Thursday, November 15, 2018
Central banks enable debt because they think it will generate economic growth. Sometimes it does. The problem is they create debt with little regard for how it will be used. That's how we get artificial booms and subsequent busts. We are told not to worry about absolute debt levels so long as the economy is growing in line with them. That makes sense. A country with a larger GDP can carry more debt. But that is increasingly not what is happening.
This is classic addiction behavior. You have to keep raising the dose to get the same high.
But centuries of history show that every prior debt run-up eventually took its toll on the economy. There is always a Day of Reckoning.
The US economy is so huge and powerful that our current $24.5 trillion government debt (including state and local) could easily grow to $40 trillion before we meet that day. We are one recession away from having a $30 trillion U.S. government debt total.
It will happen seemingly overnight. And deficits will stay well above $1 trillion per year every year after that, not unlike now.
Even though a budget deficit is under $800 billion this year, we added over $1 trillion of actual debt. That is due to "off budget" items that Congress thinks shouldn't be part of the normal budgetary process
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