Quote:
Originally Posted by 1blackman1
The sky isn’t falling and The US isn’t bankrupt. We’ve heard that argument for nearly 250 years. Never happens.
Inflation. Hmm. I’t doesn’t effect me so I suppose it’s not a big enough deal yet. Also a lot of the inflation is related to supply issues rather than actual inflationary changes.
|
Up until Obama's presidency, the peak post WWII net debt to GDP ratio was 48%. Obama and Trump and Congress took that up to 80% pre-Covid. Now it's about 100%, and Biden's budget has it going up to 117%, even assuming he gets his tax increases. When you go over 100% you used to be considered to be in dangerous territory. Think Greece. Not necessarily now though because interest rates are low.
But what's going to happen when interest rates have to go up to control inflation? Say they go to 6%. That's roughly $1.2 trillion a year that has to be paid on the net national debt. Well, the individual income tax only collects $1.5 trillion a year. So what do we do? Raise taxes by 2/3rds to pay the interest on the debt? Probably not, we just let the problem snowball, but that's an indication of the magnitude of the problem.
Larry Summers, perhaps the preeminent Democratic Party economist of our lifetimes, thinks one of three things will happen as a result of the inflation that's likely to come from the huge deficit spending, and he assigns about a 1/3rd probability to each,
1. The Fed lets inflation get and stay out of control, so we end up with stagflation, like around 1980.
2. The Fed overreacts by raising interest rates too high for too long and sends us into a a deep recession.
3. We escape "1" and "2" but end up with a low growth economy.
None of this sounds good.
