This post Rising Economic Head Winds appeared first on Daily Reckoning.
Remember the “tea party” revolt in 2009–2010 against government bailouts and government spending?
Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown?
Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending?
Well, congratulations if you do, because everyone else seems to have forgotten.
The days of caring about debt and deficits are over. In just the past two months, Republicans passed the Trump tax cuts that will increase the deficit by $1.5 trillion on a conservative estimate, and probably much more.
Then Republicans and Democrats “compromised” on eliminating caps on defense spending and domestic spending by agreeing to more of both. That repeal of the so-called “sequester” will add over $300 billion to the deficit over the next two years.
Then there’s a tsunami of student loan debts in default that the Treasury has guaranteed and will have to pay off. Finally, the higher interest rates from this debt will add $210 billion to the annual deficit for every 1% increase in average federal debt funding costs.
Today we are looking at $1 trillion-plus deficits as far as the eye can see.
That’s extraordinary enough. What is more extraordinary is that no one cares! Democrats, Republicans, the White House and everyday Americans are all united in totally ignoring the fact that America is going broke.
This euphoric mood in response to more spending won’t last. The growth is not there to pay for the tax cuts, and the economy is not even growing fast enough to keep up with the growth in the debt.
Credit rating agencies are preparing reviews that will likely lead to a downgrade in the U.S. credit rating and higher interest costs for the Treasury. When the crisis of confidence in the dollar and related inflation arrive, there will be no particular party to blame.
The entire system is turning a blind eye to debt, and the entire system will have to bear some part of the blame.
Meanwhile, the Fed is on track for four rate hikes this year.
On top of this, the Fed is creating financial and economic headwinds by reducing the money supply through its new program of quantitative tightening, or QT. You shouldn’t expect any dramatic change under new Fed Chairman, Jerome Powell, who indicated this week he believes the economy is strong. Many observers interpreted his comments to mean he could raise rates four times this year.
Many mainstream analysts think inflation is becoming a concern. But the Fed’s main inflation indicator, the core personal consumption expenditure (PCE) year-over-year, was 1.5% in January and 1.5% in December. Not much change.
Some analysts are looking at the quarter-over-quarter change, which is a bit hotter, but not much. None of this data is near the Fed’s goal of 2% PCE core inflation. As a reminder, core inflation excludes items subject to greater short-term swings, like food and energy.
The non-core data …read more
Source:: Daily Reckoning feed
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