long-term structural issues, alienating powerful constituencies at home and antagonizing foreign powers.

But the reality remains: A year like 2020 is exactly why Beijing scrapped its Deng-era consensus leadership model and broadly supported Xi’s consolidation of power. His successes this year have been inflated, sure, but they have been real enough to validate his claim that a strongman must be at the helm during trying times.

The most important question then is not whether Xi is strong or China is on the brink of collapse. He and China are simultaneously, perpetually both. What matters most for China and just about everyone else is how this combination of extreme power and extreme vulnerability shapes its behavior at home and abroad. It’s not about to change course.

Crisis Averted?

Two weeks ago, in a triumphant speech, Xi said, “The CCP’s strong leadership is the most reliable backbone when a storm hits. The pandemic once again proves the superiority of the socialist system with Chinese characteristics.”

But if there were ever a moment when the Chinese public lost faith in the ruling party’s ability to govern competently, the pandemic could’ve been it. The government’s mishandling of the virus could be attributed directly to its rigidly enforced top-down decision-making structure and institutional cultures shaped by censorship and paranoia.

Indeed, when a popular doctor in Wuhan succumbed to the virus in early February, Chinese censors lost control of a flood of outrage over Beijing’s cover-up of the outbreak, and it briefly looked as if things had reached an inflection point. But the censors regained control of the narrative, and China’s lockdown made it impossible for anger online to become anger on the streets.

More important, it largely succeeded in containing the virus, capping deaths at just a fraction of the numbers seen in major powers across the globe. By March, the president, who had been conspicuously absent from state media for much of the first two months of the year, reemerged to “take command” of the response just as the infection curve was being driven downward.

A month later, he was declaring victory. Since then, bungled responses in the U.S., Europe, India and elsewhere have bolstered his argument that the CPC is uniquely well-suited to crisis response. (Democracies like Taiwan, South Korea and New Zealand have something to say about this.)

The systemic shock from the pandemic could well have exposed China’s economy as a house of cards. China shut down the bulk of its domestic economy almost overnight.

Millions were abruptly out of work. Countless small businesses – which were already weighed down by tariffs and a credit crunch before the pandemic – faltered, searching for rescue from an immature banking system that had already proved ill-suited for meeting the needs of China’s burgeoning private sector.

China’s convoluted financial system, already awash in shadow lending and toxic loans, appeared on the brink. Once Beijing was able to reopen most of the economy, it faced a secondary crisis in the form of collapsing demand for Chinese exports as the rest of the world sunk into crisis.

And yet, Beijing has somehow been able to keep its myriad interlocking systemic risks from triggering a cascading crisis. It never even needed to unleash a firehose of stimulus as it did after 2008 – measures that contributed directly to its staggering financial risks today.

This week, the Organization of Economic Cooperation and Development predicted that China would be the only one of the world’s 20 leading economies to post positive growth this year.

Here, Xi can rightfully take credit for pushing through a series of painful measures to curb financial risk beginning in his first term; these worked better than many expected. Meanwhile, his emphasis on strengthening state-owned enterprises – which in normal times have sapped the economy of its dynamism and are at the core of Western trade grievances – has been validated since SOEs have sopped up surplus labor and kept industrial production humming. Perhaps most important, Beijing’s worst nightmare – a massive spike in unemployment – came true, but without the attendant social unrest.

There’s a case to be made that the experience will ultimately make Beijing confident enough to adopt a more sustainable economic model that doesn’t prioritize stable employment at the expense of profitability and dynamism.

Much of Xi’s success could have been undone by the collapse of the Three Gorges Dam, a structure that best embodies the vast potential and pitfalls of China’s ruthlessly ambitious approach to development. It's huge – so large that its construction in 1994 apparently slowed the earth’s rotation – illustrating China’s capacity to dream big and build bigger.

It's critical; the 22,500 megawatts per day it can produce are vital for meeting the country’s insatiable energy appetite, breakneck urbanization drive, and soaring public expectations for prosperity.

But it also illustrates the fragility of the contract the CPC has made with the Chinese people. The dam was dogged by warnings about its structural integrity even before it was built, and its construction displaced tens of millions of people, many of whom saw their farms and ancestral lands submerged for good.

These people were promised prosperity. If the dam collapsed – or even, as it did in this case, proved inadequate for controlling flooding around economic engines     like Chongqing and Wuhan, killing hundreds of people and displacing millions more – they might quite reasonably wonder if the CPC was capable of honoring its end of the bargain. But it didn’t fail.

In mid-August, Xi showed up in flood-ravaged Anhui province to hail his government’s success in taming the floods and implicitly compared himself to a legendary Chinese emperor who built a network of canals more than 4,000 years ago.

The Tip of the Iceberg

This run of purported successes can be interpreted in seemingly contradictory ways.

On the one hand, you could see it as evidence of the Xi administration’s singular ability to marshal resources and take on colossal challenges – or at least validation of its insistence on centralizing power and micromanaging the country’s affairs.

On the other hand, you could simply see it as a series of narrow escapes that expose just how many intertwined, potentially catastrophic crises are keeping Chinese leaders awake at night.

You could see Xi’s propaganda blitzes as demonstrations of true triumph and confidence – or desperate bids for credit that betray a thinly veiled anxiety about the CPC’s tenuous hold on power

Presumably, all these interpretations are valid. Xi’s administration will need all the luck it can get and all the savvy at its disposal because China has no shortage of crises on the horizon. The current pandemic may be under control, but the culture of censorship and institutional rigidity fostered by Xi may keep Beijing unprepared for the next one.

The scale of the structural damage on the Chinese economy left behind by the pandemic won’t be fully apparent for years to come. The “grey rhinos” and black swans Xi is always warning about in the financial sector are still out there – and many of Beijing’s critical reform plans aimed at thwarting them have been put on hold.

The pandemic, along with the CPC’s increasing dependence on state control, has accelerated the slide toward open hostility between China and the West. The Three Gorges Dam cannot realistically be upgraded. Floods will return. The problems exposed this year are really just the tip of the iceberg.

But to Beijing, the lesson of this year is evidently: trust only the party’s power. Its solution to a dysfunctional public health sector, for example, is to tighten central control over it. The only way to stave off a financial collapse is through painful measures aimed at curbing financial risk, and these can only be implemented with the brute force required to remove opposition and contain the fallout.

If the Three Gorges Dam is flawed or insufficient, in the CPC's mind, then state power is needed to build more and build better – and to forcefully move the population out of harm’s way. If people are inclined to get upset about such things, then the state must be capable of preventing a revolt.

If the West is going to turn against it, then Beijing must have the power to make clear that it won’t be bullied and reshape the region around its needs. And so forth.

Mao may have thrived on a doctrine of perpetual revolution, but Xi appears to be inescapably driven by permanent crises. This mindset is perhaps the inevitable result for a government haunted by China’s history – by the weight of rising public expectation, by the impossible task of meeting the needs of 1.4 billion people, and by the inherent difficulty of trying to make the massive machinery of the state run efficiently through sheer force of central will and ideology.

But the downside risk of this mindset for Beijing is obvious – and for China’s neighbors, it’s particularly alarming.

Either way, it's the one Beijing is sticking with, whatever storms may come.

INSTITUTIONAL DEMAND WILL DRIVE GOLD EVER HIGHER

by Egon von Greyerz

1. Jewellery: 92,947 tonnes, 47.0%
2. Private investment: 42,619 tonnes, 21.6%
3. Official Holdings: 33,919 tonnes, 17.2%
4. Other: 28,090 tonnes, 14.2%
5. Below ground reserves: 54,000 tonnes

Great Reset Update: $50 Trillion Debt Coming

By John Mauldin 

Amid all 2020’s new problems, it’s easy to overlook the old ones. Yet they are still there and, like a silently spreading virus, silently getting worse.

One such problem is debt, and specifically government debt. All debt shares one common characteristic. A bill comes due at some point and, if the borrower doesn’t pay, the lender either loses their money or finds someone else to pay. Governments often do this.

I’ve warned for several years now that our growing global debt load is unpayable and we will eventually “reorganize” it in what I call The Great Reset. I believe this event is still coming, likely later in this decade. Recent developments suggest it will be even bigger than I expected. You could even say I’ve been too optimistic.

Today we will see how the federal debt problem has grown considerably worse than my admittedly somewhat gloomy 2020 forecast said to expect It will get even worse. But I end the letter telling you why I’m still optimistic and you should be, too.

Absurd Assumptions

Way back in June 2019, I wrote a series of letters responding to Ray Dalio on government debt and related issues. In one of them I showed a series of spending and revenue charts my associate Patrick Watson prepared from Congressional Budget Office projections. Here is the primary one, exactly as published in June 2019.

Again, the underlying spending and revenue numbers came straight from CBO. 

They make numerous unrealistic assumptions yet still show a bleak picture. I noted at the time:

Under these projections, total federal debt will rise to $25 trillion sometime in 2021. If there is a new president, he or she will not have enough time to change that. Total debt by the end of the decade will rise to the mid-$30-trillion range. Note that these projections do not include off-budget spending (more on that later) which is significant.

The CBO also assumes the bond market can and will absorb almost $35 trillion worth of US government debt. When combined with state and local debt it will easily exceed $35 trillion. (State and local debt is already over $3 trillion. It will certainly rise in the next 10 years.)

I also asked what would happen if we had a recession in 2022. 

I assumed revenue and spending numbers would look similar to the Great Recession in the following chart, demonstrating that the deficit would rise to over $2 trillion annually and pretty much stay that way for the rest of the decade. 

It turns out we had a much deeper recession this year in 2020. I was such an optimist… Anyway, this was my forecast in January 2020:

Now let’s fast-forward. The CBO just published its latest review. We updated the chart with CBO’s new numbers. It looks a little different now.

The most obvious change is a big spike in the blue “Mandatory Spending” area. 

That’s the unemployment and other benefits triggered by the recession. Less obvious is a small dip in tax revenue, after which the line continues upward as before. 

Even with the optimistic V-shaped recovery assumption, revenues barely cover mandatory spending (basically entitlements and social programs), defense, and only a little of the actual interest costs.

Let’s dig into that a little more. Here is a table summarizing federal revenue. 

The 2019 line is actual, the rest are CBO projections

We see that in this severe recession year, CBO expects federal revenue will drop 4.8%, then fall another 1.2% in FY 2021, followed by a 14.8% surge in 2022. Definitely a rocket-fueled V-shape recovery. Realistic? I don’t think so. In 2008 federal revenue fell 1.7% and then plunged 16.6% in 2009. It didn’t fully recover until 2013, three years after the recession ended. And that recession was mild compared to this one.

Even more absurdly, CBO projects payroll taxes will actually rise this year despite record-high unemployment. Now, it’s true that the unemployed population tends to be lower-income workers (so far) with smaller tax liabilities. 

And payrolls were normal until almost halfway through the fiscal year. But for revenue to actually rise seems unlikely. It stretches credulity to think total US worker income will be slightly larger in 2021 than in 2019. But that’s what CBO forecasts.

This matters because these revenue assumptions go into the deficit estimates, which tell us how much federal debt will grow. (Spending assumptions are also absurd but set them aside for now.) Note, also, the substantial and uninterrupted revenue growth they project from 2022 through 2030. The last remotely comparable period was the 1990s.

It projects this revenue growth because it projects uninterrupted GDP growth, and especially high GDP growth in the next few years. These assumptions will be important at the conclusion of this letter.

Is CBO all wet? I think not. I think the very smart wonks who make these forecasts try their best. 

CBO is mandated by law to make the projections under current law as written and forced to make (within guidelines) positive projections. They don’t have the luxury of assuming there might be a recession in the future.

You wouldn’t hire a financial planner who used software that was guaranteed to give you an unrealistic projection with nothing but positive assumptions. 

Yet that’s what we do with the CBO numbers.

Breaching $50 Trillion

In my 2020 forecast letters, published in January as the pandemic was just gaining attention, I revisited the charts above and noted this:

When we do have a recession, which again I point out is likely to be after the election (the only meaningful data point between now and the end of next year), the deficit will explode to over $2 trillion per year and, without meaningful reform, never look back. That puts US debt at $35 trillion+ by the end of 2029.

According to CBO, this deficit which I gloomily said would be over $2 trillion in a recession year will be more like $3.3 trillion. I was an optimist.

What does this do to the national debt? First, we have to define some terms. You’ll often see numbers for “debt held by the public” or something similar. These exclude amounts the government owes to internal entities like the Social Security trust funds, military pensions, and other “we owe it to ourselves”-type funds. Those trust funds are running down at some point and those bonds will have to be repaid or sold into the market just like any other form of government debt. There is no such thing as owing it to ourselves. Not in the real world. It sounds good if you’re a politician trying to ignore or minimize debt. This ostrich-like head in the sand approach courts disaster.

“Total Public Debt” is more inclusive, and at the end of FY 2019 it was approximately $23.2 trillion. If the latest CBO estimate is correct, it will be well over $26 trillion when FY 2020 ends on September 30.

If we plug that into CBO’s revenue and spending estimates through 2030, we get something like this.

Note again, this is the official CBO data. You don’t often see it this way because they usually express it as a percentage of GDP instead of raw dollars. Their own numbers now show an almost $38 trillion debt at the end of 2029, far more than the also-alarming $35 trillion I estimated earlier this year. Again, I was an optimist.

But CBO is optimistic, too. Some very slight and quite reasonable adjustments show the debt will be trillions higher by 2030. Below is the same table again with these changes:

• We reset revenue to change by the same annual percentages it did in 2008 and the following recession and post-recession years. That actually raises 2020 revenue a bit, after which it drops considerably lower than the CBO estimates.

• We take CBO’s spending projections and add 2% to each year, which I think is a fair and maybe even conservative expectation.

• We add $269 billion in yearly off-budget spending, which is the average since 2000. (You can take almost any 10-year period out of the last 20 and get close to that $269 billion average. Some years it has over $500 billion and some years it is negative. But the average is eerily consistent.)

Everything other than the above three changes is the same. When I asked Patrick to make those assumptions for the next table, we both knew that it would increase the total debt. I still admit to being quite surprised when I saw the final number. 

Here is the result:

Under these (more likely) assumptions, the debt will breach $50 trillion in 2030. 

I bet it happens even sooner, because we probably won’t get through the 2020s without some other event blowing out the numbers—another recession or pandemic, an expensive war, who knows. But history suggests something will occur, with significant fiscal effect.

For those who prefer cool graphs, here is that $50 trillion in a simple line graph:

“Turning Japanese, I think we’re turning Japanese, I really think so.” (The Vapors)

But Wait, There’s More!

The CBO projections follow the government’s fiscal year, running from October 1 to the end of September. It is projecting a deficit of a little over $3.3 trillion for fiscal 2020.

Note that the CBO can only project current law. I expect House Speaker Nancy Pelosi and President Trump will agree to a “Phase IV” economic relief package well north of $2 trillion. My Twitter reading last night (follow me here) told me Pelosi expects to be negotiating with Trump in the next few days. Another tweet said her office and Mnuchin’s office are talking.

As I wrote last week, without another relief package the economy will fall into a depression by the end of the year. Neither party wants that. But that means adding another $2 trillion to the 2021 deficit, pushing it over $4 trillion.

Here is where the wonderful www.USdebtclock.org says we are today:

You can click on any of the numbers at that website for an explanation and sometimes deeper links. This is just a small section. It tracks almost everything. 

On the left-hand side of the visual above, the third set of boxes show actual US federal spending and the budget deficit. When you click on the box labeled “US Federal Budget Deficit (Actual)” the definition includes off-budget spending. 

They project over $1 trillion in off-budget spending this year. Ouch! And they are not including the $2 trillion Phase IV relief package either.

We are so going to blow through $30 trillion total debt sometime early next year, making my milder projections wildly wrong. Just a year ago, I naïvely expected it would be 2025 before we got to $30 trillion, and we would be short of $40 trillion by 2030.

Add an additional $2 trillion in Phase IV and the debt will easily be $40 trillion by 2025, and $50 trillion before the end of the decade.

MMT Coming

The next question is how will we finance all that debt. Americans and a shrinking group of foreign investors have been surprisingly willing to buy as much paper as Washington can print, even at near zero (or below zero, adjusted for inflation) interest rates. But there are limits, at least in theory, and they may draw closer if the global recession drags on.

The most obvious solution is for the Fed to buy whatever amount of bonds Treasury needs to sell using quantitative easing. Powell is definitely willing. 

Depending on how the Fed disposes of its bonds, it might be the practical equivalent of MMT. And the Fed’s willingness will not be lost on a future Congress, which could easily decide to test the limit. $50 trillion could just be the start.

The other question is what effect all this federal debt will have on private markets. Will it have a “crowding out” effect that reduces private lending? How will it affect legitimate business and investment activity? We’ll see the result in lower growth.

Remember, we aren’t just talking about federal debt. States and local governments owe over $3 trillion more, plus trillions more in unfunded state pension liabilities, some of which could easily end up at the Fed or Treasury. Then there are the wildly underfunded pensions (both government and corporate) that could easily default and force some kind of federal takeover. Plus corporate bonds, mortgages, student loans, auto loans, SBA loans…

I will probably be referring to this letter in five years when it becomes clear that the debt will be hitting $60 trillion or more as the US government takes on state and local liabilities and we find ourselves in another recession. I will be admitting that my $50 trillion projection was way too optimistic. Sigh. Double sigh.

You may be a debt-free, prudent investor but the fact remains, you are also a citizen and taxpayer. We are collectively in hock up to our ears. Some of this will end up on your shoulders and mine. Not a pleasant thought? Exactly. Which is why I expect a Great Reset. A real economist would probably call it Debt Rationalization. We will reach a point where it becomes the least-bad alternative.

The Consequences of $50 Trillion of US Debt

1.   Raising taxes will not solve the problem. Of course, it could help reduce the deficit some but it would be more of a token. That is just the reality. From the Tax Foundation here are the real numbers as of 2017.

If we double taxes on the top 25% it would only bring in another $1.3 trillion, assuming people didn’t change their behavior. (A 75% marginal rate plus 4% Medicare for a 79% top rate certainly will change behavior.) A less-shocking 20–25% increase would only bring in about $3-400 billion, and would have to raise rates on incomes above $83,000. Not exactly the rich. They already think they pay their fair share.

If we raise taxes next year in the teeth of a recession it will only make the recession worse. If we raise taxes but they don’t actually take effect until 2023 and then get phased in? That would probably avoid creating a double-dip recession.

One reason we cut corporate taxes was to make US companies more competitive. It worked. Do we really want to lose that? 

Not to mention what it will likely do to the stock market. Just saying…

2.   I know I keep saying this, but debt is future income brought forward. There is a point at which debt becomes a drag on US economic growth, and we have likely reached it. GDP growth in the US is going to increasingly look like Japan and/or Europe, i.e. almost nil. So, the CBO’s continued 2% average growth forecasts will simply get thrown out the window and the deficits will get worse. Ceteris paribus, ipso facto, QED and FUBAR. Don’t shoot me, I’m just the messenger.

3.   It is possible I’m being overly pessimistic about the need for a Great Reset which would include national debt. Japan reached 250% debt to GDP a few years ago, since which the Bank of Japan bought around half of total government debt (back of the napkin numbers) and Japan is doing just fine. The European Central Bank is buying anything not nailed down and is muddling through.

4.   Let me point out that while the practical results of quantitative easing look similar to MMT (modern monetary theory) the actual results and practice are completely different. I am not persuaded that the US Congress can understand the difference. Dear gods, I hope they can.

I was explaining this to a friend last night. He asked me what we should do, somehow believing that there has to be an answer. There isn’t one. We have no good choices left. It is as if we are on a trip through a desert and know for certain we don’t have enough water to go back. We don’t know where the desert ends, but we have to go forward.

That’s the reality. Unless you want to cut Social Security and Medicare, ignore military pensions, sell the national parks, abolish departments like State and Treasury, cut the defense budget in half along with Homeland Security, Education, Labor, the Justice Department and the FBI, etc. we are going to have to live with the $2 trillion deficits. In good years. There are no better choices.

We are going to learn how much the US can borrow before it all collapses around our ears. I have no idea where that point is. It’s probably a lot more than any of us currently believe. Japan is continuing to borrow, as is Italy and the rest of Europe. And China, etc. Sigh.

5.   While all of this is happening, we will continue to see accelerating technological transformation. I believe within five years we will have something that looks like the Fountain of Middle Age, and within 10 to 15 years actually make you younger, while at the same time beating cancer, heart disease, and so on. It will truly be the age of technological marvels.

There are going to be phenomenal investment opportunities. We will have to be very conscious of how we handle our portfolios, especially towards the latter half of this decade. That being said, I am currently making the largest percentage-wise single investment that I’ve ever made in a company (which is private so I can’t mention it) that I believe will have phenomenal dominance in its market within 10 years. It is one of the biggest markets in the world. Things like that are going to be happening more and more and more.

So yes, I fully understand that $50 or $60 trillion of US debt is a problem, but I’m not going to ignore the opportunities in front of me. I fully believe that the 100,000+ entrepreneurs who have lost their businesses are not simply going to sit on their derrieres and do nothing. It is in their DNA to launch new ideas. They will keep creating opportunities and jobs.

I think of myself as a realistic, rational optimist. I can admit the problems that we have with our government, debt, and political partisanship and still want to be long humanity and believe in a powerful future. You should too.

I’m going to close here, and apologize for not having enough room for my banana nut cake recipe so many of you have asked for. I will get it in a future letter. But we really do try to limit the words, and this letter is already overly long so let me just say have a great week!

Your wondering why the weights in my gym are heavier this time around analyst,