Now that the budget bill has passed Congress, we can see clear projections for how it will impact deficits, government debt, and debt service expenses.

In brief, the bill is expected to lead to spending of about $7 trillion a year with inflows of about $5 trillion a year. So the national debt, which is now about 6x of the money taken in, 100% of GDP, and about $230,000 per American family, will rise over ten years to about 7.5x the money taken in, 130% of GDP, and $425,000 per family. That will increase interest and principal payments on the debt from about $10 trillion ($1 trillion in interest, $9 trillion in principal) to about $18 trillion (of which $2 trillion is interest payments). This will lead to either a big squeezing out (and cutting off) of spending and/or unimaginable tax increases or a lot of printing and devaluing of money and pushing interest rates to unattractively low levels.

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This printing and devaluing is not good for those holding bonds as a storehold of wealth, and what’s bad for bonds and U.S. credit markets is bad for everyone because the U.S. Treasury markets are the backbone of all capital markets—which are the backbones of our economic and social conditions. Unless this path is soon rectified to bring the budget deficit from roughly 7% of GDP to about 3% by making adjustments to spending, taxes, and interest rates, big, painful disruptions will likely occur.

To explain why I believe this, I should describe where I’m coming from. Over my 50 years of experience as a global macro investor, I have developed and written down principles to help me anticipate events so that I can successfully bet on them. These principles are based on an understanding of the mechanics that drive changes in economies and markets. The most important principles for understanding big deficits and government debts like the ones the U.S. (and many other developed nations) are experiencing today are:

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In summary, when there is too much debt, interest and currency rates tend to be driven down. Is that good or bad for economic conditions? The answer: It’s both. It depends on one’s position.

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Lowering real interest........

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