News. Under Obama's budget plan, the USA's debt in 2020 would be nearly the size of the entire economy then. Interest costs would be $900 billion, five times today's level.
When the Bowles-Simpson commission sits down to business April 27, the choices it will face are grim, according to the Congressional Budget Office.
My view. We cannot have a government that gives us everything we like and need -- house protection, borrowing assistance, education, student loans, social security, medicare, medicaid, unemployment benefits, green energy, protect our interests around the world,....
All these great programs we like and we want cost money. We realize we went too far when we start talking about deficits.
In other words, when we ask ourselves where the money is going to come from. Idea -- we can print it (borrowing it from investors).
The immediate impact is a relentless increase in asset prices. This is really great. It makes you feel good. At some point, however, we have to pay the interest on the money we borrowed, which has become a nice piece of change.
This is the time when the politicians start talking about raising taxes. A higher tax bill takes money from our pockets and gives it to the government and eventually goes in the hands of the bond holders.
Now we realize our purchasing power has decreased. For instance -- we have to buy a smaller car or a smaller house.
The issue is the politicians do not explain the choices we have to make and what the cost of these choices really means.
One solution is to make the economy grow faster to generate the wealth needed to pay the bond holders. The question now is: are there the incentives for people to make the economy grow rapidly?
The answer, using the experience of the European countries, is no.
George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest
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