Wednesday, October 10, 2018

Borrowing

Its not talked about much by fiscally conservative republicans, but thanks to the tax cuts and rise in interest rates we are headed towards record deficit levels for a non recession year.

The deficits and national debt are sort of like climate change and many other problems, in that they get harder and harder to fix over time.

In general under the approach adopted by this administration, the cuts and other policies are going to stir so much growth that the revenues from the reduced tax rates will actually exceed the prior revenues.

This is not happening at this time and the Congressional Budget Office or pretty much any other economist is not projecting it to happen.

Instead the deficits are projected to grow consistently over time.

One of the problems with them is that the more we owe the more we pay in interest on them.

Clearly most Americans would probably object to paying taxes to pay interest on prior debts.

However, we are.

Also, as interest rates rise, and the Fed is starting to tighten monetary policy, the cost will go up further increasing the deficit.

The latest projection for the interest was over $300 billion and its not decreasing.

Paying off the debt is not even being talked abut seriously and the only way to do it would be to run budget surpluses leading to decreased debt.

The cuts required to do that would have to include the biggest expenditures, and there is no clear intent to do that.  In fact we see big increases in defense spending and changes in social security due to demographics.

The ultimate consequences of deficits like this will at some point mean fiscal austerity as programs are cut and spending is controlled, or alternately rampant inflation.

We are living on borrowed money and borrowed time.

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