Monday, December 8, 2014

Only Yesterday - David Stockman Explains How We Got Here

In the great fiscal scheme of things, October 22, 1981 seems like only yesterday. That’s the day the US public debt crossed the $1 trillion mark for the first time. It had taken the nation 74,984 days to get there (205 years). What prompts this reflection is that just a few days ago the national debt breached the $18 trillion mark; and the last trillion was added in hardly 365 days. 

Two thing are therefore evident. The first is that massive monetization of the public debt cannot go on much longer or the monetary system will be destroyed. That’s what being stuck on the so-called zero-bound really means. And that’s why the lunatic money printing in Japan is a sign that the end of the monetization era is at hand.

In the case of Japan, the largest debtor government in the world has already destroyed its own bond market—-the BOJ is the only bid left at 0.4% on the 10-year JGB. And the BOJ is now fast deep-sixing the yen, as well.

Secondly, the US nominal GDP has been growing at less than 4% annually for the last decade, and, in a deflationary world, it has no chance of breaking away from that constraint. Accordingly, the ridiculously optimistic rosy scenario currently projected by CBO does not have a snowball’s chance of materializing over the next decade. Rather than $8 trillion of cumulative baseline deficits over the next ten years as projected by CBO, the current policy stalemate in Washington—that has been running for 30 years now— will generate at least $15 trillion of new public debt in the decade ahead.

Yes, add that to the nation’s current mountain of public debt and you get to $33 trillion by 2024 or so. And then also recognize that the giant financial bubble and vast malinvestments generated by the worlds central banks over the last two decades now guarantee a long spell of global deflation.

Accordingly, US nominal GDP will be lucky to reach $24 trillion by that same year. The math computes out to a public debt equal to 140% of GDP. For all practical purposes, it means an endless fiscal crisis lurks in the nation’s future.

That’s the real end game of a lamentable path of unprecedented fiscal profligacy embarked upon 33 years ago today.

http://davidstockmanscontracorner.com/only-yesterday-how-the-federal-debt-went-from-1-trillion-to-18-trillion-in-33-years/

And at the rate we're going, considering the ineptitute of both Congress and President, this is going to have a tragic ending.

No comments:

Post a Comment