Tuesday, October 2, 2018

U.S. Deficit Could Make Next Financial Crisis Even Worse

From Gary Halbert's Weekly Newsletter. Sign up for free at http://forecastsandtrends.com/subscribe.php

Trillion-dollar deficits are coming back to Washington, and this time they could be here to stay. The White House Office of 

Management and Budget (OMB) projects that the federal budget deficit will top $1 trillion in FY2019 which began yesterday, up from $666 billion for FY2018.

Unlike the trillion dollar budget deficits that occurred during the Obama administration that were temporary and largely the result of the Great Recession, the Trump deficits are projected to exceed $1 trillion permanently. The Congressional Budget Office (CBO) projects the deficit to hit $1.5 trillion by 2028, and that is probably optimistic.

Thanks to the anticipated rise in interest rates coupled with growing debt, the CBO now projects that annual interest costs alone will hit $915 billion by 2028. “That's roughly triple what they are this year in nominal terms and roughly double when measured as a percentage of GDP," the CBO said.

The Trump deficits are the result of changes in federal spending and revenue that will continue to be in place until some future president and Congress decide to reverse them – that is, to increase taxes and/or cut spending on popular programs.

Not only has there been little appetite to do that, many in Congress and the Trump administration seem to be hell-bent on ignoring the deficit and national debt and increasing spending and reducing revenue (more tax cuts) even further.

In conclusion, our national debt, including “debt held by the public” and “intergovernmental debt,” now totals $21.51 trillion (the chart below is a little dated). With annual budget deficits of $1 trillion or more, the national debt is on-track to balloon to $30-35 trillion over the next decade.



For the record, I don’t believe that will happen. At some point, investors will decide that it’s just too risky to own US Treasuries, and we’ll face another financial crisis that could be much worse than 2008-2009.

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