Four mutually reinforcing systemic risks are clearly visible on the horizon. Unless we focus on them soon, we may end up in a financial crisis. Yet discussions of them are rare. I’m reminded of Nat King Cole’s 1953 hit, “Pretend.”
Government debt soon will be substantially higher than GDP. The debt-to-GDP ratio will continue to rise beyond that dangerous level, and within a few years (certainly less than a decade) the Treasury will have to resort to selling debt to the Fed, which will print money to buy it. By my calculations, the resulting steady-state rate of inflation will be at least 10%, even if we do what countries do when spending gets out of control – cripple our banking system with a “reserve tax” that imposes a high reserve requirement against deposits and zero interest payments on reserves.
Read Full Article »
