We have been piling debt on top of debt on top of entitlements. We know we are in a danger zone from looking at past economies, but we don't know exactly which thing will cause the avalanche or when it will occur.

Let's think about that unstable equilibrium the economy is in for a minute.

Analogies between personal finances and governmental finances are tricky, but can be instructive.

Let's say you take home $150,000 per year.

A stable equilibrium would occur when you spend less than or equal to $150,000 per year. If you spend exactly $150,000 per year, all of the systems around you adjust to your spending. You buy a house and a car consistent with that level of income. You take vacations and buy clothes consistent with that level of income. You dine out and go to movies consistent with that income. 

It is important to see the connections. If you and everyone else are in equilibrium, then the car manufacturers, the clothes manufacturers, the grocers, etc., are also in equilibrium.

Let's say that for some reason or another, you are not happy with your lifestyle. You want more. Fortunately, you can go into debt, and borrow $18,000. You buy a new car, maybe take a trip to Europe, buy some $500 shoes. It's all really nice. It's so much fun, you don't want to give it up. The next year you borrow another $18,000, maybe $1,000 of which goes to pay interest, but you borrow to pay that and can continue your spree. You buy a new house, you go to a steak house once a month. Life is good.

But look what is happening. You have left your stable equilibrium, but you are taking everyone else with you. The car dealership is making more money, as is the steak house and as are the airlines. If your friends catch on and decide they want in on the fun, you and they take the economy to ever-higher levels of prosperity, and everyone is in on it. The debt is growing higher and higher, but no one is asking for repayment of principal. You have to handle an ever-increasing interest bill, but that is a small price to pay for being able to live such a grand life. Who knew that a guy making $50,000 per year could drive a Porsche, vacation in France and dine out on steak once a month?

Notice that the owner of the steak restaurant is making more money and can begin a spending spree of his own.

The price of houses goes up, and you got a raise, since inflation is picking up, so you feel increasingly wealthy.

But, after 5 years, your debt is $100,000, and you are paying $9,000 per year in interest. Banks are starting to wonder whether they should continue to extend you credit. The snow just keeps accumulating on the mountain.

That is where we are as a country. We have experienced tremendous prosperity, but much of it is artificial and has been fueled by debt. Our debt now far exceeds our net worth, much less our income.

This is all artificial. We are living in an unstable equilibrium. Attaining a stable equilibrium would require taking everyone back to the beginning - to driving a Chevy instead of a Porsche, to hamburger instead of steak and to Six Flags instead of France. The owner of the steak house has to go back to serving 5 tables a night instead of 20. Everything else is the equivalent of an illusion.

That's where we are.

But, it's worse.

Maybe we can all just tighten our belts, as unpleasant as that would be, and get things on the right path.

Only, there is all of that debt out there that needs to be serviced; all of that interest that needs to be paid.

There is no way to generate sufficient income, perhaps to even pay the interest, much less service the debt.

We have gone past unstable to unviable.

What really has to be done is to blow the whole thing up and start over. However, the suffering and pain would be immense.

The path we have chosen is one by which we move from Porsches to Chevys and reduce the debt through inflation.

This is not about Biden or Trump or eggs. It is about having lost all discipline and all contact with reality.

It is about chickens coming home to roost.

It is about watching the critical snowflake hit the mountain.

(This thought process was a foundation to my thoughts in the 90s that have led us to these posts. Once you posit an unstable equilibrium, you start thinking about how people will react to having their lives come apart. And then, here we are.)

Trump, Bressent and Musk look like they understand the problem and are trying to solve what I have posited is an unsolvable problem - we've simply taken the problem too far. They are going about it in some ham-fisted ways, but, they do seem to be trying.

This is the Good Trump. From a podcast with Bessent: "We are trying to bring down this massive federal debt, cut the spending, but in a controlled way because you can't do it all at once. I don't like to repeat private conversations with the president, but I'll repeat this one. I think it's, it really illustrates where his head was at first time. I went into see him, saw him at Largo and walk in the door. He said, Scott, how are we going to get these debt and deficits down without causing a recession?"

The problem is that every dollar that is necessarily cut affects multiple people who have come to depend on the elevated, artificial prosperity from the unstable equilibrium. We can treat diseases, buy thing, help people in ways that are all artificial, all unsustainable, all have to go.

One way to think about this is to imagine that 1966 was, for purposes of this discussion, a stable equilibrium. Imagine that we maintained that with only sustainable growth. Let's say that in 2025 we should be at somewhere around, oh, 1984 and that the rest was all an illusion - all artificial prosperity. As a complete overstatement, then, everything since 1984, everything, has to go, because it depends on everything else that was created by debt since 1984. The world we have today should not exist.

That's where we are.

It's gonna be one hell of a ride.