The Weekend Edition is pulled from the daily Stansberry Digest.

The U.S. Debt Disaster Is Worse Than You Think

By Corey McLaughlin

Today, I could have gone into all the details about the April consumer price index ("CPI") report...

The latest numbers came out Wednesday morning. But this tweet from Bitcoin Magazine covers nearly everything I would have told you...

The pace of headline inflation (4.9% year over year, as represented by comedian Kevin Hart as CPI) continues to slow from last summer's high. But many prices in narrower but important "real" sectors – like food, energy, and transportation (which includes new and used vehicle prices, airline fares, and so on) – still rose faster (see former NBA star Shaquille O'Neal).

There are many ways to measure inflation. Even our Stansberry Research editors debate the best ways to do it. But for now, it's worth noting that the inflation picture may be worse than it seems.

And that's not the only problem that could be worse than you think...

One investor is warning about the debt ceiling...

He has made several prescient calls over the past several years, like how the Federal Reserve was fueling inflation for way too long... But we haven't talked about Stanley Druckenmiller in a while.

Druckenmiller made his name as a hedge-fund manager for 30 years, closed his fund in 2010 with $12 billion in assets under management, and allegedly has never had a down year investing in the markets (a claim I believe).

He also famously made more than $1 billion in profits in 1992 (back when $1 billion meant something) and "broke the Bank of England" with a $10 billion short bet against the British pound sterling.

Last week, Druckenmiller gave a keynote speech at the University of Southern California business school.

This priceless presentation touched on demographic trends like the aging of Baby Boomers, entitlements, and the debt-ceiling "debate" – which, as he later told a Bloomberg reporter, overshadows another part of the trillions-of-dollars equation...

I'm talking about the spending problem...

Druckenmiller said he hopes the U.S. government doesn't go into default next month, but it's not his top concern...

Honestly, all this focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there's a 200-foot tsunami just 10 miles out.

As he said in the speech...

The fiscal recklessness of the last decade has been like watching a horror movie unfold.

Among other things, Druckenmiller outlined and detailed why he believes that without government spending cuts today, programs such as Social Security, Medicare, and Medicaid will have to be totally slashed in the future.

The first part of the trouble is that the U.S. national debt stands near the famous $32 trillion level without factoring in these programs...

This is what really annoys me, how no one talks about it... Do you know that the $32 trillion assumes the federal government will never make another Social Security or Medicare payment? Only government accounting could think that the government is never going to make another payment, not one. Not to me... not to you guys when you get older.

If you actually account for those (big) government programs, Druckenmiller said credible estimates put the value of that debt at $200 trillion. And that's not all...

The U.S. government's handling of its debt has gotten exponentially worse over the past decade. Uncle Sam is running larger $1 trillion-plus deficits annually... years after Druckenmiller already thought the "fiscal gap" situation was bad...

What makes the last 10 years particularly horrific is that we had some golden opportunities to reduce the fiscal gap ahead of the demographic storm that is underway. After World War I and II, the U.S. quickly repaid its debt by raising taxes and restricting spending.

Contrast that with today.

After the great financial crisis but pre-COVID, when the economy boomed in 2018 and the unemployment rate hit a 50‐year low, and even under a Republican administration, the deficit could not go lower than 5% of [gross domestic product ("GDP")].

And then, post-COVID, we had a booming economy where tax revenues were augmented by high inflation, nominal growth of over 10%, a windfall of taxes from capital gains due to the tech boom [$600 billion above average], all with 3.5% unemployment. You may reasonably ask, how much bigger was the surplus relative to that during the tech boom in the late '90s? Incredibly... we ran a deficit of over $1 trillion.

Never in history has a booming economy produced a worse fiscal result. Never. Expect this trend to continue absent radical policy changes.

The arithmetic for your "entitlements" just doesn't work.

Based on Druckenmiller's analysis, keeping the current size of entitlements would require federal taxes to total 7.7% of U.S. GDP. That's the equivalent of a 40% increase in taxes versus a decade ago... or a permanent 35% cut in federal spending...

These are dreadful alternatives and still they are probably being underestimated. Faced by this magnitude of tax increases, investment would inevitably falter and growth would suffer considerably, making it almost impossible to maintain the size of our current safety nets.

In other words, either alternative would have dramatic consequences on the U.S. economy. And yet... so will the status quo.

There's no video of the talk, but there is an audio recording available for free here and a transcript with charts here. I think you'll find that securing your own financial future, and not relying on the government for anything, never sounded more important.

Finally, don't forget Joel Litman's talk, either...

This week, Joel – founder of our corporate affiliate Altimetry – went on camera to share details on the next crisis, which he says will arrive sooner than you think.

It's not one of the ones we discussed today... or anything you're likely expecting. It has nothing to do with the debt ceiling, inflation, or the recent bank crisis – at least, not directly.

But it's big. What Joel spoke about will be 20 times larger than the Silicon Valley Bank collapse... and it could send some stocks crashing by as much as 90% in just a few weeks.

If you're not familiar with Joel, he's a world-renowned finance professor and accountant who has made several popular appearances at our annual Stansberry Research conferences.

Over the years, Joel has developed a form of "forensic analysis" that neither Wall Street firms nor the U.S. government has been able to duplicate. Often, they call on Joel to expose what they can't see. The FBI once hired him to develop a way to see which CEOs mean what they say during their earnings calls... and which ones are lying.

In short, it's worth listening to what he has to say...

Joel revealed the details of the next crisis he has been preparing for. He explained why big banks and hedge funds have been doing the same... why Wall Street doesn't want you to know what's coming... and why it's not too late to get ready for this major market event.

Most important, he covered one simple strategy that could potentially double your money, every three months... while helping you avoid big losses as this change hits the markets.

If you missed Joel's talk, make sure you watch the recording here. I'm certain you'll learn something.

Good investing,

Corey McLaughlin

Editor's note: We also learned that within the first five minutes of Joel's presentation, viewers will get the exact date that this Wall Street event will send shock waves through more than $10 trillion of assets and half the U.S. stock market. And it's within the next 45 days... So, to make sure you don't miss the details – check out his discussion right here.

Tell us what you think of this content

We value our subscribers' feedback. To help us improve your experience, we'd like to ask you a couple brief questions.