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Central banks and a global soft default: Current interest payments on public debt now exceed $415 billion per year. In 2000 $1 trillion in Fed debt was held by foreigners while today it is up to $6 trillion.

mybudget360.com / by mybudget360 / June 4, 2014

Global central banks are fully addicted to the opiate of debt. The financial system has created a rentier class that chases investment yield even when the economy isn’t necessarily growing. Think about that for a second. Why should someone expect a guaranteed return at any point in an economic cycle if the real economy is actually contracting? The U.S. for example while trying to play the role of responsible manager of debt is going full throttle when it comes to debt issuance. We have a spending, revenue, and financial system problem in the way incentives are structured. For example, all talk of the Fed tapering is really just hollow rhetoric. The Fed now has a balance sheet well into the $4 trillion range (or twice the size of California’s annual GDP). There is no sign of pulling back. U.S. debt to the penny is now at $17.5 trillion and growing as we spend more than we take in. People do realize that this principal is never going to be paid back right? This is why inflation is occurring in many areas of the economy even though the CPI understates inflation in many categories including housing, tuition, and healthcare. Global central banks are fully aware that most countries are already in a soft default. In other words, the trajectory ahead is to inflate our way out of this debt mess.

A soft default by any other name

The U.S. outside of a couple of years, has spent more than it takes in for well over a generation year over year. We continue to spend money we don’t have courtesy of foreign investors and our Fed that continues down the QE road. Yet these actions have consequences. You have global funds coming back home to roost for the elixir of cheap goods. The result? For most people we are now importing low wage capitalism. In many metro areas local families are now competing against big real estate investors and in some cases foreign investors merely to purchase a home to live in. There is always a cost to borrowing cheaply.

Total public debt outstanding is now well over $17.5 trillion, a figure higher than our annual GDP. Take a look at the total debt owed:

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