Bond market revolt might strike US in 2016, as it refuses to deal with debt crisis

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Amid the government crisis, the US is $17 trillion in debt which is 107 percent of GDP. However, more important is the fact that it is 700 percent of the country’s revenue, Michael Pento, president of Pento Portfolio Strategies told RT.

“That $ 17 trillion everybody says its 107 percent of GDP, that’s true. But who really cares about the percentage of GDP? It’s the percentage of the debt as a percentage of the revenue – its 700 percent of our revenue. Deficits are growing at 30 percent of our revenue every year added to the deficits we have already. So it’s unsustainable. What is going to happen eventually – a currency and bond market collapse,” he said.

RT: Those huge immediate financial loses aside for a moment... how much extra damage do you think has been done to the country's credibility?

Michael Pento: We have about 17 trillion in total debt right now and 126 trillion in unfunded liabilities and entitlement programs. Instead of doing something to address our entitlement programs, what we’ve done instead is enact a new entitlement program called Obamacare  - the affordable care act, which is going to cost trillions of dollars. In fact the White House says the latest assessment is 2.6 trillion dollars over ten years added to the debt and deficits that are already unsustainable. And if they say its 2.6 trillion you could pretty much double it.

RT:  Did anyone benefit from the shutdown?

MP: I don’t see any winners here. We had a chance. We elected a small group of very conservative Tea party members to the Congress. And they’ve been vilified as unabombers and terrorists. That was the country’s best chance. I think there was another gentlemen before me who was stating that the US cannot afford to even pay its $17 trillion in debt. That $17 trillion everybody says its 107 percent of GDP, that’s true. But who really cares about the percentage of GDP? It’s the percentage of the debt as a percentage of the revenue – its 700 percent of our revenue. Deficits are growing at 30 percent of our revenue every year added to the deficits we have already. So it’s unsustainable. What is going to happen eventually – a currency and bond market collapse! And it’s not going out 20 years, as I also heard someone mention. In 2016 we’ll probably be spending 40 percent of all of our revenue just to service our debt. That is what the interest payments will equal.

RT: When are the people in charge going to listen to that, going to make the figures. They can’t make it, that’s the problem isn’t it?

MP: Yes that is actually the problem. Usually here in the US we react to a crisis, we don’t seem to proactively deal with them in advance. So I think you are going to have a revolt in the bond market and I don’t think it’s going to come from the Federal Reserve. The Federal Reserve has a bounty of $ 4 trillion dollars now, they are not going to sit there and drain $ 3 trillion, and sell those assets, and drive the interest rates to the moon. I think the free market is going to do that. It’s not going to do that in the year 2023, it’s going to do that probably in 2016, when it becomes so evident that we can’t even adequately service our debt, forget about actually paying it down.

RT: So if you were putting a figure on when this implosion will be, when is it going to come?

MP: Nobody has a crystal ball. Anybody who tells you they know the exact day and time is lying to you. I’m looking at a model and as I mentioned before 2016 is the time frame that I see when we are going to be spending 40 percent of all of the revenue just to service the debt. If so, your international creditors are going to say “Gee, I might never get paid the 17 trillion that I’m owed”. So interest rates start to rise, so its 7 percent average interest rate on the 10-year note. We can go a lot higher than that, we’ve been a lot higher before, we can go there again. And that adds to the deficits dramatically. You quickly become a self-fulfilling prophecy where you are spending a 100 percent of interest payments just to service the debt. And then it’s a mathematical fact that you are never going to get paid back the principle of your debt. Then you have an inflationary collapse of the bond market and it’s all over. That is the time we could deal with the situation. Right now we have everything clearly laid out for us. I’ve been saying that for years now. There are a lot of members of Congress in DC who laid it out very clearly what we have to do. We have to grow our deficits less than the increase in nominal GDP to have any chance of ever being able to pay the debt. It’s not happening. It will only happen through crisis.