In case you missed it: "U.S. deficit tops half a trillion dollars in the first quarter of fiscal year."
Reason: "The Fiscal Hawks Were Right About Debt and Interest Rates - Rosy fiscal expectations based on eternally low interest rates have proven dangerously wrong."
That brings us back to where we started. For decades, Washington has spent money it didn't have on entitlement programs that benefit the relatively old and rich. They have picked up the pace of spending in recent years, encouraged by economists and pundits who claimed that interest rates would always stay low and that the insatiable appetite for U.S. government debt would not end anytime soon.You don't have to be ideologically committed to a smaller government to understand that this was a risky bet. Rates are up, and people aren't as eager to buy U.S. debt at the current price, especially since there is much more to come. So we're probably in for more rate hikes and higher interest payments, and we may get more inflation. I don't know where that will end, but I do know that all this was utterly predictable—and that the blame rests not just on lawmakers' failure to tend to the country's fiscal health, but on those who made up dubious economic theories to facilitate their fiscal delinquency.
The siren song of cheap money was too alluring for Washington, where the easiest course of action is to pass the buck to the next generation. But now that debt over 100% GDP is going to press down on growth (see: Japan) and the U.S. has to pump interest rates to sell bonds, devaluing the dollar through inflation is really the only tool left.
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Neuburger Berman's senior portfolio manager Steven Eisman was asked a question about this the other day on television:
HOST: "Is there a scenario where there's a debt concern, debt problem, sometime in 2024? Some kind of credit crisis that you're looking at?"
EISMAN: “A hundred percent no. No. You know, in our business, we like to say being too early is the equivalent of being wrong. And there've been plenty of times in my career when I've been too early. But I'm not forty years too early.
And the people who have been making this argument about U.S. debt have literally been making it for the last 30 to 40 years. And they’re still making it. And they're telling you to buy Bitcoin because of it.
And my attitude is when you’re 40 years too early, have a little frickin' humility. And keep your mouth shut.
There's absolutely no evidence whatsoever that the dollar is going to lose its reserve currency status. People still want to by U.S. debt. They're not replacing it with Chinese debt.”
(He said "frickin'.")
"Inflation forever"
Some economic stats:
The current average price of gasoline is lower than in 70% of the months between January 2004 and December 2023.
Inflation has dropped from 9.1% to 3.4% over the last 12 months, and is no longer outweighing Americans’ wages.
America has the strongest performing economy in the developed world today. And one of the lowest inflation rates.
The highest inflationary city in the United States is in Dallas/Fort Worth, Texas. #2 is Miami/Fort Lauderdale.
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