CBS News published an article today stating the obvious. I found the following statement to be most interesting:
“Still, the fastest growing sector of spending won’t be entitlement programs, according to the report: it will be the interest the government has to pay on its debt. The CBO flagged two explanations for that: “The first and more important is that interest rates are expected to rise from their current low levels, making any given amount of debt more costly to finance. The second reason is the projected increase in deficits: The larger they are, the more the government will need to borrow.”
The current budget deficit has doubled over the last eight years, yet the article goes on to state that it will take the next 30 years for it to double again. I doubt it. The combination of an aging population bubble and the retirement funding requirements, a slowing economy and unrealistic stock valuations will provide the components for a “perfect economic storm” over the next several years. That will force the hand of the politicians and the Federal Reserve to create more liquidity. That is the final arrow in the quiver. Tinkering with interest rates will have no effect unless they decide to “experiment” with negative rates.
Overall, I see stagflation as the very best outcome we can expect based on the current conditions. We shall see.
Here is the link to the article in full: http://www.cbsnews.com/news/massive-debt-increase-forecast-by-congressional-budget-office/
Have a great weekend!