In a new research piece, Goldman Sachs has noted that the “fiscal outlook for both Italy and the United States looks poised to go from bad to worse.” However, the market doesn’t appear to be responding to that prediction. Why not?
Goldman’s Allison Nathan turned to two outside experts, Harvard economist Carmen Reinhart and Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in order to help gauge the importance of the government’s debt on the economy. A higher debt is a sign of a weak economy and lower economic growth rates over the long-term.
“This is in part because high debt levels constrain governments’ ability to respond to adverse shocks,” said Reinhart. “So even in a country like the US, where I don’t expect a crisis, history suggests there are reasons to be concerned. The most desirable way to reduce debt is through growth, and countries should take advantage of periods of relatively stronger growth to reduce debt. This, of course, is the opposite of the current approach in the US.” And it has been for quite some time.
MacGuineas added that she thinks that there probably isn’t much to worry about, but that could change anytime. “As bad as the fiscal situation is, I don’t think a crisis is likely anytime soon. The US has the benefit of being a safe haven; we seem capable of being at the very heart of a global crisis and still attracting demand for US Treasuries. … And, so far, markets have been able to show remarkable optimism in the face of a very pessimistic fiscal situation because many other factors in the economy and in corporate America have been favorable. But fiscal health is one of the foundations of the economy. And when you are built on such an unsustainable foundation, should market sentiment tip in a negative direction for any number of reasons, the response is likely to be more severe than if we had a healthy balance sheet. Again, we just don’t have the fiscal flexibility to address a major shock. So I believe we are on thin ice that can crack at any time. … The twisted silver lining here is that hurtling ourselves toward rock bottom, as we are today, may force action sooner than would otherwise be the case. And the likely return of a trillion-dollar deficit next year may be the wakeup call that we need.”
But many others believe that not just the government’s debt crisis, but the global debt crisis could cause a major economic meltdown that we will have a difficult time recovering from.
We have been adding more than a trillion dollars to the national debt per year since 2008, and we continue to steal more than 100 million dollars every single hour of every single day from future generations of Americans.
And even though the Republicans have been in control in Washington, very few of our leaders seem to want to alter the trajectory that we are on. But if something is not done, absolute disaster is a certainty. At this point, it is being projected that our debt will reach 30 trillion dollars by 2028 if we stay on this current path. It would be difficult to overstate the grave danger that we are facing, but nothing is being done to turn things around. -SHTFPlan
The only thing one can do is shield themselves from the debt problem. Make every attempt to pay off any debts you can and avoid going into debt any further. It’s a hole that’s difficult for an individual to climb out of, but it’s now become impossible for the government. The debt bubble will eventually burst as all bubbles do, and how you make preparations will determine to what extent you’ll be financially ruined when it does.
Housing collapse is already happening. My old house in Tampa that I sold 3.5 yrs ago, just dropped 7% in value in 1 month. According to Zillow, because I still get the monthly updates on values. Its gonna crash hard. Anybody still wanting to escape the Cities, better get your house on the market today. Snooze ya loose. Cause you will get another 30 to 50% haircut on property values coming up shortly. That’s a lot of wealth evaporating. Its the Bubble popping. Look out below.
New residential construction cost is Charleston Sc have gone through the roof. High end home builds have slowed considerably. Resale houses holding their own but inventory is low.
The builders I speak to say the trade workers are demanding higher fees, are hard to find and some don’t show up at all. Lumber has gone up 75% since this time last year (thanks to tariffs).
WHERE are you pricing lumber LowCountry?? Lumber is DOWN 45% over the past year https://www.stockcharts.com/h-sc/ui?s=$LUMBER and while construction cost might be up – it is not from lumber being up 75% as you falsely claim!!
I sure as hell hope that happens soon here in the Denver area!!!
It is my belief that we are close to SHTF because:
1. The US and Russia(plus several other nations each with vital interests; e.g. Iran, Turkey, Saudi Arabia and Israel) are in close proximity to each other’s military forces. The underlying gas pipeline issue is NOT resolvable outside of using force. Russia has indicated that it will go to war over their oil/gas interests.
2. Trade Wars and Tariffs. We know all wars are economic, consequently, these two issues are the kind of things World Wars are fought over.
Off Topic: Are you like me? Does a large part of your food preps consist of Rice and/or Potatoes? Are you looking for recipes for Spam and Canned Chicken?
Well I discovered two products that really help make those staple foods more palatable.
Bear Creek Country Kitchens Creamy Potato Soup Mix, 11.0 OZ
Bear Creek Country Kitchens Cheddar Broccoli Soup Mix 11.2 oz.
Only gov’t can create inflation, and they do so because it is in their interest to do it. There are at least a few reasons why gov’t loves low interest rates. One is that the fed. deficits and debt is so massive (actually unplayable) that to finance them with normal market dictated interest rates would be ruinous. To. currently finance the debt on an annual basis is over 400 billion dollars where the rates are just above 1 %. At a more historical and normal rate the gov’t would be in a profound crisis. Gov’t debt and liabilities are literally a 1000 pound mill stone double chained around our necks. The only real beneficiaries of low interests rates are the gov’t and the banks, the people are royally screwed; our investments and pension plans greatly suffer.
TPTB need to say inflation is low so that they can continue to lie to keep their policies in place. However, inflation has not really abated, prices continue to go up. The fed. Consumer Price Index (CPI) doesn’t even count the price of food and forms of energy when calculating inflation, so the published figures are totally bogus, they bear no semblance to reality. Cost of living adjustments (COLA) are calculated based on inflation and the CPI. Therefore, when the gov’t announces no or low inflation, then employers are not obligated to adjust wages or salaries to compensate, same for pensioners.
The decked is stacked against the people financially. Meanwhile, wealth concentration is greater than its ever been in American history. The citizens don’t matter, we have a blatant and grotesque two-tiered system of justice, we have a purposefully lousy public education system, if fed. taxes go down then local and state taxes and fees go up, most vets can’t get decent health care but politicians get taxpayer funded world class care. Now we have clown politicians saying the internet needs to be highly regulated, after all we can’t have alternate sources of news and information that gov’t cannot control. The examples are endless.
Money has been divorced from intrinsic value for almost 50 years, with increasingly larger and more frequent interventions which compromised stability. One plus one temporary has no longer equaled two and lucky are the believers who rode the post 2008 equity rise complements of the direct or indirect action of QE. Trickery is not a permanent replacement for substance as President Lincoln phrase about fooling humorously stated.
Bill,
My latest T-Bill is paying 2.8%. Well below inflation, but far better that the 0.5% the credit union pays on its CD’s.
The latest 10 year T-bonds are at nearly 3%.
We are already paying dearly for the government debt.
The Fed runs our banking system. The Treasury deals with our government debt and income.
Interest rates in one system is largely independent from the other. Treasury rates are set by auction, Banks rates are set by the Fed.
If one looks at the US economy in structure removing both official title of the bureaucracy agency and associated people, and studied it objectively, the conclusion would have to be that its not capitalism, but rather a planned economy incorporating both fascism and communism, in some bazaar hybrid mixture.
No question about it and while one question is how long can they keep it going by creating fiat currency? The other is what will the average human life conditions be while under thier rule as liberties and freedoms are being removed throughout the world on a daily basis? I suppose everyone is aware of the new draconian internet laws going into effect in Europe. How far are we behind them as we watch tyranny spreading in the United States with censorship here?