Authored by Nick Giambruno via InternationalMan.com,
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.
The Federal Reserve essentially controls short-term interest rates, such as the Federal Funds rate, which is the interest rate at which banks lend to each other overnight.
Long-term interest rates, like the 10-year Treasury yield, work differently. These rates are shaped by a much larger market influenced by various factors beyond the Fed’s control.
While the Fed has significant influence and can impact long-term rates by purchasing bonds like the 10-Year Treasury, other market dynamics also play a role. In short, the Fed can exert some influence over long-term rates but does not fully control them.
The 10-year Treasury yield reflects the annual return an investor can expect if they purchase a 10-year US Treasury bond today and hold it until maturity.
The 10-year Treasury yield is perhaps the most important financial benchmark in the global fiat system, as it drives valuations and market trends worldwide. It is widely (and erroneously) thought of as the risk-free rate of return.
The 10-year Treasury yield can be thought of as a key barometer of the US dollar-based fiat system—a critical measure akin to its “beating heart.”
Bond yields move inversely to bond prices. When bond prices fall, bond yields rise.
A rising 10-year Treasury yield signals trouble for the US dollar because it indicates that investors are selling off bonds, which increases the US government’s borrowing costs.
Indicator #5: The Fed’s Balance Sheet
The Fed recently announced that it has ended the shrinking of its balance sheet and will now begin expanding it again.
The Fed insists this isn’t quantitative easing, calling it “reserve management” and pointing out that it isn’t explicitly targeting long-term Treasuries. That’s just wordplay. Buying Treasuries with newly created money is money printing, regardless of what label they attach to it. The Fed’s balance sheet is expanding again. A new printing cycle has begun.
We’ve seen this pattern repeatedly. The Fed expands its balance sheet, then tries to shrink it. Something eventually breaks in the financial system, and the Fed pivots right back to easing and money creation. Each time this happens, the balance sheet never returns to its prior level. It ratchets permanently higher with every cycle of debasement.
What makes the current situation especially telling is that the Fed is entering another balance-sheet expansion phase even though the balance sheet is still more than 50% larger than it was before the Covid mass psychosis.
Before 2020, the Fed’s balance sheet was roughly $4 trillion. It exploded to nearly $9 trillion during the Covid response. Even after so-called “quantitative tightening,” it remains nowhere near its pre-Covid level.
This completely contradicts the Fed’s long-standing claim that programs like QE are temporary.
Remember when former Fed Chair Ben Bernanke promised the balance sheet would eventually normalize after the 2008 financial crisis? That promise was made nearly 15 years ago, when the Fed’s balance sheet was around $2.5 trillion and was supposed to shrink back toward pre-crisis levels below $1 trillion. Instead, today the balance sheet is more than double what it was when Bernanke made that pledge — and now the Fed is entering yet another expansion cycle that threatens to push it even higher.
The long-term trend is obvious. The balance sheet only goes one direction: up. And the implication is unavoidable. Every time the Fed expands its balance sheet, it debases the currency. This isn’t an accident or a temporary policy error — it’s the core feature of the system.
If you’re wondering what comes next, look at the chart below—and note what followed the last time the Fed shifted from shrinking its balance sheet to expanding it.
We are now in the top of the first inning of what may become the most aggressive balance sheet expansion cycle in the Fed’s history.
Indicator #6: Money Supply
Imagine working 9 to 5 for 50 years, only for the Federal Reserve to print 40% of the money supply and inflate away 20 years of your hard work.
You don’t have to imagine—it actually happened during the COVID mass psychosis, as governments worldwide indulged in a frenzy of currency debasement.
I have no doubt that something like this or much worse will happen again soon.
Remember, the Fed has only two tools in its toolbox: currency debasement and gaslighting.
The skyrocketing interest expense forces the Fed to implement interest cost control policies, which inflate the money supply. These include buying Treasuries with money the Fed creates out of thin air and similar measures.
No matter what the Fed calls it, the only way they can try to control interest costs is to inflate the money supply.
However, that is ultimately self-defeating because it creates inflation, which causes bond investors to demand high interest rates to compensate for.
Regardless, the Fed inflates the money supply anyway in a misguided attempt to control interest costs because that is the only thing it can do.
The long-term average YoY change in the money supply is 6.8% per year.
Indicator #7: Consumer Price Index
The Consumer Price Index (CPI) is the most politically manipulated statistic in all of government. That is saying something because many government statistics are completely manipulated, but inflation, as measured by the CPI, is probably the most manipulated.
The CPI is a basket of prices trying to measure the average price changes for 340 million Americans.
It’s an impossible task because every individual has a different price basket. Consider someone who lives in New York City compared to someone who lives in rural Montana. They have totally different price baskets.
Using the CPI as a measure of price increases for 340 million people is even more preposterous than taking the average temperature across 50 states in the US as a meaningful statistic to determine what clothes you should wear today.
Further, the government gets to cherry-pick what items go in the CPI basket and their weightings. It’s like letting a student grade his own paper.
In short, the CPI is misleading government propaganda intended to conceal the government’s atrocious currency debasement.
All that being said, it is useful to monitor the CPI, not as a meaningful metric to gauge inflation, but as a metric to analyze the Fed’s actions and gaslighting.
Indicator #8: The Gold Price
Gold is mankind’s most enduring form of money—for over 5,000 years—because of its unique characteristics that made it best suited to store and exchange value.
Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities.
In other words, gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to debasement.
Gold is indestructible, and its stockpiles have built up over thousands of years. That’s a big reason why the growth of new gold supply—typically 1-2% per year—is insignificant.
In other words, nobody can arbitrarily inflate the supply.
That makes gold an excellent store of value and gives the yellow metal its superior monetary properties.
People in every country of the world value gold. Its worth doesn’t depend on any government or any counterparty at all. Gold has always been an inherently international and politically neutral asset. This is why different civilizations around the world have used gold as money for millennia.
From a historical point of view, using fiat currency as money is a relatively new concept. As it fades, I expect people will rediscover the world’s premier money: gold.
This trend is already well underway.
I expect the price of gold, which is already hitting record highs, to soar as this all plays out.
These eight indicators all point in the same direction: more debt, more money printing, and more damage to the dollar’s purchasing power.
To see what this could mean for your financial future—and the three practical moves you can make now—I recommend reading a free special report I just published before the next stage of the crisis unfolds. Click here to get the free report now.
