Debt Burden - Part Deux
Jack Davis | Jan 09, 2017 13:01
Originally published by
h2 A lesson in debt/h2Author: the Speculator
(From the Merchant: “On behalf of all subs, thank you Speculator for your contributions. Your efforts are becoming an integral part of this educational journey for the Chamber of Merchants community. Now I need to hunt down the Patron for another equally awesome post. “)
Founded in 2006 Linn Energy LLC (OTC:LINEQ) raised $261 million through their IPO with a market cap of $584 million. Over the next 8 years through 2014 Linn had made acquisitions worth over $17 Billion US dollars. With the share price peaking at $42.10 in October 2012, this company was on my radar. I had always wanted to get it for the dividends they were paying at approx 8% yield with monthly distributions.
2013 came and I entered the stock at around $25 as they were having some issues and the stock was off about 40% from the highs. Was riding smooth for about a year showing some growth and getting my divi’s until the oil and natural gas prices crashed. Linn was hedged well above the spot prices and had a valuable hedge book, but still had problems meeting the repayments on the debt. I rode the stock down from $30 to $1 selling puts along the way thinking that their assets were top class and oil prices would rise, but in the end the debt pile was so huge they couldn’t make the payments. On May 11, 2016, Linn Energy filed for Chapter 11 Bankruptcy Protection. A once market darling had grown too fast too quick and past its neck in debt.
Today the shares trade for 14c on the OTC Market. Here is a page from their presentation in 2014.
Debt can destroy you. Whether its mortgage debt, credit card debt, personal loans or a countries debt.
Today the total debt of Australia sits $6.12 Trillion dollars and Australia currently has no debt ceiling as it was repealed in 2013.
While that’s high, that’s nothing compared to the USA. The current US National debt is $19.954 trillion. If my calculations are right, sometime in early Feb 2017 it will hit $20 trillion. The total debt of the US including personal, business, state debt etc is near $67 trillion.
Currently the US debt ceiling has been suspended until March 17 2017, at that time Trump has 3 options.
- Raise it
- Suspend it
- Abolish it
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I see all 3 options as bullish for gold.
The No Budget, No Pay Act of 2013 suspended, for the first time, the US debt ceiling on February 4, 2013 until May 18, 2013. During the suspension period, Treasury was authorized to borrow to the extent that it “is required to meet existing commitments”. On May 19, the debt ceiling was raised by $306 billion to cover the borrowings done during the suspension period, as well as commitments that accrued in the preceding period that extraordinary measures were in place, which commenced on December 31, 2012. The debt ceiling was again suspended on October 17 until February 7, 2014. On February 12, 2014, the Temporary Debt Limit Extension Act was passed, suspending the debt ceiling until March 15, 2015. At that time, the Treasury Department took extraordinary measures. On October 30, 2015 the debt ceiling was again suspended to March 2017.
h2 Where did all that debt come from?/h2Below are some figures from the last 4 presidents.
Barack Obama: Added $7.917 trillion, a 68 percent increase in the $11.657 trillion debt level attributable to President Bush by the end of his last budget, FY 2009.
- FY 2016 – $1.423 trillion.
- FY 2015 – $327 billion.
- FY 2014 – $1.086 trillion.
- FY 2013 – $672 billion.
- FY 2012 – $1.276 trillion.
- FY 2011 – $1.229 trillion.
- FY 2010 – $1.652 trillion.
- FY 2009 – $253 billion. (Congress passed the Economic Stimulus Act, which spent $253 billion in FY 2009. This rare occurrence should be added to President Obama’s contribution to the debt.)
George W. Bush: Added $5.849 trillion, a 101 percent increase in the $5.8 trillion debt level at the end of Clinton’s last budget, FY 2001.
- FY 2009 – $1.632 trillion. (Bush’s deficit without the impact of the Economic Stimulus Act).
- FY 2008 – $1.017 trillion.
- FY 2007 – $501 billion.
- FY 2006 – $574 billion.
- FY 2005 – $554 billion.
- FY 2004 – $596 billion.
- FY 2003 – $555 billion.
- FY 2002 – $421 billion.
Bill Clinton: Added $1.396 trillion, a 32 percent increase in the $4.4 trillion debt level at the end of Bush’s last budget, FY 1993.
- FY 2001 – $133 billion.
- FY 2000 – $18 billion.
- FY 1999 – $130 billion.
- FY 1998 – $113 billion.
- FY 1997 – $188 billion.
- FY 1996 – $251 billion.
- FY 1995 – $281 billion.
- FY 1994 – $281 billion.
George H.W. Bush: Added $1.554 trillion, a 54 percent increase in the $2.8 trillion debt level at the end of Reagan’s last budget, FY 1989.
- FY 1993 – $347 billion.
- FY 1992 – $399 billion.
- FY 1991 – $432 billion.
- FY 1990 – $376 billion.
As you can see there is exponential growth during each term, and given the Donald’s love for debt, lets conservatively say he will increase the debt by at least $15 trillion, possibly much higher if he lasts the full 8 years. That is only 75% compared to Obama’s 68% and Bush’s 101%. If the president after him did the same at 71% that would be a debt pile of $60 trillion government debt. And again after another 8 years 75% increase would equal $105 trillion and so on…
I was having trouble finding reliable data past the next 10 years so i created a table and chart based on a 75% increase in the government debt every 8 years until 2048. At that point the debt grows by about $15 trillion each year. As you can see at some point something has to be done to stop the trend, its just a matter of what and when. Of course this assumes that there is no hyper inflation before that time.
Since a country can not file for chapter 11 like Linn Energy did. There are very few options for the US in the coming years with inflation being the most likely. Inflation has been happening for as long as money has been around. Most recently in Venezuela the ‘official’ inflation rate for December 2016 hit 181%. Could that happen in the USA, Australia or any other 1st world country? Why not?
If you bought gold than your wealth was somewhat protected.
Here is a list of the inflation rates for some countries in 2016… Go South Sudan!
Increase in money supply you say?
M2 is a measure of the money supply that includes all elements of M1 as well as “near money.” M1 includes cash and checking deposits, while near money refers to savings deposits, money market securities, mutual funds and other time deposits.
Just imagine the money supply by the time Trump is out of office!
h2 Question/h2What comes after trillion?
h2 Answer/h2Quadrillion ($1,000,000,000,000,000.00) – Get used to it.
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