One-hundred percent GDP

It's hard to fathom these numbers, but the United States is approaching a new benchmark: we'll soon owe an amount equal to everything we make in a year. From Financial Times: "Exploding debt threatens America"

Under President Barack Obama's budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating," as the risk rating agency stated last week.

When bond ratings drop, it becomes more expensive to borrow money since creditors get worried about getting paid (see: General Motors.) Investors are already getting skittish because it looks like we're going to monetize our debt by driving up inflation. A lot.

The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar.

Megan McArdle weighs in:

Eventually the treasury has to roll that debt or pay it off, and if interest rates spike, that can prove catastrophic--just ask Argentina.

Well, Obama promised he wouldn't raise taxes on Americans making under a quarter-mil, but with those darn rich entrepreneurs squeezed along with greedy corporations, there are no jobs and (surprise!) tax revenues are way down. Any other tricks we can try to pay for everything? Enter the value-added tax trial balloon, which will dramatically drive up the cost of buying anything.

To recap: we have pending high inflation + a national sales tax gumming up the cogs of commerce, the rich are hiding their money in the Cayman Islands instead of investing in demonized business, and government borrowing is getting more expensive as interest rates climb. And all this is occurring on the cusp of the entitlement bomb. None dare call it "stagflation" or make comparisons to Jimmy Carter...yet.

Related – Certain states have high tax rates, but they're broke! Wha happened?