SLL WILL BE ON VACATION 10/27-10/30 AND WILL RESUME POSTING 10/31. HAPPY HALLOWEEN!
If interest rates rise, it will cause a punishing increase in the government’s debt service cost. From Tyler Durden at zerohedge.com:
In an op-ed posted by Paul Volcker and Peter Peterson in the NYT, the two financial titans start off by pointing out just how “strange” the current presidential campaign is in its historical context…
Together, the two of us have 179 years of life experience and 13 grandchildren. We have served presidents of both parties. We have seen more campaign seasons than we care to count — but none as strange as this one. Insults, invective and pandering have been poor substitutes for serious debate about the direction in which this country is going — or should be going. And a sound and sustainable fiscal structure is a key ingredient of any viable economic policy.
… but the main issue that troubles the two financial titans, is the lack of any practical discussion of the soaring US debt during the entire bizarre campaign – the one issue both agree is the biggest challenge facing the US economy today:
Yes, this country can handle the nearly $600 billion federal deficit estimated for 2016. But the deficit has grown sharply this year, and will keep the national debt at about 75 percent of the gross domestic product, a ratio not seen since 1950, after the budget ballooned during World War II. Long-term, that continued growth, driven by our tax and spending policies, will create the most significant fiscal challenge facing our country. The widely respected Congressional Budget Office has estimated that by midcentury our debt will rise to 140 percent of G.D.P., far above that in any previous era, even in times of war.
That staggering number has been ignored by most, and certainly the Obama administration, which has been glad to take credit for a sputtering “recovery” while ignore what caused it.
Unfortunately for Obama, just last week it was revealed that none other than the chair of the Democratic Party, Donna Brazile, was “peddling fiction” when the head of the DNC admitted to John Podesta that the “people are more in despair about how things are – yes new jobs but they are low wage jobs… HOUSING is a huge issue. Most people pay half of what they make to rent.”
While the reality of the recovery was set to emerge sooner or later, the US debt continues to grow, and as of Friday hit an all time high of 19,785,585,189,878.12, just $214 billion away from a nice, round $20 trillion, nearly doubling under President Obama, and worse: starting to accelerate again, despite the lack of any apparent economic crisis that demand a surge in debt issuance.
Back to the Volcker-Peterson lament, in which the two points out that “unfortunately, despite a brief discussion during the final presidential debate, neither candidate has put forward a convincing plan to restrain the growth of the national debt in the decades to come.
Throughout the campaign, Donald J. Trump has called for a combination of deep tax cuts that appear to far exceed proposed spending reductions, at the clear risk of substantially increasing the ratio of debt to G.D.P. Hillary Clinton has set out more balanced and detailed proposals, but they would still fail to stabilize and reduce our debt burden. Whoever wins, the new president will eventually face fiscal realities that force him or her to develop strategies for decreasing the national debt as a share of the economy over the long term.
To continue reading: Paul Volcker Explains Why The Fed Can’t Raise Rates