In the ATOM, I have written at length about why, barring a substantial increase in the size and directness of worldwide central bank money creation, we are going to enter a major financial crisis as soon as 2017. Among the list of factors contributing to this impending crisis, one that the public seems to be in denial of is the perilous state of the federal budget balance.
The budget deficit governs the rate at which the national debt rises. The interest on the debt is a component of federal expenditure and contributes to the deficit which gets added to the debt which generates more interest. None of that is new, but what is new is how a -3% deficit exists even this late into the economic expansion, and after millions of jobs have been created. This deficit looks good when compared to what it was during the depths of 2009, but that is not the correct apples-to-apples comparison, as we see in the chart.
This is not a problem yet, but almost no one realizes that the buffer that the US has long enjoyed is now gone, and that if a shock were to arise, then it will hence be that much more severe. The trend is towards a very ominous explosion in the deficit when the next recession hits. Even worse, the traditional method of QE will not work this time. A more direct form of QE is the only solution.
Related ATOM Chapters :