The Mountain of Debt Gets Even Bigger
Article from For Liberty by Norm Leahy.
While Congress is squabbling over a fourth round of fiscal stimulus, elsewhere, there’s a growing concern that propping up the economy in the near term is going to have long term consequences.
The reason: the growing mountain of debt — government, corporate, and personal.
Even before the coronavirus broadsided the U.S. economy, the federal government was running record budget deficits – in what were then good economic times:
The federal government budget deficit is on track to reach a record $3.6 trillion in the fiscal year ending Sept. 30, and $2.4 trillion the year after that, according to Goldman Sachs estimates. Businesses are drawing down bank credit lines and tapping bond markets. Preliminary signs are emerging that some households are turning to credit for funds, too.
The debt surge is set to shape how governments and the private sector function long after the virus is tamed. Among other things, it could be a weight on the expansion that follows.
Many economists believe low interest rates will help the nation manage the soaring debt load. At the same time, they say high levels of private sector debt could lead to a period of thrift, slowing the recovery if businesses and individuals try to rebuild their savings by holding back on investment and spending.
No one knows precisely when the Americans will go back to work, or how long it will take for economic activity to approach pre-virus levels.
What we do know is the IOUs written to pay for the current shutdown will be added to the already staggeringly large pile of debt.
It will all have to be repaid. The conventional wisdom holds that with interest rates at or near zero, official inflation measures declining, and the Federal Reserve buying unlimited quantities of bonds of all sorts and grades, Congress and others can add all the debt they need with little consequence.
In other words, if the government continues to give the patient sedatives, the pain will never come.
But should it reduce the dose, even a bit, the patient’s screams may be deafening?