Is The Dollar Collapsing? 8 Key Indicators You Can't Ignore

Is The Dollar Collapsing? 8 Key Indicators You Can't Ignore

Nick Giambruno

There are eight key indicators to watch as the US government falls deeper into the self-perpetuating debt spiral.

Indicator #1: Federal Budget Deficits

The chart below shows the actual and projected federal budget deficits.

It’s important to note that these projections rest on the ridiculous assumption that there will be no wars, recessions, or other events that drive additional federal spending. That assumption is already out the window with the Iran war: the Pentagon has requested an additional $200 billion, for starters.

Even with this rosy and unrealistic forecast, the US government is projected to run a cumulative deficit of over $22 trillion over the next ten years—deficits that will have to be financed by issuing more debt, a significant share of which will likely be bought by the Federal Reserve with “money” it creates out of thin air.

Indicator #2: The Federal Debt

The federal debt has exceeded $39 trillion, representing more than 124% of GDP.

It’s important to remember that GDP is a flawed statistic. For example, it counts government spending as a positive. A more honest measure would count government spending as a big negative, as it compounds the debt spiral. In the US, government spending accounts for at least 37% of GDP.

In other words, the amount of debt relative to the productive economy is much more than the official numbers suggest.

Indicator #3: The Federal Interest Expense

Annualized interest on the federal debt exceeds $1.2 trillion and is surging higher. That means more than 23% of federal tax revenue is going just to service interest on the existing debt.

The interest cost on the federal debt is already the US government’s second-largest outlay. It’s set to exceed Social Security and become the biggest federal expenditure in a matter of months.

Indicator #4: The Federal Funds Rate and the 10-Year Treasury Yield

Whenever discussing the Fed or central banks, it’s essential to keep the basics in mind.

You have to start with the most fundamental concept: central planning doesn’t work. That’s the first principle.

Central planning of shoes doesn’t work. Central planning of wheat doesn’t work. And central planning of (fake) money doesn’t work.

Central banks in general—and the Fed in particular—are on a mission impossible. They don’t know what the interest rate should be. Nobody does. That’s something only a voluntary market of savers and borrowers, dealing in honest money, can determine.

A politburo can’t centrally plan interest rates any more than it can potatoes. They are inevitably going to fail—and cause significant damage in the process.

It’s also crucial to remember that central banks have nothing to do with the free market. They are, in fact, the antithesis of it.

In Karl Marx’s Communist Manifesto, central banking is the fifth plank.

With that important context in mind, consider the following.

In the wake of the 2008 financial crisis, the Fed brought interest rates to roughly 0% and held them there for years.

Then, in late 2015, they started a rate-hiking cycle that lasted until the repo market turmoil in late 2019.

After the outbreak of the Covid hysteria in early 2020, the Fed brought interest rates back down to around 0%.

Inflation subsequently hit 40-year highs in 2022, forcing the Fed into another rate-hiking cycle, one of the steepest in history.

In just 18 months, the Fed hiked rates from around 0% to over 5%.

The Fed has now pivoted back to monetary easing and rate cuts without having defeated inflation.

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